ROLE OF AUDITORS IN ENHANCING CORPORATE GOVERNANCE

A Seminar Paper
Presented to:
School of Business
The Faculty of Management Studies
Pokhara University

In Partial Fulfillment
of the Requirements for the Degree
Master of Business Administration

Submitted by:
Nabin Ghatane
18220204

Pokhara
August, 2020
 ABSTRACT

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting
the way a corporation (or company) is directed, administered or controlled. Corporate
governance is gaining more importance in the recent times due to failure of corporate and wide
dissatisfaction among the people with the way corporate works and hence became a widely
discussed topic worldwide. Corporate governance is mostly referred as structure as well as the
relationship which sets corporate direction and outcomes. In any organization having public
shareholders, board of director is central to the system and the working mechanism of corporate
governance. It has critical relationship, primarily with the shareholders and the management.
This paper, in light of various international articles, attempts to identify the role of audit and
compliance in maintaining good corporate governance with reference to banking industry of
Nepal. With the evaluation of different set of articles, rules and regulations, it is concluded that
audit and compliance are two important tools to be enclosed in corporate governance framework
for a company. Internal audits are mainly value adders to the companies’ net worth and external
audits are performed to maintain transparency and for the compliance of international and
national standards, rules, regulations and guidelines. Most of the failure of financial institutions
has resulted from misappropriation of funds, lack of transparency and disclosure that
unfavorably affect the public confidence in the reliability of performance of financial
institutions. independent oversight function of management.
 ACKNOWLEDGEMENT

This paper has been presented for the partial requirement of the degree of Master in Business
Administration. The paper explains the role of Auditors in enhancing Corporate Governance.
Finalization of this paper was not possible without the help and guidance of various people for
whom I wish to express my gratitude.

At first, I would like to express my gratitude to Mr. Surya Bahadur GC (Course Facilitator,
Corporate Governance, Pokhara University) to provide the opportunity to prepare this report and
taking this as a part of examination and marking.

The author want to acknowledge all the peoples for sharing their stories and perspectives
regarding corporate social initiatives, and in many cases, taking the time and effort to complete
survey.

I take this opportunity to express gratitude to all of the Department faculty members for their
help and support. I also thank all the people for the unceasing encouragement, support and
attention.

Thank You

Nabin Ghatane
 TABLE OF CONTENTS
Title Page
Abstract
Acknowledgement

Chapters Page No.

Chapter I: Introduction 1-5
1.1 Background 1
1.2 Statement of the problem 4
1.3 Significance of the study 4
1.4 Limitation of the study 5

Chapter II: Review of the literature 6-14

2.1Review of the literature 6
2.2 Analysis of the literature 9

Chapter III: Conclusions and Recommendations 16-18

3.1 Summary 16
3.2 Conclusions 17
3.2 Recommendations 18

Reference
 CHAPTER I
INTRODUCTION
1.1 Background

There is no single definition of corporate governance that can be applied to all situations and
jurisdictions. The various definitions that exist today largely depend on the institution or
author, as well as country and legal tradition. Here are some definitions by a variety of
organizations.

"Corporate governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation, such as, the board, managers,
shareholders and other stakeholders, and spells out the rules and procedures for making
decisions on corporate affairs. By doing this, it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and monitoring
performance.

Corporate governance also takes into account audit procedures in order to monitor outcomes
and how closely they adhere to goals and to motivate the organization as a whole to work
toward corporate goals. By using corporate governance procedures wisely and sharing
results, a corporation can motivate all stakeholders to work toward the corporation’s goals by
demonstrating the benefits, to stakeholders, of the corporation’s success.

