The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis

Abstract

Corporate governance is of growing importance in Australia, New Zealand and all over the world. Corporate governance interacts with auditing and it is useful to understand how corporate governance and auditing affect companies. However, the interaction is not straight forward. To some extent, good auditing will lead to recommendations that will lead to improved governance; while on the other hand, good governance will lead to directors setting high standards including demanding a high standard of auditing. A related issue is whether better governance is a substitute for auditing or a complement. Previous studies of that issue have had mixed results. This review article provides a synthesis of Australian and New Zealand research about corporate governance and auditing that takes stock of what has been found and examines issues that can be explored using multiple studies. We conclude that despite extensive research, there is still considerable uncertainty about the effects of corporate governance mechanisms on auditing and the effects of auditing on corporate governance. The results are intended to be helpful in providing advice about policy in Australia and New Zealand, and in determining directions for new research.