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- Title
Why Emerging Economies Should Not Follow US and UK Audit Practices.
- Authors
Turnbull, Shann
- Abstract
This paper provides evidence as to why emerging economies should not follow the US and the UK audit practices that have introduced untenable conflicts of interests and muddled corporate governance practices. The US 1933 law required corporations to appoint auditors based on the prospectus provisions in the UK 1929 Companies Act, to protect the investors from being misinformed about the future value of a company. However, this is not the legal purpose of the UK statutory audit whose role is to make directors accountable for protecting the company and provide shareholders/members with intelligence for voting on the election and remuneration of directors whether or not the company issues shares or whether it has shares publicly traded. The UK statutory auditor only reports to the shareholders who approve her/ his appointment. The US auditor is appointed by the directors and reports to both the directors, and shareholders to subrogate the reason for having an auditor to identify any conflicting views between them. The establishment of an audit committee with independent directors cannot remove the conflicts. Their introduction from the Sarbanes-Oxley Act and the UK Combined Code introduces additional conflicts between the executive and non-executive directors. Some European countries avoid both conflicts by having a shareholder committee to control the auditor. Arguments are presented to conclude that convergence of audit practices on those found in the US or the UK is not in the best interests of directors or auditors and does not help in reducing their conflicts or safeguarding the investors, the proprietary rights of shareholders or self-governance.
- Subjects
UNITED States; UNITED Kingdom; AUDITING; STOCKHOLDERS; CORPORATE governance
- Publication
ICFAI Journal of Audit Practice, 2008, Vol 5, Issue 1, p36
- ISSN
0972-9070
- Publication type
Article