Primarily, though, corporate governance refers to the framework of all rules and relationships
by which a corporation must abide, including internal processes as well as governmental
regulations and the demands of stakeholders. It also takes into account systems and
processes, which deal with the daily working of the business, reporting requirements, audit
information, and long-term goal plans.
Corporate governance provides a roadmap for a corporation, helping the leaders of a
company make decisions based on the rule of law, benefits to stakeholders, and practical
processes. It allows a company to set realistic goals, and methodologies for attaining those
goals.
Corporate governance refers to the system by which corporations are directed and controlled.
The governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation (such as the board of directors, managers,
shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules
and procedures for making decisions in corporate affairs. Governance provides the structure
through which corporations set and pursue their objectives, while reflecting the context of the
social, regulatory and market environment. Governance is a mechanism for monitoring the
actions, policies and decisions of corporations. Governance involves the alignment of
interests among the stakeholders.

With the increase in size of global market, doing business globally has become more risky
every day. More numbers of scandals relating to governance has come in news portals.
Historically, managers lost their sense of doing business and forget their ethics to maximize
the shareholders’ interests. Earnings were increasingly used to show the success of the
company which led to creation of book keeping gymnastics to falsify the actual financial
performance. Powers provided to board were strategically used by big investors to approve
decisions in their favor. Short term financial performance was overly rated so focus was
shifted from long term to short term. These all events led to use of unethical practices to
increase or show higher earnings in a short period of time. The world’s reaction to these
corporate manipulations was massive and led to development of laws and codes for better
governance at corporations

Evolution of corporate governance could be traced out through the Cadbury Report 1992 of
UK to OECD principles of CG, 1999. Latest development in history of corporate governance
is OECD principles, 1999 which are used world widely, as guidelines to outline CG
framework for any particular firms. OECD principles include:
 Rights of shareholders must be protected.
 All shareholders must be treated equally.
 All stakeholders must be allowed to play due role.
 Timely and accurate disclosure must be done,
 Accountability and responsibility of directors

While talking about the increased complexities in business environment, organizations now,
have realized the importance of good corporate governance. Before talking about benefits of
good corporate governance, it is necessary to know how absence of good governance i.e.,
presence of bad governance environment is hazardous to the organization characterized by
multiplicity of interest of its shareholders. Poor corporate governance is directly related to
corporate failure. Though not all corporate failure are due to poor corporate governance , the
general implication of poor corporate governance of a company is an inability to achieve the
intended purpose of the company, and its reason for being is defeated. Poor corporate
governance fails to integrate the differences in the interest of its all shareholders. So it
ultimately led to increased irrational decision making that benefits particular group of
investors. Poor corporate governance also creates the agency problem between shareholders,
creditors and managers.

Openness, transparency, accountability and equity are some major features of good corporate
governance. In today’s economies, interest in corporate governance goes beyond that of
shareholders in the performance of individual companies. As companies play a pivotal role in
our economies and we rely increasingly on private sector - institutions to manage personal
savings and secure retirement incomes, good corporate governance is important to broad and
growing segments of the population. Furthermore, good corporate governance encourages the
investors for long term holding of their interest in particular organization that enhance the
longer term prosperity. Adoption of an effective corporate governance system, within an
individual company and across an economy as a whole, helps to provide a degree of
confidence that is necessary for the 4 proper functioning of a market economy. There is
global agreement on the fact that corporate governance has a positive link to national growth
and development.

There are various aspects of governance that differently play their role in shaping good
governance framework in any organization. This paper here, tries to explore the importance
 of audit and compliance for maintaining good corporate governance. A company may require
several compliance audits that requires certification by a regulatory body to verify that it is in
compliance with mandatory guidelines to review regulatory adherence in multiple
departments, such as finance, IT, manufacturing, human resources, and, in the case of certain
types of financial firms, marketing and sales. Compliance audit procedures may be conducted
internally, but are usually facilitated by the certifying organization.

1.2 Statement of the Problem

There is confusion in people about the role of compliance audit in maintaining good
corporate governance. This paper aims to explain the relationship between compliance audit
and corporate governance. Major statements of problem of this statement are:
 To state about compliance audit and its nature
 To show the relationship between compliance audit and its role in maintaining good
corporate governance.

