Management v. Auditors Responsibility
Responsibilities of Management and Auditors & the Public Perception series of high-profile business melt-downs in 2001, led by the Enron scandal have put the roles and responsibilities of the corporate management and the auditors in sharp focus. The public outcry against the necessity of preventing such crises in future has led to stricter regulation and extensive debate about the responsibilities of the management and the auditors. In this paper I shall explain the management's role and responsibilities verses the auditors' and also discuss how the public's perception of the auditor's duties have differed over time from that of the profession's.
The Management's Responsibilities
The management is responsible for formulating policies in an organization for efficient utilization of resources, setting goals, and providing the necessary resources, leadership and direction for achieving the goals. The ultimate objective of the management in a for-profit organization is to maximize the share-holder's value while remaining within the rules and regulations of the business.
In order to achieve these objectives, the management has to put in place a workable structure, policies and procedures called the 'internal control system.' An effective internal controls system in an organization ensures effectiveness of its operations and minimizes chances of violation of rules and regulations by the employees. However, it is important that the management shows its commitment towards the internal controls and considers it as a positive tool for achieving the aims and objectives of the organization, rather than viewing it just a regulatory requirement. Management's attitude towards its own internal controls is crucial because it trickles down to lower levels and the resultant culture often determines the success or failure of the organization. A classic example of this is the Enron board's decision to waive the company's conflict of interest policy for allowing its CFO to invest in the company's special purpose entities (SPEs) and ultimately opened the floodgates of creative book-keeping.
The Auditors' Responsibilities
The auditor's role is much narrower and is confined to that of a watch-dog. An auditor normally carries out an objective and professional...
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