Identative Relationship Between Board Independence And Audit Remissions

In terms of increasing independent directors in corporate governance, SOX directed the Securities and Exchange Commission (SEC) to adopt rules that prohibit listings of companies that did not have an audit committee. The audit committee must consist of independent directors, and if the committee is in place but did not have enough independent directors, it must add more independent directors to the board. In addition, at least one of the directors must be a financial expert as defined by the SEC.

In the United States, the 1934 establishment of the Securities and Exchange Commission (SEC) ensures that reliable and complete financial information is available to investors (Hoyle, Schaefer, & Doupnik, 2013). Since its formation, “the SEC has administrated rules and regulations created by a number of different congressional actions” (Hoyle et al., 2013, p. 552). Nonetheless, external auditors were not regulated and conducted both audit and non-audit (i.e., consulting) services for the same organization; thus, creating a conflict of interest. Moreover, board of directors were not

In 2009, the research done by Ghosh and Palewicz designnd for analyzing the auditing cost from 2000 through 2005. They collected 23,273 firm’s year observation (Ghosh and Palewicz 181) and the results indicates that the sample’s average audit fees in pre-SOX is $533,360 but after SOX it went up to $1,185,322 over two years, The increase in audit fees is $651,962 which is approximate 122 percent.(Ghosh and Palewicz 185).

To be careful “independent” under SOX rule, an audit committee member may not agree any consulting, review or other compensatory costs from the issuer or be an “associated person” of the issuer or a supplementary. requires companies to release whether they have a financial expert. Having someone with financial knowledge puts the audit committee in a stronger position to examination and task the company’s financial statements, decide that

According to ICAEW, auditor independence mainly refers to the independence of the external auditor from parties that have an interest in the financial statements of the business being audited. It requires having both integrity and an objective manner to the auditing process. In order for the concept to be deemed effective the auditor needs to carry out their work freely. One of the main purposes of auditing is to increase credibility of the entity’s’ financial statements, as they have expressed their own professional opinion on the truth and fair view in accordance with the proper accounting standards used. This is only possible if the audit is made with reasonable assurance that it has come from an independent source and has not been influenced by other parties, such as managers, directors or by conflict of interest.

control is not effective, the problem can be catastrophic as it was for Arthur Anderson in

While shareholders’ agreements take away the directors’ discretions across a range of important matters, investors still claim to value the right to appoint a director. They actively encourage close relationships and communication between shareholders, directors and management. In fact, the size of many boards is determined by the maximum size of the shareholding that can be attracted without director representation. This frequently results in shareholdings of 5 to 7% appointing a director and, in combination with independent chairman, can produce boards of 15 or more directors.

The audit of financial statements is mandatory for publically listed entities throughout the world. The auditor conducts various tests and based on the results forms an opinion on the truthfulness and fairness of the financial statements of the company and whether or not they are prepared in accordance with the financial reporting standards and are free from any material misstatement (Freedman, 2013). The purpose of auditing is to enhance the confidence of investors and to add credibility to the truthfulness of company 's true financial performance. However, there are some dos ' and don 'ts that an auditor must take care of. For instance, anything that threatens the independence of the auditor must be avoided as it adversely affects the truthfulness and objectivity of the opinion formed.

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.

Recent events have highlighted the critical role of boards of directors in promoting good corporate governance. In particular, boards are being charged with ultimate responsibility for the effectiveness of their organisations’ internal control systems. An effective internal audit function plays a key role in assisting the board to discharge its governance responsibilities. Yet how does the board – and its audit committee – satisfy itself that internal audit is functioning effectively and efficiently?

This paper critically analyses the independence of the internal audit function through its relationship with management and the audit committee. Given the growing role of internal auditing in contemporary corporate governance and independence has gained renewed attention.

The aim of this essay is to study the function of external auditors in order to analyze why it is important to be independent. The primary mission of external auditors is to review and evaluate all the financial records of a company or corporation. They provide an objective opinion on the organization’s financial statement and effectiveness of the accounting polices in order to help management to make decisions. If the independence of the external auditors is impaired, the public will doubt the quality of professional auditing services, and the consequence would be very serious, just like the bankruptcy of Enron led to the disorganization of Arthur Andersen, once a giant accounting company in the world. In order to maintain and increase

13. Family and personal relationships between a member of the assurance team and a director, an officer or certain employees, depending on their role, of the assurance client, least likely create

Weisbach (1988), Heranlin and Weisbach (1991) examine agency theory and corporate governance .They observed that there is a positives relationship between firm performance and the proportion of outside directors sitting on the board. However, in the works of Forberg (1989), Weisbach (1991), Bhagat and Black (2002) and Sanda