The Role Of External Auditing On Promoting Good Corporate...

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. External Auditing Since reliable financial information is essential for investors and other stakeholders to take adequate decisions, this reliability must be backed by independent review performed by independent and certified auditing firms, which are supposed to verify and certify financial statements issued by a company’s management. If the auditor is not competent and independent from management, the audit of the financial statements loses its credibility (Schelker, 2013, p.295). According to Impastato (2003), because of audit failures, accountants are to blame for investors losing billions of dollars in earnings in addition to market capitalization (as cited in Grubbs Ethridge 2007). As explained by Schelker (2013), the agency problem between the owners and the management of a ï ¬ rm is at the heart of the corporate governance literature. Hence, there is a need for aShow MoreRelatedSetting And Enforcing Clear Lines Of Responsibility Essay1461 Words   |  6 PagesSetting and Enforcing Clear Lines of Responsibility Good corporate governance needs effective and appropriate regulatory, legal and institutional basis. A variety of elements which including the laws and regulatory framework, and financial accounting standards have an effect on the setting of clear lines of responsibility on auditing (Chiang, 2005). 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