Auditors' Concern on Business Risks

Topics: Auditing, Audit, Internal audit Pages: 6 (1912 words) Published: May 27, 2012
1.0 Introduction

Corporate governance generally refers to processes by which the organizations are directed, controlled and held to account and is underpinned by principles of openness, integrity and accountability.[1] It involves a set of relationship between a company’s management, its board, its shareholders and other stakeholders and provides the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. It can also be described as the process by which organization are directed and controlled. [2] Governance is described as the role of persons entrusted with the supervision, control and direction of an entity. Those charged with governance ordinarily are accountable for ensuring that the entity achieves its objectives, financial reporting, and reporting to interested parties. Those charged with governance include management only when it performs such functions.[3]

1.1 Audit Committees

Audit committee is a committee consisting primarily of non executive directors which is able to view a company’s affairs in a detached and independent way and liaise effectively between the main board of directors and the external auditors. An audit committee is set up to meet the practical difficulties that may arise in the board of directors fulfilling its task of ensuring the existence and maintenance of an adequate system of internal controls. In addition, such a committee reinforces both the internal control system and the internal audit function. In order to reinforce the audit committee’s effectiveness, the internal and external auditors should be allowed and encouraged to attend the meetings of the audit committee. Regular meetings of the audit committee with the internal and external auditors help enhance the external auditor’s independence and the credibility of the internal auditors, and assist the audit committee to perform its key role on strengthening corporate governance. Audit committee can be described as a committee drawn preferably from non-executive directors, which provides an invaluable independent liaison between the Board and auditors, thus strengthening auditor’s position and improving communication.

2.0 Definitions

2.1 Auditee
Is the course of auditing refers to all executives directors under chief executive officer who have been entrusted by the owners to run the entity on their behalf. They are responsible for day to day operationof the entity and infant they are the ones who are being audited. 2.2 Internal Auditor

Is an employee of the entity or service outsourced, to perform an independent, objective assurance and consulting activity designed to add value and improve an organization's operation. Internal auditor helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.[4] 2.3 External Auditor

Is an auditor, usually working for an audit firm, that is completely independent of the company it is auditing. External auditors should always be certified by a professional association of accountants, and should be selected by, and report to, the corporation's board of directors. These independent auditors audit the books of a company generally once per year after the completion of the company’s fiscal year. Their role is to give an opinion of the financials statements reflection of the status and operations of the company being audited. Based on what they witness during the audit they will also produce, for management and board utilization, a management letter. Although a financial statement audit is the most common type of external audit, external auditors may also conduct special purpose audits which might include; performing specific tests and procedures and reporting on the results, a less intensive review, and compilations. 3.0 Relationship between auditee and auditors

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