1.3 Significance of the Study

There are various factors that play important role in corporate governance. Shareholders are
always concerned about their profits or returns from the business and progress of the
company on which they make investment. Thus compliance audit helps to analyze and reveal
the financial return and position improvement of a company. This paper attempts to explain
the role of internal and external audit as method to comply with the given guidelines for
maintaining the good corporate governance

1.4 Limitations
This paper is based on the secondary sources such as reports, journals, researches, articles
and books which may not be sufficient for the prediction and project the future scenario of
external audits and corporate governance. With the limitations of the time and resources, this
paper is just a general insight into the single factor of corporate governance. Paper is based
on few literatures and their brief review. It has less coverage of the vast reality on the aspect
of audit and compliance role in corporate governance. In the part of audit, it mainly focuses
on financial audit only.
 CHAPTER II:
AUDIT AND CORPORATE GOVERNANCE

2.1 Literature Review .

This chapter of literature review deals with how previous researches have recognized problems
related to corporate governance and how studies have been conducted to address those problems.
It also attempts to show the importance of audit and compliance in maintaining good corporate
governance by relating to different research conducted at different countries at different market
in the world business environment.

Systematic analysis of past research studies provides more insight into the area of study under
desired topic. There are number of research conducted on corporate governance and its
implications in large organizations. These all studies can be somehow related with this topic.
There are lots of studies that were conducted previously focusing on role of audit and
compliance in corporate governance. However, there is a need for the assessment of how
auditors’ accountability and firms’ compliance to regulations are important for maintaining good
corporate governance. Audit can be both internal and external. Internal audit is conducted
internally by internal auditors, and external audit is conducted to verify the credibility of internal
audit of financial statements by certified auditor.

As defined by the Institute of Internal Auditors “Internal auditing is an independent, objective

assurance and consulting activity designed to add value and improve an organization’s
operations. It helps an organization accomplish its objectives by bringing a systematic,
disciplined approach to evaluate and improve the effectiveness of risk management, control, and
governance processes”. This clearly reflects that the role of the internal audit function must be
set and looked at positively rather than negatively. That positive role must go beyond the
traditional concept of controlling and safeguarding corporate assets, regulatory compliance and
enforcing corporate policies.

internal audit is rather to focus on value creation for an organization, and on evaluating and
suggesting improvements to corporate governance systems of organizations. Internal auditing is
an independent, objective assurance and consulting activity designed to add value and improve
an organization's operations. It helps an organization accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and improve the effectiveness of risk management,
control, and governance processes. Internal auditing is a catalyst for improving an organization's
governance, risk management and management controls by providing insight and
recommendations based on analyses and assessments of data and business processes as defined
by Jabali,Abdalmanan and Ziadat (2011). The scope of internal auditing within an organization
is broad and may involve topics such as an organization's governance, risk management and
management controls over: efficiency/effectiveness of operations (including safeguarding of
assets), the reliability of financial and management reporting, and compliance with laws and
regulations. Internal auditing may also involve conducting proactive fraud audits to identify
potentially fraudulent acts; participating in fraud investigations under the direction of fraud
investigation professionals, and conducting post investigation fraud audits to identify control
breakdowns and establish financial loss (Alabede, 2012) Internal auditors are not responsible for
the execution of company activities; they advise management and the Board of Directors (or
similar oversight body) regarding how to better execute their responsibilities. As a result of their
broad scope of involvement, internal auditors may have a variety of higher educational and
professional backgrounds. External audit of corporate operations and financial statements in
most countries has statutory backing. Corporate audit by external auditor is made compulsory by
laws to address agency problem arising from the separation of ownership from corporate
management (Coyle, 2010; Solomon, 2010). At the same, the audit is regulated to ensure quality
of work and minimize abuse in the audit process (ICAEW, 2009). Audit can be performed from
different aspects of a company. Thus, following are the different types of audit conducted to
improve the overall performance of the company.

 Financial Audit : Financial audits typically involve a focus on financial controls as they relate
to reporting. These audits focus on accounting controls present in the general ledger or sub-
ledger systems. Financial statement auditing is the focus of our external auditors. Internal Audit
will complement the work they perform based on an agreed plan.

