Role of Auditors and Audit Committees in Corporate Governance: A Comprehensive Analysis

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Corporate Governance
Role of Auditors and Audit Committee

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Executive Summary
The purpose of this paper is to evaluate the role of auditors and audit committee while
assessing the principles of corporate governance. The guidelines issued in the UK Corporate
Governance Code 2018 will be analysed in this report to understand what auditors should
do in order to discharge their duties. Examples of companies such as Enron and Carillion will
be evaluated in this report to understand what auditors actually do that violates their
duties. The value-added nature of the audit function will be analysed in this report to
understand its importance and how internal audit can enable the corporations in ensuring
that they comply with corporate governance principles. Lastly, recommendations will be
given in the report for auditors to maintain independence and compliance with their
responsibility such as maintaining a balance between executive and non-executive directors
in audit committee, thorough data verification process and internal auditing report on a
periodical basis.

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Table of Contents
Introduction............................................................................................................................. 3
Research Objectives................................................................................................................. 4
Corporate Governance: Role of Auditors and Audit Committee..............................................4
The UK Corporate Governance Code........................................................................................7
Committee Composition...................................................................................................... 8
Role of auditors and audit committee under the corporate governance framework..........8
Examples.................................................................................................................................. 9
Enron Scandal.......................................................................................................................9
Carillion Scandal................................................................................................................. 10
Satyam Scandal.................................................................................................................. 11
Value-added nature of the audit function..............................................................................11
Conclusion.............................................................................................................................. 13
Recommendations................................................................................................................. 13
References..............................................................................................................................14

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Introduction
In today’s competitive business world, corporations are facing fierce competition in their
respective industries. Many companies engage in unethical and illegal practices in order to
maximise their profits which has raised the importance of compliance with business ethics
principles (Bennett et al., 2013). The importance of adaptation of corporate governance
principles has increased in the past few decades as the number of companies that engage in
illegal and unethical practices increases. In this ever-changing environment, the role of
auditors and audit committees has increased substantially since they assist in the
identification of illegal practices of companies and enforce them to ensure that they comply
with regulatory requirements. Independent auditing can promote transparency and
integrity in business since the auditors enforce companies to ensure that they comply with
corporate governance principles while taking actions to promote corporate reporting and
operate independent enforcement arrangements for accountants and actuaries (Sarens,
Abdolmohammadi and Lenz, 2012). Failure of effective auditing practices makes it easier for
the management to engage in illegal practices without considering the interest of a wide
range of stakeholders.
The aim of this report is to highlight the significant responsibilities of auditors and audit
committee for protecting the interest of shareholders and stakeholders of a company. This
report will evaluate how the auditor and audit committee should comply with corporate
governance framework based on the principles given by the UK corporate governance code
2018 and determine the importance of compliance with these principles while evaluating
examples of failed corporations. This report will also focus on understanding the importance
and value-added nature of the audit functions and provide recommendations which can
enable companies to ensure that they implement effective auditing practices while
complying with corporate governance principles.