The paper "What Is the Function of Audit from a Corporate Governance Perspective" is an outstanding example of a finance and accounting assignment. An effective audit function can play a significant role in demonstrating a company’ s good corporate governance. It embraces varied concepts such as risk assessment, monitoring financial and operational controls, and compliance. The auditor does not have direct corporate governance responsibility but rather provides a check on inappropriate accounting practices, inadequate internal controls, and ineffective corporate governance. The primary responsibility for ensuring effective governance rests with the board of directors.
The board establishes the direction and values of an organization, oversees the performance, and protects shareholder interests. Corporate governance requires committed leadership, integrated planning, coordinated execution, and constant monitoring. Good governance improves the competitive position and contributes to the long-term improved financial performance of the company. An important tool essential for the success of corporate governance is the efficiency and effective functioning of the audit committee. An audit committee is an operating committee of the Board of Directors formed with the purpose of assisting the management by supervising the activities of financial reporting and disclosure. Auditing the effectiveness of a company’ s governance systems, practices and performance requires a rigorous methodology and comprehensive view of the company.
The function of an audit from a corporate governance perspective is discussed below: Audit and the Board of Directors: Effective corporate governance is the responsibility of the Board of Directors and Audit Committee assists the Board in discharging this function. The audit function ensures maintenance and regulation of: The efficiency and adequacy of the company’ s internal control and risk management practices Compliance with regulations The integrity of financial statements and Financial reporting practices. Audit and Financial Disclosures: A company’ s financial statements and reports should be clear, relevant, reliable, and comparable.
The financial information provided to shareholders should be complete, objective, and timely for effective decision making. The audit function ensures: Inclusion of disclosure objectives, controls and procedures over financial reporting in the annual audit plan, In consultation with the independent auditor, internal auditors, and management, review the integrity of the Company's financial reporting processes and the internal control structure. Audit and Risk Management: The company’ s processes for managing business and financial risk needs to be assessed and reviewed constantly.
This ensures effective risk management and improved performance. An audit provides recommendations that help Manage risk by identifying key risk areas and processes, Design, document and assess controls, Improve performance and enhance governance. Audit and Monitoring: In the face of increased regulatory scrutiny, monitoring adds significant value to the area of audit. As companies strive to strengthen controls and improve risk and performance management, the role of the auditor in the governance process increases. The objective of monitoring is to ascertain if the processes and controls are operating as intended.
Audit ensures: Identification and understanding of the monitoring activity are taking place in the company for each of the other components of the governance framework. In case of discrepancies, timely performance monitoring helps the management to take corrective action. Coordination and integration of monitoring functions enhance reporting capabilities, operations efficiencies, and sustainability of corporate governance.
Institute of Directors, 2007, “The Combined Code on Corporate Governance: The audit committee” Abstract of “The Director's Handbook”, (online) Available at http://www.out-law.com/page-8219
Derek Broadley, 20 June 2006, ‘AUDITING AND ITS ROLE IN CORPORATE GOVERNANCE’, Deloitte Touche Tohmatsu, Hong Kong, (online) Available at http://www.oecd.org/dataoecd/50/6/37178451.pdf
Martin Bariff, principal researcher, April 30, 2003, ‘Internal Audit Independence and Corporate Governance’, Institute of Internal Auditors-Research Foundation, (online) Available at http://www.theiia.org/iia/download.cfm?file=234
Fumio Naito, April 16, 2003, “About the Usefulness of the Accounting and
Audit Function as a Method for Corporate Governance”, Kobe University, (online) Available at www.b.kobe-u.ac.jp/resource/br/pdf/No.49.pdf
John F Laker, “THE ROLE OF INTERNAL AUDIT – A PRUDENTIAL PERSPECTIVE”, The Institute of Internal Auditors-Australia, (online) Available at www.apra.gov.au/Speeches/upload/The-Role-of-Internal-Audit-A-Prudential-Perspective.pdf
Publication: Directors & Boards, June 22 2005, “Corporate governance: point of view (trends of internal auditing)”, (online) Available at http://goliath.ecnext.com/coms2/gi_0199-4634348/Corporate-governance-point-of-view.html
Department of Business Ethics, IESE Business School - University of Navarra, ‘Ethics in Auditing and Corporate Reporting’, (online) Available at http://www.iese.edu/en/RCC/BusinessEthic/symposium/13Symposia/papers/AuditingandReporting/EthicsinAuditingandCorporateReporting.asp#8793