The role of external auditors in the corporate governance framework

They have very important role to play in the company. Following the somewhat recent collapses of major corporate giants, it has become evident that external auditors could make or mar a company. For this reason, a reconsideration of their relationship with the companies which they audit has been initiated and the new guidelines on the circumstances under which they should operate have been emerging.

The role of external auditors in the corporate governance framework

It focuses on promoting transparency and fairness within establishments and organizations by monitoring performance and ensuring accountability. In that regard, external auditors serve as one of the primary protectors of corporate governance in any organization.

In keeping with the Sarbanes—Oxley Act, external audits are required of most publicly listed companies. Represent Interest of Shareholders One of the primary roles of external auditors in corporate governance is protecting the interests of shareholders.

They ensure that the board receives accurate and reliable information. Promote Accountability External auditors may introduce measures and policies designed to compel accountability in the workplace. For instance, auditors could recommend penalties for officers who manipulate financial statements by inflating figures or cooking accounting numbers.

Penalties for such acts could include stripping the manager of his position or his compensation, such as reducing annual bonuses, and even pensions.

Risk Assessment and Mitigation Planning External auditors help promote corporate governance by conducting period risk assessment. Auditors review the security measures that a company has in place against corporate fraud or corruption.

In addition to assessing potential risks, auditors also analyze the overall risk tolerance of the company as well as the efforts the company has made toward mitigating risks. For instance, if a company or government agency has an under-performing whistleblower system, efforts may be made to improve this.

Crisis Management External auditors can help ensure good corporate governance by developing efficient crisis-management plans to be used in the event of allegations of fraud or corruption. The plan typically involves assigning responsibilities to different administrative officials.

Represent Interest of Shareholders

This way, if the company becomes involved in a financial crisis, officials have an active plan that they can use in sustaining confidence among investors. Crisis-management plans may also include control measures that are to be used with the media and law-enforcement officials.

Maintain Strong Relationship with Regulators The efforts of an external auditor help foster a good relationship with regulators. Most regulators are supportive of companies and agencies that appear to have transparent operations. External auditors evaluate the organization of a company for compliance with regulations.

Regulators are also more likely to trust company disclosures after an auditor attests to them.Internal Audit Institute of Internal Auditors (IIA, ) defined internal auditing role in governance processes as promoting appropriate ethics and values within the organization, ensure effectiveness and accountability, effectively communicate risk and control information appropriately and coordinating activities among the board, external and internal auditors and management in various areas.

External auditors are one of the essential gatekeepers of every organisation. They have very important role to play in the company.

Following the somewhat recent collapses of major corporate giants, it has become evident that external auditors could make or mar a company.

The role of external auditors in the corporate governance framework

External auditors are one of the essential gatekeepers of every organisation. They have very important role to play in the company. Following the somewhat recent collapses of major corporate giants, it has become evident that external auditors could make or mar a company.

External auditors promote corporate governance by making sure the subject company’s reports are accurate, true and an appropriately fair reflection of the company’s status. In the process, if anything is discovered that looks fraudulent, then it is directed to management.

External auditors have an essential role in corporate governance through their involvement and their examination of financial statements. The external auditor’s role in corporate governance is a fundamental complement to achieve the desired objective of corporate governance.

The external auditor’s role in corporate governance is a fundamental complement to achieve the desired objective of corporate governance. Therefore, the duties and obligations of external auditors must be expanded for the rights and interests of shareholders and stakeholders.

Role of the External Auditor in Corporate Governance - Research Paper