 Operational Audit: Operational audits focus on the review and assessment of a business
process. The activities of the business process may result in a direct or indirect financial impact
to the organization such as the collection of student tuitions or patient account balances. Internal
Audit primarily focuses on operational audits but can extend the scope to include accounting
procedures that can impact financial reporting.

 Compliance Audit: Compliance audits review the level of compliance with internal policies or
external regulatory requirements.

 Information Systems Audit: Audits of Information Systems look at the overall infrastructure
and network of the University and the controls that relate to the security of the network and the
systems that are maintained in support of the goals of the University. They also include technical
operations, data center operations, project management procedures, and application controls.

 Integrated Audits Audit: Integrated audits look at controls that address financial, operational,
compliance and information systems risks. These audits are typically centered on a business
cycle or a specific part of a cycle or process.

Referring to the corporate governance mechanisms, a significant role is assigned to the external
auditor, which because of the increasing public’s pressure is called to prove that the significance
of external audit in testing the reliability of financial reporting process. In order to achieve this
objective, external audit should have a full knowledge of the complexity of accounting and
financial rules, starting from the premise that external auditor is the person authorised that should
be able to properly assess the effectiveness of the way the directors are managing the financial
health of the companies (Sikka et al, 2009). 9 Lawrence (1992) cited by Braiotta et al (2010)
realised a study focusing on the effectiveness of audit committee from both external auditors and
audit committee members of 34 publicly held companies. His findings showed that the audit
committee practices were not quite uniformly effective and in some cases the auditors assess
committee members significantly lower than members do. Lawrence’s study revealed since
almost twenty years the necessity of improving the relationships between audit committee,
management and auditors, concluding over the imperative need to find the right balance “of the
committee’s involvement with audit fees, audit scope, audit results and internal controls”.

Ojo (2009) has studied, the role of external auditors in corporate governance: agency problem
and the management of risk. This paper advises the means whereby agency problems could be
addressed but also considers various ways in which the external auditor and audit committees
contribute as corporate governance tools. It concluded that external auditors are responsible as
fundamental compliments in assisting to achieve the desired targets of corporate governance.
Pandey/Vyas, Hetal (2013), in an article, Corporate Governance: Role of auditor and auditing
committee, attempted to scrutinize the role of auditors and auditing committee in protecting the
interest of shareholders and investing community. This article has included two factors: internal
auditor and external auditor and discussed their role in corporate governance by studying case of
Enron and the company SATYAM. This research has explained that laws and regulations, being
responsible professionals and representatives of shareholders and investing community, Auditing
committee and auditor should perform their role carefully and ethically to secure interest of not
only company and investors but all stakeholders.

2.2 Analysis of Literature

All articles considered in this paper for literature review are focused on the aspect of audit and
compliance for developing robust corporate governance framework. Not all articles are free from
limitations. Some are more focused on one aspect and some are in 10 other. So, a thorough brief
analysis of these articles in included here in relation to the topic of this study.

It is claimed that regulation of auditing profession has been “wrested from the hands” of the
accounting bodies and taken over by the UK government (Marcus, 2006). Marcus (2006) argued
that the situation which the profession is presently suggests that “new problem,” “new scandal”
and “new regulation”. Added to this, the cost of complying with numerous regulations is
becoming great. Critics have pointed out that implicit and explicit costs of the excessive
regulations may be greater than the benefits accruing to the society (Bernnan and McGrath,
2007).

