The external auditor is part of the corporate governance
system.
He
provides an independent check on the integrity of the financial information prepared
by the directors for the use of shareholders and other stakeholders. He
may have a accountability for forming an opinion on the extent to which the directors
have complied with specific corporate governance regulations.
In order to fulfill these roles, the external auditor will examine
the company’s systems and controls. However, he is not
responsible for those systems or controls. Responsibility
remains with the directors and executive management.
The external auditor is moreover required by ISA 260 Communication
of audit matters to those charged with governance to
give management periodically with observations arising from the audit that are important
and relevant to management’s responsibility to keep an eye on the financial
reporting process.
These observations might comprise:
·
weaknesses in internal control found by
the auditor, or
·
accounting policies adopted by the enterprise
which the auditor considers improper.
In addition, all high-quality corporate governance systems have
procedures and arrangements designed to preserve the independence of the
external auditor. For example:
·
the external auditor may be required to
report to an audit committee, as well as to work with the CEO and finance
director
·
the nature and extent of non-audit
services provided by the audit firm may be kept under review, to make sure that
the auditor:
− has
not become excessively dependent on the company and its executive management
for fee income, and
− is
not in risk of becoming too familiar with the company’s management and systems
of operation
·
suitable procedures may be established for
the discussion of arguable issues where the auditors and the finance director
or the CEO have strong differences of opinion.