EXTERNAL AUDITOR AND CORPORATE GOVERNANCE

The Role of external auditors in the corporate governance framework

The Role of External Auditors in the Corporate Governance Framework

Introduction

The significance and relevance of external auditors is a primary and a fundamental part of the corporate governance. In other words, we can say that the external auditor is one of the pillars of the corporate governance. When outside investors finance firms, there is always a risk that their investment will not materialize because managers or controlling shareholders expropriate them. Corporate governance provides the mechanisms that outside investors use to protect themselves against expropriation by insiders. One definition of corporate governance which states that corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.

External Audit examines and evaluates any of the information systems of an organization and an independent opinion on them, but companies usually require the evaluation of its financial information system independently to give validity to users of the product east, which has traditionally been associated with the term Audit External Audit of Financial Statements, which as noted is not entirely equivalent, it can be External Audit Tax Information System, External Audit Management Information System, External Audit Automatic Information System. External or Independent Audit seeks to determine the reasonableness, integrity and authenticity of the statements, records and documents and any information produced by the systems of the organization. An external audit conducted when it intends to publish the product information system examined in order to accompany him an independent opinion to give authenticity and allow users of that information to make decisions relying on the statements Auditor.

Without protection for outside investors, corporations will have difficulty in raising the necessary capital at a reasonable price, and their growth will be limited because outside investors will not be willing to turn their funds over to corporations. In this situation, firms have to find other ways to finance themselves, such as internal financing or bank financing. Certainly, these have their limits and disadvantages. Investor protection is an essential element of a well-functioning financial system. Scholars argue that effective financial systems provide well-developed markets that serve as a direct source of capital. Good corporate governance practices help to improve the confidence of investors, reduce the cost of capital, support the proper functioning of financial markets, and give rise to a more stable source of financing.

Discussion

The significance of the role played by the external auditor in today's corporate governance has increased in this globalized modern era where everything is standardized. We can say that the person outside the institution, external auditors have a pivotal role in achieving the objectives of the organization's financial information. They provide an independent viewpoint and purpose (Hess 2001, Pp. 307-330). The external auditor performs an opinion on the reliability of financial statements, but we must also bear in mind that no opinion on the internal control system, therefore, not normally be in a position to identify all internal control deficiencies that may ...