Role of the External Auditor in Corporate Governance
The Role of the External Auditor in Corporate Governance
The external auditor has long played an important role in the corporate governance function. However, before we begin our analysis on how the external auditor plays this role and its importance, we must first examine the responsibilities and duties of such an auditor. Similarly, we need to clearly define what corporate governance is before we discuss in detail the role that auditors play in it.
1. Introduction
1.1 The External Auditor
External auditors are employees of a public accounting firm which has been engaged to conduct the audit of a particular company's financial statements (audit client). The external auditor's responsibility is to provide assurance to the general public regarding the truth and fairness of the information presented in the audit client's financial statements.
Since the public relies heavily upon an audit opinion published by a public accounting firm to make investment decisions, it is imperative that they view accounting firms as being independent, objective and free from the influence of the audit client or any other parties. Indeed, some authors have gone as far as to say that this assurance is the basis of the world's capital markets.
1.2 Corporate Governance in Singapore
In the company-owner relationship, corporate governance is essentially practices and regulations that are implemented to solve the conflict of interest between a company's directors (management) and its shareholders (owners). The need for corporate governance arises from the agency problem between the principal (shareholders) and the agent (management). The shareholders of a company place their trust and their investment in the custody of the management in the hope that the company will turn in profits to reward their investments. However, management's aim will be more aligned towards self profit rather than the advancement of the company's interests. Hence this conflict of interest and lack of goal
The external auditor has long played an important role in the corporate governance function. However, before we begin our analysis on how the external auditor plays this role and its importance, we must first examine the responsibilities and duties of such an auditor. Similarly, we need to clearly define what corporate governance is before we discuss in detail the role that auditors play in it.
1. Introduction
1.1 The External Auditor
External auditors are employees of a public accounting firm which has been engaged to conduct the audit of a particular company's financial statements (audit client). The external auditor's responsibility is to provide assurance to the general public regarding the truth and fairness of the information presented in the audit client's financial statements.
Since the public relies heavily upon an audit opinion published by a public accounting firm to make investment decisions, it is imperative that they view accounting firms as being independent, objective and free from the influence of the audit client or any other parties. Indeed, some authors have gone as far as to say that this assurance is the basis of the world's capital markets.
1.2 Corporate Governance in Singapore
In the company-owner relationship, corporate governance is essentially practices and regulations that are implemented to solve the conflict of interest between a company's directors (management) and its shareholders (owners). The need for corporate governance arises from the agency problem between the principal (shareholders) and the agent (management). The shareholders of a company place their trust and their investment in the custody of the management in the hope that the company will turn in profits to reward their investments. However, management's aim will be more aligned towards self profit rather than the advancement of the company's interests. Hence this conflict of interest and lack of goal