Role of the External Auditor in Corporate Governance Essay examples

2642 Words Mar 13th, 2006 11 Pages
The Role of the External Auditor in Corporate Governance
The external auditor has long played an important role in the corporate governance function. However, before we begin our analysis on how the external auditor plays this role and its importance, we must first examine the responsibilities and duties of such an auditor. Similarly, we need to clearly define what corporate governance is before we discuss in detail the role that auditors play in it.
1. Introduction
1.1 The External Auditor
External auditors are employees of a public accounting firm which has been engaged to conduct the audit of a particular company's financial statements (audit client). The external auditor's responsibility is to provide assurance to the general
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However, a public accountant before the 2004 change was only barred "from accepting an audit appointment if he or his immediate family held a significant beneficial interest in the shares of the company; of if he had a direct or indirect material financial interest in the company; or if he had been an officer or employee of the company for the 12-month period immediately preceding the appointment, or a partner of a company officer, or employed by a company officer." . So what had spurred on the recommendation for change in the independence rules?
2. Cause for Change in Auditor Independence Rules
In the recent years, there have been many high profile corporate failures that had a very large impact on the accounting profession. One such example is the Enron debacle which led to the demise of the accounting firm, Arthur Anderson, then part of the Big 5. This has caused the relationship between auditors and their clients to be heavily scrutinised. Over the years, in a bid to diversify their business to prevent their market from shrinking further , accounting firms now provide many non-auditing services for their clients and this has raised the question pertaining to the lack of independence of the external auditors. This close relationship may cause corporate disclosure to be less credible as

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