Empirical evidence on internal control systems and corporate governance in Italy

The Corporate Governance (CG) theme has recently been the subject of significant measures to try to restore confidence among investors by encouraging information and communication transparency. The Italian Parliament approved Law 262 in 2005; and in 2006 the CG Committee of the Italian Stock Exchange approved the new Self-Regulatory Code for listed companies. This paper deals with control matters and moves on to causes and cases of their failures in relation to a sample of Italian companies. More precisely, it investigates, through an empirical survey, the main limits and areas for improvement in the working of company Internal Control (IC)system(s)and in the objectives of the role of the three main professional bodies currently in charge of it in Italy (i.e. Internal Auditing, Statutory Auditors and External Auditors). The results obtained show that the Italian situation is very unusual, due to a long tradition: the possibility to choose between different administration and control systems, often with coexisting and overlapping roles, creates problems in terms of responsibility and control. The first answers to the critical issues highlighted are given by the aforementioned laws, intended as the main catalysts for a review of the roles of all IC bodies. However, much work has still to be done. The final aim was to come up with suggestions about the possibility of finding areas for improvement within those companies’ IC systems.