Corporate Governance Assessment
Corporate governance refers to the directional and control measures that is applied upon an organization in order to ensure transparent and ethical business practices. It has been identified that in various industries, financial crisis or financial problems are predominant because of manipulation of accounts and conflict of interest between the stakeholders. In the stock market the companies that are considered to be reliable are the companies that comply with corporate governance. It is true that the companies that comply with corporate governance are more reliable because they have strict rules and policies to guide the affairs of the company.
The major problem with corporate governance is the compliance of it. The framework of corporate governance is such that the companies get stuck into a lot of ethical boundaries which they have to follow. The role of an independent auditor is one of the solution to resolve many doubts regarding the financial statement and their accuracy. The corporate governance system is weak in protecting the external stakeholders because the decision making power lies with the internal stakeholders. This may be a reason why the external stakeholders are dissatisfied by the performance of the company.
Research Aim/Research Objective
The objective of the research is to understand the role of auditors and their responsibility towards corporate governance. Since there are internal and external stakeholders involved in the company, the conflict of opinion and interests will always be a matter of doubt. The affairs of the company should be true and fair to all the stakeholders who are dependent upon the financial statements and Governance of the company while making their decision. The research will analyze how the auditors make sure that the financial statements are free from material misstatement and they are showing true and fair view. It will also analyses their contribution towards the development and growth of corporate governance.
Governance, Auditor, Compliance, Certified, Stakeholders, Contribution, True and Fair View, Supervisory, Mismanagement, Misrepresentation, Fraud, Error, Rectification, Audit Committee
In an article presented by Association of Chartered Certified Accountants, the relationship between corporate governance and Auditor has been established. It mentions that there are some main principles that are followed to comply with the corporate governance which include, governance code, leadership, effectiveness, accountability, remuneration, and relationship with stakeholders. These are the principles that are governed by corporate governance policy and the auditor has a major role in it. The review the financial statements and the internal affairs of the company. The auditor’s also ensure that the internal control of the company is in place and it is effective and efficient to manage the operations of the company. They also prevent the company from fraud and error.
Joseph P. H. Fan, in his report “Do External Auditors Perform a Corporate Governance Role in Emerging Markets?” the author have provided evidences that having an external Auditor in the company makes the financial statements reliable and the affairs of the company free from conflict. The agency theory which talks about the conflict between internal and external stakeholder’s interest can have a probable solution that the company has external auditors to take care of the agency problem. That is ensure that whatever decisions the company make are in accordance with accounting principles and if the accounting guidelines are followed then the chances of any stakeholder losing their interest will be reduced.
In some studies the role of audit committee has also given relevance to ensure corporate governance. Ahmed Mohsen Al-Baidhani, in “The Role of Audit Committee in Corporate Governance: A Descriptive Study.” wrote about the typical problems that arise in the modern day businesses. The audit committee has a supervisory role to take care of the affairs of the company by making relevant decisions regarding the auditor’s appointment, fixing of remuneration, determining the scope of audit, reviewing the performance and the preparation of audit report. It should be understood that when such heavy compliances are imposed upon a company then the chances of mismanagement, unethical practices and manipulation of financial statements significant reduces.
Data Collection Plan
For collecting the information regarding the corporate governance and the impact of auditors the role in a company various audit report shall be studied in detail and the data will be collected from the research. The listed companies have their financial statements available online. These financial statements shall be considered as a relevant evidence for the data collection. The investors report is another significant document. The companies also have to file corporate governance report to report to the higher authorities. All these information shall be collected and documented for the purpose of the research.
The corporate governance policy is itself a measure taken by the company to ensure ethical considerations while making decisions. The role of auditors in this context is that they have to examine the financial statements very carefully and ensure that the financial statements do not have any misrepresentation of facts and figures. It is unethical to present a financial report which has being manipulated by the companies to increase the revenue or profits. The principle of true and fair view states that the financial statements should follow the accounting principles and guidelines to reflect the true numbers in the report. It is the duty of the auditor to apply due skill and care while examining the financial statements. In case of any material misstatement they have to report it to the audit committee or board of directors for rectification. The board of directors may have the intention to manipulate the financial statements in order to increase the net worth of the company. But this will be misleading for the stakeholders who rely on the financial statements to make their financial decisions. So the position of the auditor is very important because he has to ensure ethical considerations in every aspect of the financial statement and he also have to comment internal control system of the company. Therefore, it is evident that the auditor of the company have a greater role to play to comply with corporate governance.
Association of Chartered Certified Accountants, 2018.Corporate governance and its impact on audit practice. Available at https://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/corpgov-audit.html [Accessed 4 December, 2018]
Fan, J, 2000. Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.539.6967&rep=rep1&type=pdf [Accessed 4 December, 2018]
Al-Baidhani, A. 2016. “The Role of Audit Committee in Corporate Governance: A Descriptive Study.” Inter. J. Res. Methodol. Soc. Sci., vol. 2, Available at https://www.researchgate.net/publication/305880609_The_Role_of_Audit_Committee_in_Corporate_Governance_Descriptive_Study [Accessed 4 December, 201