Role of the External Auditor in Corporate Governance

Increase the consequences to the audit committee and the auditors if they submit incorrect reports.

Auditor Independence contains 9 parts which stablish standards for external auditor independence, so it will have limit conflicts of interest, also contains that an approval requirements for new auditor, audit partner rotation, and auditor reporting requirements. Also restrict auditing organization from providing non audit services for the same clients they audit.

e. Adoption of a simple rule of thumb when analyzing, recording, and reporting on business transactions

This title consists of 9 sections that instruct in the behavior of auditing firms and establish guidelines for external auditor independence. It also sets restrictions for clients outside of auditing boundaries and requirements for audit partner rotation.

There are requirements of many skilled persons from the accounting, auditing and Information technology to combine in bringing about the compliance of this provision. The current problem with the regulations in this act is that the act on being passed had set mandates for compliance with its requirements and deadlines are set. (Romano, 2005) The provisions of section 404 which has mandated the change therefore will have to be studied in the light of all these requirements.

Independence is extremely important, necessary, and appropriate because without an independent IAD, IAD’s objective of adding values and improving business operations cannot be achieved. Independence is also a key component in Attribute Standard. Accountability section states the chief audit executive’s responsibility to the management and audit committee. It is necessary and appropriate because it leads to significant communication between the CAE and top management and between the CAE and the Board; it also helps ensure that the standards and requirement of the internal auditing function is achieved.

2Arguments for why auditors should not be allowed to perform these services for the same client include:

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.

3 pillars of effective internal audit services- independence and objectivitiy, proficiency, and due professional care.

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.

The internal auditor have a several roles in the company which is the first one the audit committee need to discharge and restrict the governance responsibilities and the

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

The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.

International Professional Practices Framework (IPPF) 2011 and Institute of Internal auditors (IIA), Defines, the Internal auditing as an independent, objective assurance and consulting activity intended to add value and improve an organization’s operations. It helps an organization to achieve its objectives by bringing a methodical, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The overall objective of internal auditing is to assist all members of management in the effective discharge of their functioning, by endorsing them with objective analysis, appraisals, recommendations and pertinent comments concerning the activities reviewed. The Institute of Internal auditors under the glossary of the Standards for the Professional Practice of Internal Auditing,(IIA 2004c:25) outlines the concept of ‘value added’ in the integrity and objectivity of internal auditing and financial report scrutiny states that:(Institute of Internal Auditors