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The role of the Auditors in the UK Corporate Governance

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par N'semy Aubin Mabanza
University of Wales, Cardiff Law School - LLM (Master of laws) in Commercial Law 2004
  

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Chapter 4 Conclusion

The independence and objectivity of auditors is vital for the efficient functioning

of UK corporate governance. It is essential for business integrity, and shareholders

confidence. However, independence cannot be complete but its role is relatively

important. The current rules are inadequate and unsatisfactory to protect the

interest of shareholders, bankers and employees of companies.

Moreover, a different problem remains wrongly approached, which is the

requested independence of an external auditor. To definite independence is an

uncertain task as long as its different faces are unstable. Simultaneously, it is hard

to find an auditor remaining independent from the company which he is auditing,

both protagonists have a business relationship and even if the risk of reputation

and being investigated independence are constraints.

In recent collapses, criticisms argued that auditors were not independent in their

work. Some criticism has called into question the multidisciplinary and the

communication defect to other parties concerned in the company functioning.

As far as the multidisciplinary aspect is concerned, it is not bad in itself.

However, conflicts of interest need to be banned for the auditors who audit and

give advice in the same time to the audit client. First, firm rotation would be

seen to overcome these issues. Its benefit is that, together with the commercial

pressure to retain this long-term relationship, it may impede the independence of the

auditors at a minimum; it impacts the perception of independence. Therefore, it can

be said that individual rotation of auditors is also important. Normally, the same

auditor who sign the client account cannot stay for a long period in the

company even if the firm of auditors does not change as after some period

an auditor is a little bit linked as he have signed already in the past, he will

get used some difficulties to another strategy and becoming too close to

the audit client with whom he is involved.

On the other hand, self-regulation is an important issue. The separation of audit

and advice is irresistible. Recently the recent companies collapses, some

auditor firms sold their consultancy branches or operated a distinctive separation.

However, the auditor alerts which facilitate a co-ordination with people ( NEDs,

Lawyers, Bankers) who hold company information need to be widened.

He may have a permanent contact with the banker and other actors. After all,

if the auditor meets the investment banker only during the alert procedure then that

may accelerate the collapse of the company as everyone is aware of the problem.

On the other hand, if these meetings are institutionalised, the question is irrelevant

and every possible meeting with the investment bankers cannot launch a confidence

loss.

The auditors bring into the company an element of transparency. However, questions

still remain about the self-regulating system. If the relationship between the auditors

and the management cannot be avoided, how to establish a perfect system of

corporate governance?

It may be said that there is not a single and perfect system in modern economy.

As in some case, the collapse of a company is caused by a series of factors which

may be external from the auditor's work. More recently, some critics called

the German corporate governance as a model.

S. Suchan pointed for example that the fall of Enron has been understood primarily

as a failure of the gatekeepers, which means the intermediaries who provide

verification and certification services to the investors (e.g. securities analysts and

especially the auditors); under German law the auditor is not only considered to be a

gatekeeper, assuring the interest of the investing public (so called « Kontrollfunktion»

or « Garantiefunktion») but also acts as assistant for the supervisory board in its

184

internal control of the management. The auditors play an important role in modern

companies. Moreover, they contributed in a decisive way to the development of

welfare markets. The topic on their role is linked as on the corporate governance and

for that reason will continue for some years.

184.Dr S.W. Suchan ,« Post-Enron and German corporate governance», Cornell law School, 2004.

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