If you are in tune with what is happening in the Indian stock markets, perhaps you already have a hint of what I am going to talk next. Let’s take a look at Auditing in India, an overview of the role of auditors in Corporate Governance.
Talk about the default crisis at IL&FS, the much – prophesized scams at Punjab National Bank, Vakrangee among others, these incidents had a rippling effect across broader markers which led to fear amongst the stakeholders. All these points towards the burning issue of corporate governance practices in India.
Going by the Investopedia definition, “Corporate governance essentially involves balancing the interests of a company’s stakeholders which includes shareholders, management, customers, suppliers, financiers, government and the community.” To do so the main prerequisite is to have a transparent, clear, concise and real picture of the company’s financial affairs.
Even before the very famous Satyam scam shook the Indian corporate sector, the world had its share of a breakdown of corporate governance in the form of Parmalat, Enron, Qwest, Global Crossing, etc. all from auditing spaces that shook the very fundamentals of corporate governance. These scams made Auditing in India an essential part in the hierarchy of ideal corporate governance structure.
That is, doing the right things and doing them in the right way is the essence of corporate governance. But why we’re telling all this? If you are planning to pursue Auditing in India, definitely this should matter to you. Perhaps not given due importance in the academics, a good corporate governance practice will help you and your client earn due respect from all the stakeholders.
Auditing in India: How it affects corporate governance?
The researchers have found out that extent evaluating controls and operations as a role of auditors enhances corporate governance. Measures and policies introduced by external auditors are designed to compel accountability in the workplace.
For example, if the financial statements are manipulated by inflating figures or cooking accounting numbers, auditors could recommend penalties. For such acts, penalties could include stripping the manager of his position or his compensation, reducing annual bonuses or pensions. So, if the auditor has the slightest bit of suspicion of the legality and integrity of a record or transaction, it his/her the duty to investigate and report it, before he certifies it to be true.
Represent Interest Of Shareholders
One of the many important roles of a professional Auditing in India in corporate governance is to protect the interests of shareholder and stakeholders of a company. It is made possible by conducting independent reports by the auditors and not being influenced by the company.
External auditors are required to state the finances of the company and attest to the validity of financial reports that may have been released. It is their job to ensure that the board receives accurate and reliable information. The board may also question the views expressed and an assessment made by the auditor on the appropriateness of the principles used by the company.
By developing efficient crisis management plans to be used in the event of allegations of corruption or fraud, an auditor helps in ensuring good corporate governance. Typically, the idea is to assign responsibilities to different officials of the administration. This provides that if the company becomes involved in a financial crisis, those officials have an action plan that can be used in making sure that confidence among investors is sustained. Controls measures that are to be used with the media and law-enforcement officials are part of the crisis management plans.
Risk Assessment And Mitigation Planning
Auditors help in promoting corporate governance by conducting a period risk assessment. External auditors reassess the security measures that a company has in place against corruption or corporate fraud.
Additionally, they also analyse the on the whole risk tolerance of the company and the efforts that the company has made towards lessening the risks. For example, if a government agency or a company has a system with an under-performing whistleblower, then the efforts may be made to improve the system in question.
Maintain Strong Relationship With Regulators
The efforts put in by an external auditor helps in fostering a good relationship with regulators. Mostly if the companies and agencies have transparent operations, the regulators are supportive of them. External auditors evaluate the compliance with the regulations of a company’s organisation. Once an auditor attests the company’s disclosures, it is more likely that the regulators also show their trust towards them.
Apart from examining the company’s accounts and reports, these days auditors are also asked to comment on internal control being practised in the company.
All in all, the role of an audit committee and auditors has become very crucial in the current scenario. Stakeholders expect loyalty and trust from auditor while resolving financial facts and exposing the fault in an organisation.
An auditor’s experience, qualification background, relevant exposures and in-depth knowledge need to be highlighted. As, when directors are experts, qualified, experienced and financial wizards, they can have vision and foresightedness to protect stakeholders.