Statutory Auditors' Independence in Protecting Stakeholders' Interest

An Empirical Study

Mitrendu Narayan Roy, Siddhartha Sankar Saha

• Éditeur: Palgrave Macmillan
• Année: 2018
• ISBN:
  9783319737270
• Sujet: Negocios y empresa
• Sous-sujet: Contabilidad financiera

Corporate failures and accounting scandals have shaken the foundations of investors' confidence in the transparency, integrity and accountability of corporations and financial markets. There have also been public disquiet about the role of professional auditors and audit firms, who had been associated with these corporate scandals. Written from a global perspective, the book assists in understanding the gravity of independent attitude of statutory auditors in protecting stakeholders' interest and examines the effectiveness of the existing standards and other legal and regulatory requirements in enforcing statutory auditors' independent engagement. It then suggests modifications in those regulations. The study has been made through seven chapters in order to address empirically statutory auditors' independence in protecting stakeholders' interest. Primary audiences of the book are researchers in finance and control, students, and professionals in the field of accounting and auditing.

© The Author(s) 2018

Mitrendu Narayan Roy and Siddhartha Sankar SahaStatutory Auditors’ Independence in Protecting Stakeholders’ Interesthttps://doi.org/10.1007/978-3-319-73727-0_1

Begin Abstract

1. Introduction

Mitrendu Narayan Roy¹ and Siddhartha Sankar Saha²

(1)

Goenka College of Commerce and Business Administration, University of Calcutta, Kolkata, West Bengal, India

(2)

Department of Commerce, University of Calcutta, Kolkata, West Bengal, India

Mitrendu Narayan Roy (Corresponding author)

Siddhartha Sankar Saha

End Abstract

1.1 Preamble

Financial transactions made by a business enterprise are translated into accounting language when preparing financial statements in accordance with generally accepted accounting principles (GAAPs), statutory norms, pronouncements and announcements of the professional bodies and so on.¹ Management of the company is under the legal compulsion to prepare official financial statements comprising profit and loss account, balance sheet, notes to accounts, schedule of accounts and cash flow statement, and so forth. These financial statements are made to communicate financial information to the stakeholders of a corporate enterprise at a regular interval as they are interested to know the financial information and future prospect of the business for the purpose of decision-making. Therefore, preparers of these statements are supposed to be ethical in discharging their duty and they must ensure that financial information is materially accurate , fair and managerial judgements used to apply an accounting principle in particular circumstances are appropriate.² Financial reports must exhibit a ‘true and fair’ view of operational results and the financial affairs of the business enterprise in terms of protecting stakeholder interests. Hence, the verification and authentication of financial statements of corporate enterprises by a competent external authority is a statutory requirement in most developed and developing countries across the globe. Accountants with an affiliation to a professional body are normally appointed by the shareholders of the corporate enterprise to perform this role. These individuals are known as independent statutory financial auditors.³ Based on audit evidences collected from internal and external sources and their professional judgements, they conduct a rigorous audit procedure and form their opinion on financial statements in their audit report in order to state as to whether financial statements reveal ‘true and fair’ view of the operational results and financial position of the business enterprise.⁴ Many sections of the stakeholders perceive that audited financial statements are free from manipulation and fraud . Thus, auditors are supposed to play a significant role in the economy by protecting stakeholder interests.⁵ Since the financial decisions of a large part of the society related to business depends upon auditors’ opinion, regulatory authorities in a country enforce certain guidelines to ensure their independent and unbiased functioning.⁶ In India , professionally qualified chartered accountants (CAs) are supposed to play their independent role as statutory financial auditors. Professional pronouncements such as company law, standards on auditing, quality control standards and codes of conduct, issued by the government and professional bodies such as the Institute of Chartered Accountants of India (ICAI), aim to guide them in maintaining good faith, integrity , independence and transparency. Any underperformance of these functions or non-compliance with any binding rules is considered a serious matter.

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