**2. Corporate governance origins**

framework for corporate governance, with a view to support economic efficiency, sustainable growth and financial stability. Since then, the principles have been adopted worldwide as an

Corporate governance has been defined as a set of mechanisms of incentives and monitoring in order to assure a good management in behalf of company and its shareholders and others stakeholders. It should build an environment of trust, transparency and accountability for investments. Nevertheless, despite the improvement on business environment, some events periodically show that these principles are overlooked by important companies or even

After big corporate scandals like Enron, WorldCom, Tyco, Parmalat, the quality of financial statements and the role of auditors and accountants were broadly questioned and turned to be the central point in corporate governance issue for some couple of years. As a matter of fact, corporate scandals open wide weaknesses on internal and external controls over companies, which should be detected by good practices of governance. Effective corporate governance

Sarbanes-Oxley Act of 2002 approved by American Congress was a response to these scandals as a temptation to restore investor confidence by ensuring compliance. Effectively, it ended with a century of self-regulation of the accounting profession in the USA [2, 3]. Section 404 of this law requires extensive documentation, tests and assessments of companies' internalcontrol procedures. Corporate Governance framework has shown to be ineffective to avoid or to preview financial misstatement. SOX was then supposed to allow detecting problems on

The SOX Act created the Public Company Accounting Oversight Board (PCAOB) with the mission to oversee the audits of public companies and related matters, even in foreign companies as they were listed on U.S. stock exchange market. It was given authority to inspect accounting firms work, conduct investigations and take disciplinary actions. After an initial constraint, European Commission (EC) rules started to incorporate part of Sarbanes-Oxley Act to remodel Corporate Governance standard within European Union. Self-regulation market approach was no longer efficient to assure corporate governance

PCAOB issued a standard that requires notation about any significant defects or noncompliance in audit testing work. Many others procedures were imposed to auditors to ensure the quality of their assessment of internal controls like increasing disclosure requirements, disci-

Improvements led up to a largely movement–but not smooth, to broad adoption of international standards on accounting (IFRS, IPSAS) and on auditing (ISA). Even on corporate governance, EC concluded that European Union should adopt a few common essential rules. We should also point out the collaboration between two important securities market regulators (SEC in USA and CESR–Committee of European Securities Regulators) in order to enhance dialogue and prior detect emerging risks and problems as potential regulation to avoid them.

international benchmarking for policy-makers and stakeholders.

24 Corporate Governance and Strategic Decision Making

should reduce the likelihood of creative accounting and frauds.

financial reporting processes and procedures before scandals.

plinary sanctions and effective independence.

simulated.

even in Europe.

Historically, accounting frameworks and concepts have been developed in order to support transactions necessity. When simple exchanges were predominant, inputs and outputs control were the main framework, registering what was being receiving in exchange. Under mercantilism capital system, the necessity of controlling the assets promoted the development of the main current accounting structure. Continuing the evolution, as industrial capital required management accounting frameworks to control production, financial capital promoted the separation of ownership from management and required a broader control over accounting information. Since then, capital market has been setting challenges to accounting and governance frameworks.

To reduce agency conflict [6], corporate governance issue emerged as a mechanism of monitoring and control for assuring that shareholder's interests would be pursued. Shareholders disposal financial resources to be invested with a purpose and managers have to disclosure accountability, assuring that resources have been used as expected. Despite this discussion in the literature, the term *corporate governance* strongly appeared as a reference only in 1990s [7, 8].

It is important to point out that financial information is the main report analyzed by shareholders and stakeholders to evaluate the level of accountability and governance. So problems related to the manipulation of this information are also present on governance and they occur on society since much earlier than the separation of ownership and control [9]. Practices to deceive someone else are similar. What bursts the effect of them is the fact that manager can do it without allowance of ownerships and many people can be affected, as operation scales of companies became larger and spread in a globalized world.

Creative accounting has been used for many purposes as to avoid taxation, to issue new shares, to distribute more dividends, etc. (e.g. [10]). Many authors studied the motivation for it (e.g. [11]), but it is not the focus here. In synthesis, creative accounting has been used to hide poor performance or failure, to boost the economic performance or to perpetrate a corporate fraud over investors [9].

When industrial revolution created companies big enough to require investment from diverse sources and could not be managed by their owners anymore, two main mechanisms were developed to mitigate the agency conflicts: the executives compensation plan and boards monitoring role. Compensation and bonus plans started to be developed as a rational way to pay managers for working in the best interest of owners. The outcomes-based incentives turned to be an important mechanism used by firms to align interests between agents and principles [12, 13].

When economy is in expansion phase, it is more difficult to pay attention to red flags. But financial crises play an important role to improvements on corporate control. The next sections were separated by main financial crises that promoted a worldwide injures and changes on governance.

It is worth to point out that although the same problems have been occurred in all parts of the world, many events commented here were placed in the United States, as its consequences affect a great number of people and markets and usually drive the main changes on legislation, enforcements and practices worldwide.