Evidence shows that after the passage of Sarbanes Oxley (SOX) Act 2002 in US, there were
several cases of corporate accounting scandal that followed, for instance, the scandal of AIG in
2004, Lehman Brothers in 2010. The recurring cases of accounting scandal in recent time are
indication that regulation alone cannot solve the problem confronting corporate audit. Perhaps
consideration should be given to morality. Center for European Law and Politics, University of
Bremen spell out in the report The role of external auditors in corporate governance: agency
problems and the management of risk “The External auditors can impact the risk taking
incentives of management through an appropriate application of accounting policies. However, it
is also important to ensure that rules (in the event of a breach of accounting polices) are
correspondingly enforced. The external auditor’s responsibilities and the audit committee’s role
in corporate governance are fundamental complements in helping to achieve the desired aims of
corporate governance. The report of the review group on Auditing concluded that “In most cases
the internal auditor no longer performs work similar to the external auditor. However the
external auditor should make use of the work of the internal auditor and the internal auditor’s
output should be considered by the external auditor who decides whether and to what extent
reliance canbe placed on the conclusions and the work of the internal auditor.” Poudel, R. &
Hovey, M (2011) has examined the impact of corporate governance mechanism i.e. board size,
independence and diligence, audit committee size, 11 independence and diligence and ownership
structure in the performance of banking industry in Nepal.

The study has contributed to the existing literature from different perspective.. The study has
covered more recent period, when most of the regulatory decisions were taken by the central
bank of Nepal for the corporate governance. The findings of this study have important
implication for bank in Nepal since it is found that strong board size and audit committee size
and higher proportion of independent director in audit committee, lower frequency of board
meeting and lower ratio of institutional ownership has better influence in Nepalese banks.

The result about audit committee diligence and efficiency suggests that effectiveness of audit
committee meeting may be hampered with overloaded agenda which recommend the importance
of quality meeting for the efficiency of firm. The role of audit committee and auditors in current
scenario become very crucial. Stakeholders expect loyalty and trust from auditor and auditing
committee while resolving financial facts and exposing at all fraud and fault in organization. Ojo
(2009) has focused on risk management aspect relating to agency problem.

The study has talked about how in absence of corporate governance, accountability function
could be performed in wrong way. It has introduced supervision and monitoring of management
performance as fundamental to corporate governance, ensuring accountability of management to
shareholders and other stakeholders. Similarly this study has focused on role of external audit
committee as major tool to corporate governance, to resolve agency problem. Limitation of this
paper is that it has covered only the external auditors’ role in corporate governance in any
organization. It is summarized by Pandhya, H. (2013) that the audit committee member’s
experience, relevant exposures, qualification background and in depth knowledge need to be
highlighted and confirmed because if directors are experts, experienced, qualified, financial
wizards, then they can have vision and foresightedness to protect stakeholders. If a company has
an active and strong audit committee then independent auditors’ working will be supported.
Further the system of selection and appointment of auditor on their quality and experience need
to be explored.

Over and above laws and regulations, being responsible professionals and representatives of
shareholders and investing 12 community, Auditing committee and auditor should perform their
role diligently and ethically to secure interest of not only company and investors but all
stakeholders. This is possible when independent directors will have their own weight and right to
ask questions to management, which in turn will give strength to auditor to be ethical.

2.4 Audit Committee formation in context of Nepal

Audit Committee- Provisions of Company Act 2063

a. Audit Committee-Mandatory for whom Listed companies with paid up capital thirty
million or more and companies which
b. b. Composition At least three members required, under the chairmanship of a director
who is not involved in day-to-day affairs of company. Close relative of Chief Executive
not eligible for being member of the committee.
c. c. Qualification & Experience At least one member shall be expert having professional
certificate on accounting OR experienced in accounting and finance obtaining at least
bachelor’s degree in accounts, commerce, management, finance or economics.
d. d. Main Functions
• Review accounts and financial statements.
• Ascertain truth and facts in such statements.
• Review Internal Financial Control System and Risk Management System.
• Supervise and review Internal Auditing Activity.
 • To recommend the names of potential external auditor; fix remuneration, terms,
conditions.
• Review and supervise compliance of auditor towards standards, regulations, etc.
• Formulate policy related to Accounts; and appointment and selection of auditor and
implement it.
• To assist in forming and providing long form audit report, if regulatory body requires.

