Auditors and Corporate Governance

This article discusses the adoption and implementation of corporate governance principles by corporate houses and how it improves the risk management process of the company. It also covers the influence of corporate governance on the risk assessment process and audit approach, along with the impact of each principle on the same. The article provides insights into the importance of respecting the rights of security holders, recognizing and managing risks, and remunerating fairly and responsibly. References are also provided for further reading.

Auditors and Corporate Governance

Corporate governance
There are various new expectations of regulatory as well as investor communities from the
corporate houses with each passing year. This has encouraged the adoption and implementation
of corporate governance principle by them. The internal audit functions should be conducted
within the arena of corporate governance according to the recent guidance notes (Corporate
Governance, 2018). This improves the risk management process of the company by making it
more effective and holistic.
Principal 1: provides a strong foundation for the management and oversight
The influence on the corporate houses on adopting it fully on:
Risk assessment process- in this case, the risk assessment process comprises of evaluating the
members before appointing it to the board or the management. A person's credibility and his
experience in the past has to be known before appointing him. The company must get
information about the history of a person as well as the dictatorships that are currently held or
that was held in the past (Corporate Governance, 2018).
Audit approach
The board and the management of the company must look upon the effectiveness by which the
activities are carried out. Few points have to be taken into consideration for the audit approach:
 The terms of appointment should be defined in a written agreement with the senior
directors and the executive (Tricker & Mallin, 2012).
 To ensure the efficient functioning of the board, the Company Secretary has to be directly
accountable.
 There should be an existence of the diversity policy.
 The performance of the board member should be evaluated periodically.
 The performance of the senior executive should be evaluated on an annual basis
(Corporate Governance, 2018).
Many times, an external agency or third party is appointed for evaluating the performance.
Principal 2: structure the board to be effective and add value
The full adoption would influence on:
Risk assessment process- In this case, the risk assessment process involves an introduction of
board skills Matrix which will help in setting up of the mixture of skills that is comprised by the
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Corporate governance
board currently or a possible skill matrix that the board can have for achieving its future targets
(Kowaleswski, 2016). This helps in increasing the accountability of the board members and
ensuring that the business issues are resolved with the help of the skills of the members
(Corporate Governance, 2018).
Audit approach - certain points have to be mentioned such as names of all the independent
directors along with the tenure of service that is being provided by each director. There should
also be a mention about the interest or a position of a particular director and whether there is any
chance that his Independence will have interfered (Tricker & Mallin, 2012). It should be noted
that the independent directors should be present in the majority
Principal 3: install a culture of acting lawfully, ethically and responsibly.
The full adoption will influence on:
Risk assessment process- Any kind of unethical behavior whether inside or outside the
organization can cause used damage to the organization. Thus, to avoid such a risk a proper
internal control system has to be set up so that the business is carried out fairly and the number
of frauds decreases (Corporate Governance, 2018).
Audit approach- the senior executive must approve the values and such value should be
communicated to all the employees in the company. The board must plan to provide training to
its employees regarding the stated laws and principles that are followed by an organization
(Ghafran & Sullivan, 2013).
Principal 4: Safeguard integrity of Corporate reports
The adoption of this principle will influence on:
Audit approach- a specific criterion has to be met for appointing the members of the audit
committee (Corporate Governance, 2018). The external as well as internal auditor’s independent
performance can be decided only by the audit committee.
Audit strategy- a corporate report should be made public ok only after confirming that the report
provides all material information to the stakeholders. There are certain audit strategies and
criteria that are available for preparing public reports (Ghafran & Sullivan, 2013). Such criteria
and strategies should be followed to gain the confidence of the investors and help them in taking
their decisions wisely.
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Corporate governance
Principle 5: Make timely and balanced disclosure
The adoption of this principle will have an impact on:
Risk assessment process- all the market announcements important should be reviewed
immediately e after the information has been spread to sense its quality (Corporate Governance,
2018). This will help the organization to address any information that is false but has been spread
through this announcement.
Audit approach- There should be a proper verification of the roles and responsibilities of the
directors of the organization in reviewing and authorizing the market information (Ghafran &
Sullivan, 2013).
Principal 6: Respect the rights of the security holders.
The adoption of this principle would influence on:
Risk assessment process- a company has to win the investors confidence to stay in the market. If
it fails to do so there will be a great risk to its existence but if it can do so, then it would be
beneficial for the investors and for itself (Corporate Governance, 2018). There is a presence of
audit risk when an organization tries to carry out its business without providing and honest
disclosure to the public and does not give importance to the opinions provided by the investors.
Audit approach- the participation of shareholders is considered to be very important for a
company. The company should publish the ASX announcement, notice for meetings, corporate
reports, etc on its website (Hoffelder, 2012).
Principle 7: Recognize and manage risk
The principal will influence on:
Risk assessment process- transparency has to be maintained in the risk management framework
of a company (Corporate Governance, 2018).
Audit approach- an organization should carry out its activities within the framework of its risk
appetite and should keep on reviewing the breakdowns on a periodical basis (Kowaleswski,
2016).
Principle 8: Remunerate fairly and responsibly
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Corporate governance
The principal influences on:
Risk assessment process- the remuneration of the executives as well as the directors has to be
fixed under a transparent system by the remuneration committee (Corporate Governance, 2018).
There should not be any conflicts while allocating duties towards the committee because of
remuneration.
Audit approach- the remuneration committee has to state whether the remuneration will be
provided on an equity basis or fixed remuneration (Hoffelder, 2012).
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Corporate governance
References
Corporate Governance 2018, The Core Principles Of Good Corporate Governance, viewed on
16 September 2019 < https://www.pearse-trust.ie/blog/bid/108866/the-core-principles-of-good-
corporate-governance>
Ghafran, C. & Sullivan, N 2013, The Governance Role of Audit Committees: Reviewing a
Decade of Evidence. International Journal of Management Reviews, 15, 381–407.
Hoffelder, K 2012, New Audit Standard Encourages More Talking, Harvard Press.
Kowaleswski, O 2016, Corporate governance and corporate performance: financial crisis.
Management Research Review, 39(11), 1494-1515.
Tricker, B & Mallin, C 2012, Business ethics is the bedrock of corporate governance, viewed
on 16 September 2019 <https://businessethicsblog.com/2010/10/20/corporate-governance-and-
ethics/>
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