Auditors responsibility for reporting on corporate governance

The followings are auditors responsibility for reporting on corporate governance:

• Listed companies following the Combined Code in the UK, or other applicable guidance in respect of corporate governance, must include a corporate governance statement in the annual report.

• The auditors are not required to ‘audit’ this statement but must review it for inconsistencies with other information contained within the annual report.

• If inconsistencies are found, there may be an impact on the audit report in two ways:
– if the inconsistency highlights an error in the financial statements and the directors refuse to amend the error, the auditor will issue a qualified report
– if the inconsistency highlights an error or misleading information in the corporate governance statement, the auditor will add an emphasis of matter paragraph to their report. This is not a qualification. It is included to bring the reader’s attention to the matter.

• In the US, the requirements are more stringent. Sarbanes Oxley states that the auditors must attest as to whether the company has complied with corporate governance requirements. Therefore, they must give an
opinion as to the effectiveness of the company’s internal control system amongst other things.