Auditing is a process of evaluating and analyzing financial records which majorly includes financial statements and overviewing the status of inventory to make sure all departments are working efficiently and following the norms while recording every transaction.
Auditing in India can be categorized into two types-
Internal Audit offers ample opportunity of managing the risk by scrutinizing company’s internal management in order to check company’s finances and analyzing the efficiency in operational activities of the company.
Internal audit caught flaws and inadequacy in any form before conducting external audits.
Internal audit can be conducted by an autonomous party or company’s internal employees.
Statutory audits are conducted for each financial year (1st April to 31st march) in India.
Analyzing the financial records as per the arrangements of the Statute to keep an exact and fair picture of financial transactions.
An auditor shall evaluate in accordance of the provisions and guidelines of the Companies Act.
Statutory Audit is fundamental for guaranteeing the dependability of an organization’s yearly records of different stakeholders such as bankers, government, debtors, shareholders and creditors.
Role of Auditors in Corporate governance in India: An Overview
On overviewing the Infrastructure Leasing and Financial services (IL&FS) crisis and Punjab national bank scams fabricated a hoax, a situation or relation of uncertainty among stakeholders. After this, the role of corporate governance came into the picture.
Corporate governance involves the consideration of the interests of various stakeholders such as management, suppliers, debtors and government in order to maintain an environment of peace and harmony and to present a clear picture of a company’s financial position by analyzing its corporate affairs.
Auditors help in the conducting risk assessment procedure and planning mitigation policies. They analyse the tolerance of risk a company can afford and provide measures to reduce risk in future.
External auditors play a vital role in assessing the security measures a company can possess against any corporate fraud. They regulate the compliance as per the norms of organization.
Moreover, the main role of auditor is to protect the interest of shareholders and various stakeholders of the company.
Preparation of reports independently by auditors without any manipulation by the company can help to ensure good corporate governance.
The dedication and work put in by an external auditor helps in stimulating a strong connection with controllers. Once the auditing is done smoothly, it’s easy to influence and grab their trust.
Aside from analyzing the organization’s records and reports, nowadays auditors are likewise get approached to have a view on internal working and functioning of the company.
However, we can say that the setting up of an auditor committee and the role of auditor play a critical role in an organization.Various stakeholders consult auditors in financial matters of an organization.
A well qualified, experienced and experienced auditor with deep knowledge is there to guide the company at every path, scams cases and crisis would just be a word in the dictionary. As, when directors are specialists, qualified, experienced and knowledgeable, they can have vision and foresightedness to secure their partners.
How auditing affects corporate governance
Corporate administration is the framework by which associations are coordinated and controlled. It incorporates the connection between the governing body, investors and different partners, and the impacts on corporate methodology and execution.
Corporate administration is significant in light of the fact that it takes a gander at how these chiefs act, how they can or ought to be checked, and how they can be considered answerable for their choices and activities.
The distributed examined budget reports and related data are accordingly of key significance. They will normally be the primary data set to which investors and different partners approach and this is the reason having trustworthy fiscal summaries upheld by the reviewer’s assessment is critical.
Corporate Governance is a contemporary issue in the business world. It very well may be depicted as an organization’s by and large productive control to guarantee straightforwardness and complete honesty in association transactions.
Moreover, the role of auditors enhances corporate governance because of following reasons-
Promotes legality- Policies directed by the external auditors are formulated to ensure accountability in an organization. In case of any manipulation in the financial statement of companies , auditors can assign penalties. Therefore, we can say that the role of auditor is vital in investigating from the scratch in case of doubtful activity.
Presenting the interest of shareholders- The primary motive is to protect the interest of stakeholders and shareholders to ensure that the board receives reliable information by attesting the financial records efficiently.
Developing a crisis management system- Corruptions and frauds are situations where a good crisis management policy could ensure an effective corporate governance. A quick action plan by auditors can save from number losses and frauds.
Assessing the amount of risk- Auditors act as a hero for a company by evaluating the amount of risk against a corporate fraud by conducting risk assessment sessions at regular intervals.
Moreover, maintaining good relations with regulators can foster corporate governance in one way or the other. Companies with transparency in their operations attract regulators and gather their trust.
The auditor will follow and assess each report as per the arrangements and enactment of the Company Act. Legal is fundamental for guaranteeing the unwavering quality of an organization’s yearly records of different partners like debt holders, leasers, investors, investors and government.
However,an auditor is an approved staff that audits and confirms the precision of monetary records and guarantees that organizations agree with charge standards. Their principally objective is to shield organizations from extortion, feature any disparities in bookkeeping techniques, in addition to other things.
Since the expectation of the stakeholders is loyalty and faith in auditors by resolving the financial issues and to protect the interest of stakeholders. Auditors play a vital role in scrutinizing and evaluating the financial records as prescribed by the auditing standards.