The audit trinity: the key to securing corporate accountability

Abstract

PurposeThe purpose of this paper is to distinguish between corporate accountability and corporate governance, explore the development of corporate accountability and examine the role of the tripartite audit function in securing this accountability.Design/methodology/approachA normative approach has been adopted and the research is based, primarily, on an examination of relevant literature.FindingsSociety facilities the growth of economic entities by providing them with resources. As their command over resources increases, these entities gain significant economic, social and political power and accountability is demanded of their managers as a check on possible abuse of this power. Historically, as companies have increased their power in society, those to whom and that for which their managers are held accountable have been extended. Today, the managers of large public companies are considered to be accountable to society as a whole for a wide range of corporate activities. The discharge of corporate accountability traditionally relied on the preparation and audit of accountability reports (financial statements). However, from the 1990s, responding to the increasing severity of the impact on society of unexpected corporate failures – and continued failures – responsible corporate governance was added as an accountability requirement. Further, as the activities for which companies are accountable have been extended (paralleling the growth of their “power” in society), so corporate responsibility information has featured as an element in their accountability reports. As these changes have occurred, the importance of the tripartite audit function in securing corporate accountability has come to be recognised and its members – the company's external and internal auditors and its audit committee – have become increasingly multi‐disciplinary in nature.Originality/valueThe paper explores the questions of why corporate accountability arises and how it is discharged. It explains the relationship between corporate governance and accountability and the role of the audit function in securing corporate accountability. It also provides insights into changes occurring in the audit function and how these might develop.

Audit Expectation‐Performance Gap Revisited: Evidence from New Zealand and the United Kingdom. Part 2: Changes in the Gap in New Zealand 1989–2008 and in the United Kingdom 1999–2008

“…These developments resulted in calls by politicians, the media and society in general (in the UK and NZ, as elsewhere) for greater corporate accountability and responsible corporate governance – and for external auditors to play a more active role in combating corporate ills (Porter, 1997, 2009). Responding to these calls in the UK, in 1991 the Financial Reporting Council (FRC), the London Stock Exchange and the Institute of Chartered Accountants in England and Wales (ICAEW) established the Committee on the Financial Aspects of Corporate Governance (CFACG; Cadbury Committee).…”

“…During the past 100 or so years, criticism of external auditors and loss of confidence in their work have been fuelled by the unexpected demise of major companies shortly after receiving an unqualified audit report and by well‐publicised cases of corporate fraud of which the auditors gave no warning (Carty, 1985; Russell, 1986; Chandler & Edwards, 1996; Porter, 2009). The criticism and loss of confidence in auditors results from their failure to fulfil the responsibilities expected of them by society 1 – that is, from the audit expectation‐performance gap 2…”

What’s mine is mine; what’s yours is mine: private ownership of ICTs as a threat to transparency

“…While some support a formal auditing protocol (Morimoto et al 2005), and accounting professionals have proposed incorporating social auditing within their functions (Porter 2009;Savitz and Weber 2006), others have suggested that public auditors are not the proper professionals for the job (Henriques 2001;O'Dwyer 2001) and that social scientists should have an important role (Boele and Kemp 2005). Regardless of who performs an audit, when a system for accountability is enforced there is a tendency to massage the information provided in order to fit the process (Neyland 2007).…”

Spotlight on the Design of European Audit Committees: A Comparative Descriptive Study

“…It is of importance to address this question, because competent and independent ACs can strengthen and maintain investor confidence in financial information and markets (Davidson, Xie & Weihong, 2004; DeFond, Hann & Hu, 2005; Porter, 2009). Since investor confidence in capital markets is a prerequisite for widely available sources of funding and the evolution of capitalism and prosperity (Bernstein, 2004), European policymakers and corporations should have a keen interest in specifying AC design standards that contribute to AC effectiveness and legitimacy.…”