2.5 Provision for Auditing In Nepal

2.5.1 Banking Sector

In case this Bank deems it necessary, it may to conduct due diligence audit (DDA) to
acquire information with regard to business condition of the Banks and financial
institution having no adequate capital fund and the concerned institution has to bear the
expenses to be incurred there for. Actions may be taken in case Directives as to capital
fund are not followed:
(a) In case the licensed institution belonging to classes “A”, “B” and “C” do not follow
the Directives relating to the capital fund, actions shall be taken according to the Prompt
Corrective Actions Byelaws, 2007.

(b) In case the licensed institution belonging to class “D” could not maintain the capital
fund in the prescribed ratio, the Board of Directors shall have to show the reason for
failing to maintain the capital fund and the capital plan or program for making the capital
fund adequate within 35 days. With reference to the proposed plan or program submitted,
the Bank may issue Directives to maintain the capital fund within the period prescribed
by this Bank. In cases where the capital fund is inadequate, dividend and bonus shares
shall not be distributed.

c) In case Banks and licensed institution failed to maintain the capital fund at a particular
period within a fiscal year but it was able to maintain the capital fund at the end of the
fiscal year, even then the cash dividend and bonus share shall not be allowed to be
distributed. However, this clause does not cause hindrance in declaring/distributing bonus
 shares in case the capital adequacy in the ratio prescribed by the financial statement
certified by an external auditor at the end of that fiscal year.

(d) Though the capital adequacy has been maintained at the ratio prescribed by the
financial statement certified by an external auditor at the end of any fiscal year, even then
the licensed banks or financial institution shall not be allowed to declare/distribute
dividend and bonus if prompt corrective actions are implemented during the time from
the date of completion of the said fiscal year to the date of approval by the Annual
General Meeting and the restriction for the same are not removed.

2.5.2 Methods of Audit in Auditor General

(1) The Auditor General may conduct final audit of the financial activities and other
activities relating thereto of the offices, bodies or organizations under its jurisdiction,
either in detail or sporadically or in samples, prescribe scope, methodology and timing of
audit and present the facts obtained therefore, make critical comments thereon and submit
its reports.
(2) The Auditor General may, if it deems necessary in course of audit, exercise the
following powers
(a) To check at any time the status of the program and project being operated
under the grants obtained by Nepal Government and examine documents relating
to accounts;
(b) To require contractors of government contracts to produce relevant documents
or other evidence relating to the contract, which are supposed to be in his
possession;
(c) To hire services of any expert on the task of audit and, if necessary, engage
him under contract with reasonable remuneration.

Matters to be audited

The Auditor General, with due regard to the regularity, economy, efficiency, effectiveness and
propriety, shall audit following matters to ascertain whether;
(a) The amount appropriated in the concerned heads and sub-heads by the Appropriation
Act for respective services and tasks have been expended for the specified purposes of
designated services or tasks within the approved limit;

(b) The financial transactions comply with the existing laws and the evidence relating to
items of income and expenditure are sufficient;

(c) The accounts have been maintained in the prescribed forms and such accounts fairly
represent the position of the transactions;

(d) The inventory of government assets is accurate and upto-date, and the arrangement
for protection and management of governmental property is adequate;

(e) The arrangements for internal audit and internal control of cash, kind and other
governmental property against any loss, damage and abuse are adequate and if so, are
they pursued;

(f) The accounts of revenue, all other incomes and deposits are correct and the rules
relating to evaluation, realisation and methods of book keeping are adequate and if so, are
they followed;

(g) The accounts relating to public debts, security, deposit, Debt Relief Fund and the
amounts set aside for debt services and repayment of debts are accurate;

(h) The organisation, management and job allocation of the office are sufficient and
proper and are they operating accordingly;

(i) Any function is being unnecessarily performed in duplication by any employee or

agency or any essential function is being omitted;

(j) The available resources, means and assets are properly utilized and the maintenance
and preservation thereof against any loss or damage has been properly arranged;

(k) The progress has been achieved within scheduled time and the quality and quantity of
the work is satisfactory;
(l) The objective and policy of the Office is explicit and the program is delineated
conforming to the specified objective and policy;

