AUDITING

Role of Internal and External Audit in Corporate Governance and Barriers to this Contribution



Role of Internal and External Audit in Corporate Governance and Barriers to this Contribution

Introduction

One of the major pillars of corporate governance system is audit committee (Saibaba & Ansari, 2011, p.46). Auditing holds an immense importance in ensuring the effectiveness of organization's control framework. Audit committee manages and examines the process of financial reporting of an organization and facilitates external auditors, managers, internal auditors, and the board of directors for ensuring appropriate flow of information among them and also make certain the disclosure's transparency. Audit committee facilitates and supports the implementation, monitoring, and continuation of effective corporate governance mechanisms by the board of a company in order to benefit the company and its stakeholders (Saibaba & Ansari, 2011, p.46). Thus, an efficient committee of auditing can improve the effectiveness, reliability, and dependability of corporate governance (Owolabi & Dada, 2011, p.173). Considering the significance of role played by auditing in corporate governance, this report highlights the contribution of internal and external auditing in corporate governance; barriers to their contribution; and recommendations for overcoming it.

Discussion

Internal Audit v/s External Audit Contribution in Corporate Governance

Internal Audit

Internal audit's function is a significant and distinct practice of governance in a company, as it is capable of complementing existing governance disclosures, enhances the confidence of stakeholders in the quality of governance, improves financial reporting transparency, and encourages the diligence of internal audit reporting (Archambeault, DeZort, & Holt, 2008, p.375). Internal auditing contributes significantly in the corporate governance of an organization, as it is an independent; objective assurance; and consulting activity established for adding value and enhancing the operations of a company. Internal audit facilitates and supports a company in attaining its goals by developing a systematic and disciplined framework for evaluating and enhancing the efficiency of control, risk management, and governance practices. Effective corporate governance ensures the that financial disclosures must be error free, where this can be ensured by internal auditors as they are the first line of defence against reporting errors, either caused unintentionally due to weak internal control of an organization or caused intentionally due to fraud (Archambeault, DeZort, & Holt, 2008, p.376). According to the Institute of Internal Auditors, internal audit is an objective activity certification and consultation that streamlines the company's operations, and besides that also streamlines the risk management process, governance, and control (Tabara & Ungureanu, 2012, p.139). Thus, internal auditing is a vital part of corporate governance and the expertise of internal auditors in control have a basic contribution in making certain the reliability and integrity of financial reports.

The internal audit committee is a significant part of the organization that is essential to implement corporate governance mechanisms. One off the most crucial function of an internal audit in corporate governance is to advise the Board of a company and the committee is morally obliged to warn the Board about any matter which is significant or pertinent for the organization's wellbeing (Caput, Hotz, & ...