Role of Auditing in Corporate Governance

 Corporate governance refers to what a business's board of directors performs and how it determines the organization's values.

Mar 7, 2022

Role of Auditing in Corporate Governance

With the goal to enable effective, entrepreneurial, and responsible management that will ensure the company's long-term prosperity, corporate governance is the method through which firms are directed and governed.

The governance is the responsibility of the board of directors. And, the responsibility of the shareholders in governance is to appoint the directors and auditors ensuring that a suitable governance framework is in place.

Therefore, corporate governance thus refers to what a business's board of directors performs and how it determines the organization's values.

Benefits of Corporate Governance

Good corporate governance establishes corporate success and economic progress. Strong corporate governance maintains investors' confidence and the company is able to raise capital efficiently and effectively. It lowers the cost of capital.

Corporate governance cuts down the capital costs. There is a beneficiary response on the stock price. It gives the best incentives to owners and management to achieve goals with respect to the interests of the shareholders and the company.

Effective corporate governance could mitigate wastages, corruption, hazards, and mismanagement. Supporting brand building and growth, corporate governance ensures the company is managed in terms of the interests of all shareholders.

What is the Role of Auditing in Corporate Governance?

Internal Auditing: It is an independent, objective assurance and consulting activity adding value and advancing the operations of a company. It assists a company in achieving its goals by implementing a systematic, disciplined approach for evaluating and improving the efficacy of risk management, control, and governance systems.

Governing Body: The entity in charge of the organization's general direction and control. In most cases, auditing serves two purposes. First, auditors provide objective, unbiased assessments of the organization's governance structure and the operational efficacy of specific governance operations.

Second, they serve as agents for modifying, advising, or advocating for changes to improve the organization's governance structure and procedures. Management and the board of directors of a company build and supervise entire processes for effective governance. Internal auditors can help to support and enhance these efforts. Furthermore, auditors should remain independent, they may help in the development of governance mechanisms.

By delivering assurance on the organization's risk management, control, and governance processes, auditing becomes a fundamental tool for effective organizational governance.

Factors such as the maturity level of the organization's governance processes and structure, the organizational role and qualification of auditors determine which capacity is most significant for auditing.

For companies with limited governance structures and processes, the internal audit function attempts to provide advice on the best structure and practices, compare existing governance structures and practices against regulations and relevant compliance needs.

With structured governance practices, auditors could focus on examining whether or not the company’s governance components work collectively, analyzing the reporting transparency between the governance structure and its parts, and comparing governance best practices.

Instead of performing isolated audits of specific processes, internal auditing deals with governance activities. With an organization’s specific position, internal auditors monitor governance structure and design. They can often assist firms by advising the board of directors and executive management on essential upgrades and changes in structure and design rather than just ensuring that established processes are working. This is distinct from conducting separate audits to provide objective assessments of certain governance actions.

Using internal audits, assessments of governance depend on data gathered in a particular duration from different audit assignments. Ideally, internal auditors should give assessments on accountability of major organizational governance elements integrated with assessments on risk management and critical controls.

These governance activity assessments can consider- outcomes of certain board-level governance review work, governance issues coming from distinct audit assignments, and other information available, known by the internal auditor.

Being board’s catalysts, internal auditors can serve best by providing objective, independent information, and evaluation. They can educate the board about culture, tone, ethics, transparency, and internal interactions.

Furthermore, modern internal auditing is built on the organization's structure for detecting, responding to, and managing the many strategic, operational, financial, and compliance risks.

BCube Analytics For Corporate Governance Auditing

Corporate Governance Audit is a useful approach ensuring that a corporation has followed all applicable laws and adequate internal control systems, policies, and procedures are in place to meet the interests of all stakeholders.

BCube Analytics provides the following services with respect to corporate governance and auditing;

  • Determine a procedure for assessing risks such as global, financial, general, economic, political, industry, and company-specific hazards, and ensure that effective procedures are followed to minimize risk.
  • To establish means to monitor and review the performance of the company's internal audit function, to monitor their independence and impartiality, and the efficacy of the internal audit process, in accordance with relevant professional standards.