Risk and Control Developments in Corporate Governance: changing the role of the external auditor?

Abstract

Are the risk and control developments in corporate governance changing the role of the external auditor? This paper examines how the concepts of risk and control are incorporated in current corporate governance promulgations and analyses the implications for the role of the external auditor. It is suggested that up till now the corporate governance debate has strengthened the position or role of the internal auditor in the advantage of the role of the external auditor. The promulgations have influenced the internal control mechanisms, and the control responsibilities have become more explicit. Dominant determinants for the future role of the external auditor seem to be in conflict, namely the value adding function of the audit with an alignment of risk oriented efforts by the auditor and the company versus the notion of “back to basics”. The external auditors ought to recognise that they must be perceived as the experts regarding internal control and risk management and that this must be engrained as part of the service rendered, i.e. part of the value adding nature of an audit. At the same time they must improve the transparency of the audit standards and the communication processes of audit reporting.