(m)The program is being implemented within the limits of approved cost estimate and the
proceeds received in comparison to the cost is reasonable;

(n) The arrangements for maintaining data relating to target, progress and cost are
adequate and reliable;
 CHAPTER 3

SUMMARY, CONCLUSION & RECOMMENDATION

3.1 Summary

Corporate governance refers to the system by which corporations are directed and controlled.
The governance structure specifies the distribution of rights and responsibilities among different
participants in the corporation (such as the board of directors, managers, shareholders, creditors,
auditors, regulators, and other stakeholders) and specifies the rules and procedures for making
decisions in corporate affairs.

Corporate governance is mainly concerned with protecting investors, lenders, shareholders and
other stakeholders of the company. With the increase in size of global market, doing business
globally has become more risky every day. More numbers of scandals relating to governance has
come in news portals.

The audit committee plays an important role in ensuring the integrity of financial reporting by
working with management to determine standards for quality, transparency, and controls.
Internal auditing is an independent, objective assurance and consulting activity designed to add
value and improve an organization's operations.

It helps an organization accomplish its objectives by bringing a systematic, disciplined approach

to evaluate and improve the effectiveness of risk management, control, and governance
processes. The external audit assesses the validity and reliability of publicly reported financial
information. Because management is responsible for preparing financial reports, shareholders
expect an objective third party to provide assurance that the information is accurate. Openness,
transparency, accountability and equity are some major features of good corporate governance.
In today’s economies, interest in corporate governance goes beyond that of shareholders in the
performance of individual companies.

Number of acts and regulations, mentioned in literature analysis part are complied to minimize
the risk related with operation and capital. Articles reviewed in this study have also focused on
audit and compliance factors as important indicator of good corporate governance. Those
companies complying with the international and national standards for preparing financial
reports, compliance to the acts and regulations that works best for protecting shareholders and all
stakeholders are perceived as best performer in corporate governance aspect.

3.2 Conclusion

Companies hold money, effort and interest of large number of stakeholders. So the major
concern of the companies should be on protecting their money, providing highest return to their
effort and protecting their interest from risk. Management committee is mainly responsible for
developing robust CG framework and incorporating all the activities within that framework. CG
framework thus is important for maintaining better public image of the company. Similarly,
many studies have coined out audit and compliance as major tools of CG framework that protect
the right of stakeholders for transparency, information and equitable treatment to shareholders.
From this study, following conclusions can be drawn in the part of role of audit and compliance
in good corporate governance:

 Internal auditors and their role are crucial for minimizing and mitigating risk taken by the
company.
 In the absence of internal auditors, chances of misuse of companies’ power, authority
and role is higher.
 Internal auditors are always value adders to the companies’ net worth. They ease the
evaluation, risk management process, measuring and monitoring performance and
internal communication in order to take corrective action.
 External auditors are important mainly for minimizing the agency problems between
management committee, investors and creditors.
 External audits are prepared to comply with the set of rules and regulations by
government. It also helps to enhance public credibility in firms’ purpose and existence.
3.3 Recommendations

CG framework is very important tool for obtaining the trust of public, investors and creditors.
They are the important aspects that need to be taken care for long term survival of the
company. Mainly in Nepal the research about role of auditors in Corporate governance is
conducted mainly with reference only in banking sector.

There are many others sectors which are facing corporate goverance failure too because of
weak auditing. Similarly the auditing part only comprise of the financial part neglecting other
issue like environmental auditing, Human Resource auditing, Technological auditing, etc.
and banks are the companies that hold interest of large mass of public so they need to be
extra cautious for developing strong corporate governance framework to hold the strong
public credibility.

For this government and Nepal Rastra Bank have prepared set of rules, regulations and
guidelines. Effective compliance of these factors is always value adding to the net worth of
the companies. So these factors should not be seen as burden or cost to the organizations. If
utilized properly, they can act as important tools for developing a effective system for
minimizing risk and achieving higher public trust.
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