Auditors and Corporate Governance: Impact on Risk Assessment and Audit

This report examines the critical relationship between auditors and corporate governance, focusing on the impact of the ASX Corporate Governance Principles and Recommendations. It explores how the adoption of each principle by a client company influences the auditor's risk assessment process, the development of the audit approach, the formulation of an effective audit strategy, and the gathering of audit evidence. The report delves into specific principles, such as those related to board structure, ethical conduct, corporate reporting, and risk management, and assesses their implications for audit procedures. By analyzing these factors, the report aims to provide a comprehensive understanding of how corporate governance affects the auditor's role in ensuring the integrity and reliability of financial reporting.

Auditors and Corporate Governance
Name of the student
Name of the university
Student ID

Corporate governance –
Combines the processes, laws or rules through which
the businesses are controlled, regulated and operated.
The board of directors is responsible in creating
framework for the corporate governance that can be used
to align the business conducts with the objectives in the
best way.
Particular purposes those can be outlined under
corporate governance consists measurement of
performance, action plans, practice for disclosures,
decision regarding the executive compensation, dividend
policies, process to reconcile conflicts interests as well as
implicit or explicit contracts among the stakeholders and
the entity
Introduction

Principle 1 –serving the management with solid foundation
and oversight
An entity listed under ASX shall outline respective
responsibilities and roles clearly regarding its management
as well as board and review their performance on regular
basis.
Recommendation 1.1
An entity listed under ASX shall have and provide
disclosure regarding board charter explaining –
Respective responsibilities and roles of the management
and board and
Matters those are reserved expressly to board and those
expressly delegated to the management

Principle 2 – effective board’s structure for adding value
An ASX listed entity’s board must be of appropriate size and
must possess the commitments, knowledge and skills
collectively for the entity as well as for the industry under
which the entity operates. This will enable it discharging the
duties in effective manner for adding value.
Recommendation 2.1
An ASX listed entity’s board –
Have the nomination committee consisting of
(i) Minimum 3 members where majority are independent
directors and
(ii) the committee shall be headed by independent director
and disclose committee’s charter
(iii) committee’s member (v) at the close of each reporting
period, number of times committee met during the
concerned period and member’s individual attendance at
the held meetings.

Principle 3 – culture of acting ethically, responsibly
and lawfully
An entity listed under ASX shall implement as well as
reinforce the culture on continuous basis all over the
organization for acting responsibly, lawfully and ethically.
Recommendation 3.1
An entity listed under ASX shall coherent as well as
disclose the entity’s values
Recommendation 3.2
An entity listed under ASX shall –
Have the code of conduct and disclose the same for the
entity’s employees, senior executives and directors
Assure that board committee or board are informed
regarding material breach of code, if any

Principle 4 – safeguarding integrity of the corporate
reports
An entity listed under ASX shall have proper procedures
for verifying integrity of the corporate reports.
Recommendation 4.1
An ASX listed entity’s board –
Have the audit committee consisting of
(i) Minimum 3 members with all being non-executive
directors and where majority are independent
directors and
(ii) the committee shall be headed by independent
director who is not the board’s chair and disclose
(iii) committee’s charter
(iv) experience and qualification of members (v) at the
close of each reporting period, number of times
committee met during the concerned period and
member’s individual attendance at the held
meetings.

Principle 5 – making balanced as well as timely
disclosure
An ASX listed entity are required to make the
disclosures in balanced and timely manner regarding
the fact that the reasonable person will expect having
material impact on value or price of the entity’s
securities.
Recommendation 5.1
An ASX listed entity shall have the written policy to
comply with continuous obligation for disclosures and
the same must be disclosed.

Principle 6 – Respecting rights of the security
holders
An ASX listed entity shall deliver the security holders with
the appropriate facilities as well as information that will
allow them exercising their effective rights as security
holder
Recommendation 6.1
An ASX listed entity shall deliver information regarding
itself as well as its governance to the investors through the
websites
Recommendation 6.2
An ASX listed entity shall have programs related to
investor’s relations that will facilitate in 2 way
communications with the investors in effective manner

Principle 7 – recognising along with measuring risks
An ASX listed entity must establish sound framework
for managing risks and reviewing the effectiveness of
the framework on periodic basis.
Recommendation 7.1
An ASX listed entity’s board shall have the committee
for overseeing the risks consisting of
(i) Minimum 3 members where majority are
independent directors and
(ii) the committee shall be headed by independent
director who is not the board’s chair and disclose
(iii) committee’s charter
(iv) committee’s member
(v) at the close of each reporting period, how many
times committee met during the concerned period
and member’s individual attendance at the held
meetings.

Principle 8 – remunerate in fair and responsible manner
An ASX listed entity shall pay sufficient remuneration to
the director for attracting as well as retaining high quality
senior executives as well as motivate them in aligning
their interests with value creation for shareholders.
Recommendation 8.1
An ASX listed entity’s board shall have the remuneration
committee consisting of (i) Minimum 3 members where
majority are independent directors and
(ii) the committee shall be chaired by independent
director and disclose
(iii) committee’s charter
(iv) committee’s member
(v) at the close of every reporting period, how many
times committee met during the concerned period and
member’s individual attendance at the held meetings.

Impact of full adoption of corporate
governance principles as well as
recommendations on entities
Principle 1 – Segregating responsibilities among the
management and board in clear manner will assist in
managing the expectations as well as avoiding the
misunderstandings regarding their respective
accountabilities and roles.
Principle 2 – As the corporate governance, principle 2
requires the board to be of adequate size for meeting the
business requirement it assures that the board has
appropriate composition to promote the confidence of the
investors and meeting the set objectives

Principle 5 – Listed entity shall have its policy in
writing that will assure that the entity is confirmed with
the obligation that will assure that all the investors will
have equal as well as timely access to the information
considered to be material regarding the entity. This
information includes the information regarding its
ownership, performance, governance and position.
Principle 6 – It allows the security holder to hold the
management responsible for the performance of the
entity and hence, the management tries to perform its
duties with required guidelines