Business Sustainability, Corporate Governance, and Organizational Ethics

CHAPTER 17External Auditing Function

1. Introduction

External auditors are expected to lend more credibility to published financial statements and to mitigate the information asymmetry and the potential conflicts of interest between management and shareholders. External auditors are responsible for auditing the company’s financial statements and providing reasonable assurance that they are free from material misstatements, presented fairly and in conformity with generally accepted accounting principles (GAAP), and they reflect true representation of the company’s financial position and results of operations. The external audit function is an essential component of corporate governance and should be regarded as an external corporate governance mechanism. It serves to protect investors from receiving incomplete, inaccurate, and misleading financial information. Auditors are also required to express an opinion on the effectiveness of the design and operation of internal control over financial reporting (ICFR). The external audit function is intended to lend credibility to financial reports and reduce information risk that financial reports are biased, misleading, inaccurate, incomplete, and contain material misstatements that were not prevented or detected by the ICFR system. This chapter presents the external audit function of corporate governance.

Learning Objectives

• Recognize the role independent auditors play in achieving effective corporate governance and reliable financial ...