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.

The role of external auditors in the corporate governance framework

Represent Interest of Shareholders

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.

In this article, we shall review issues concerning external auditors with a view to determining what reforms should be undertaken in this area either in Nigerian company law or corporate governance code so as to ensure that these essential gatekeepers are equal to the crucial task they have responsibility for.

Accordingly, except in the case of the first auditors who are usually appointed by the directors, every company is required at each annual general meeting to appoint its auditors who should hold office from the conclusion of that meeting at which the appointment is made until the conclusion of the next annual general meeting, subject to a retiring auditor being re-appointed without passing any resolution unless he is not qualified for re-appointment, or a resolution has been passed at the meeting appointing some other person, or the auditor has given a written notice to the company of his unwillingness to be re-appointed.

It is instructive that the intendment of the CAMA is to vest the power to appoint auditors in the company instead of in the directors. Thus, it is provided that an auditor may be appointed by a company by an ordinary resolution.

It is noteworthy that a resigning auditor can requisition a general meeting of the company. Ensuring independence of external auditors Unfortunately, the issue of the independence of the external auditors of companies was not adequately addressed in the CAMA.

Promote Accountability

The importance of the independence of the external auditors became evident following the global corporate failures of the not too distant past, notably the collapse of Enron and the demise of Arthur Anderson.

To deal with the skewed incentives which may arise, a number of countries now call for disclosure of payments to external auditors for non-audit services. Examples of other provisions to underpin auditor independence include, a total ban or severe limitation on the nature of non-audit work which can be undertaken by an auditor for their audit client, mandatory rotation of auditors either partners or in some cases the audit partnershipa temporary ban on the employment of an ex-auditor by the audited company and prohibiting auditors or their dependents from having a financial stake or management role in the companies they audit.

Some countries take a more direct regulatory approach and limit the percentage of non-audit income that the auditor can receive from a particular client or limit the total percentage of auditor income that can come from one client.

The Role of External Auditor In The Corporate Governance Framework - Research Korner

Next week, we shall consider the extent to which the existing corporate governance codes in force in Nigeria sufficiently address the issue of the independence of external auditors in Nigeria. Nevertheless, should you have any comments on the issues already raised concerning external auditors, kindly share such views by using the comments area of this post below.

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Registration is simple and FREE.Auditors of the Company play an important role in all the aforementioned aspects of Governance primarily through its provisions from Section to of the Companies Act which seek to regulate the audit of company‟s accounts and its external auditors.

The role of external auditors in the corporate governance framework

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 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. © Deloitte Touche Tohmatsu 2 Corporate Governance Defined §International Standard on Auditing (ISA) “Communications of Audit Matters with Those Charged with Governance” §Governance is the term used to describe the role of persons entrusted with the supervision, control, and.

May 24,  · As boards of directors face a growing number of issues and risks to address, using a corporate governance framework can help them define roles and duties, avoid duplication of efforts and focus on priority matters.

The external auditor has long played an important role in the corporate governance function. However, before we begin our analysis on how the external auditor plays this role and its importance, we must first examine the responsibilities and duties of such an auditor.

External Auditors and Corporate Governance – The Corporate Prof.