Role of Auditors

Role of auditors in Corporate Governance
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Navajyoti Samanta and Tirthankar Das Introduction Corporate governance refers to the mechanisms and processes by which corporations are governed. At the most elementary level, it can be described as the processes by which investors attempt to minimize the transaction costs and agency costs associated with doing business within a firm. Hence, the need for good Corporate Governance essentially arises due to the division between ownership and control which characterizes almost all modern companies. The primary trouble with such division, which forms the principal focus of corporate governance principles, is what is known as agency costs i.e. the tendency of the management, through its various instrumentalities, to sub serve the stake holder‟s benefits to other objects which affect these stakeholders detrimentally. Auditors are one such agency which allows the shareholders of a company to get an unbiased analysis of the finances of the company yet smooth day to day functioning of the auditors depend a lot on the cooperation by the management with whom the auditors interact more, as result many a times the management finds that auditors could be more pliable then the shareholders and commit fraud with the collusion of the very agency which was supposed to check and prevent such practices.

Importance of Auditor in Corporate Governance In the Indian context, the Irani Committee has suggested a four point agenda to be adhered to in the company‟s preparation of its account which is as follows: Disclosure accuracy and adequacy Standardization Clarity Synchronization of law and Accounting Standards Auditors of the Company play an important role in all the aforementioned aspects of Governance primarily through its provisions from Section 224 to 233 of the Companies Act which seek to regulate the audit of company‟s accounts and its external auditors. As has been discussed hereinbefore auditors act as eyes and ears of the... [continues]

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