Financial Governance: What is it and why has it become essential?

In the modern business environment, financial governance has become the cornerstone for ensuring transparency and accountability, and achieving financial sustainability for companies and institutions. It is not limited to mere compliance with laws, but includes risk management, strategic decision-making, and building trust between investors and stakeholders.

First: Definition of Financial Governance

Financial governance is a set of rules, procedures, and policies aimed at organizing financial and administrative operations within the institution, ensuring that resources are used efficiently, financial goals are achieved, and compliance with laws and international accounting standards is guaranteed.

Financial governance focuses on three main axes:

1. Transparency: Providing accurate and reliable information about the company's financial status.

2. Accountability: Holding management and employees responsible for financial decisions and actions.

3. Control: Having effective mechanisms to monitor financial performance and prevent violations or misconduct.

Second: Objectives of Financial Governance

• Enhancing trust: Between management, shareholders, investors, and regulatory bodies.

• Improving decision-making: By providing accurate and reliable financial information.

• Reducing financial risks: Through oversight of cash and accounting operations.

• Supporting financial sustainability: Through sustainable and effective financial planning.

Third: Why has financial governance become essential?

1. Increasing financial complexity of companies

As companies expand and their operations spread locally and internationally, it has become essential to have a financial governance system that ensures coordination between departments and control over cash operations and complex financial transactions.

2. Enhancing transparency and credibility

Markets and investors today demand accurate and reliable information. Financial governance provides transparent financial data that supports investment decisions and builds stakeholder trust.

3. Reducing corruption and mismanagement

Internal controls and procedures defined within the governance system reduce the chances of misusing funds and ensure compliance with the company's financial policies.

4. Compliance with laws and international standards

Institutions are required to comply with international financial reporting standards (IFRS) and local tax laws, and financial governance helps achieve this compliance effectively.

5. Supporting strategic financial planning

Financial governance provides the information and analyses necessary to evaluate investment projects, manage risks, and prioritize funding and expenditures, achieving sustainable growth.

Fourth: Elements of effective financial governance

1. Internal Controls

   • Mechanisms to ensure the accuracy and integrity of financial data.

   • Regular review of financial processes and transactions.

2. Financial Transparency

   • Preparation of accurate and reliable financial reports.

   • Disclosure of financial results to investors and regulatory bodies.

3. Accountability & Governance Structure

   • Defining financial responsibilities for each management level.

   • Establishing independent financial and supervisory committees such as the audit committee.

4. Financial Risk Management

   • Identifying potential risks such as market fluctuations or inflation.

   • Developing plans to deal with financial crises and emergencies.

5. Audit & Compliance

   • Periodic review of financial statements and operations.

   • Ensuring compliance with accounting and legal policies and standards.

Fifth: Benefits of financial governance for companies