Current Auditor professions relationship with corporate shareholders

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Audit change modern method is the development of audit strategic goals. At beginning, the auditors have a different relationship among the stakeholders, the investors and the shareholders comparing with current auditors. The legal relationship, for the auditors and shareholders is the auditor is nominated by the company to protect shareholders' benefit. The shareholders can meet the auditors at an appropriate time. However, as developing of auditing, the relationship between them has been changed. The current auditors are possessed of independent assurance. It means, the corporate shareholders, the investors and the stakeholders make some economic decisions depend on financial statement report which the auditors give them. But the auditor will not meeting with the shareholders before the financial statement appear at the end of accounting period (Porter, 2009 P192).

The modern auditing performance produces diverse impacts for the shareholders, the investors and the stakeholders. In sum, these impacts divide into two sides favorable and unfavorable for them. These two part will bring different influences for them when do economic decision. So what influences will be product and how the corporate stakeholders depend on the information do decision when the auditors given them financial statement? Do every investors or stakeholders think about it is a reliable source information from the financial statement?

In this essay will talk about these questions and analysis how the current international regulatory for the auditor effect the corporate stakeholders or the investors. These effects good or bad for them.


The current auditors have the independence. The way of the auditors work decides there is no more than relationship with the clients or the company shareholders before the financial statement is reported. It also means the auditors have no other responsibility with them. Notwithstanding when the company employs the auditors' job, the relationship has appeared. The corporate shareholders want to know more circumstance about the company by the auditors work in order to do importance decides for developing the company better. The investors want to ensure whether it is worth if they put money into a company.

The corporate shareholders require the auditors offer annual financial statement to their shareholders or the bond holders and then get more invest, make the company achieve profit maximise. Nowadays, for the auditors once they are appointed by the company shareholders, they will be control by the directors who a company management or a CEO. The auditors only have a relationship and responsibility with the company's management. Other corporate shareholders, who not direct manage the company, are not meeting them (porter 2009 P193).

The auditors do a financial statement report for whole company shareholders each year. This is a simple and quick way for company shareholders to know the company's marketing issues. After that, corporate shareholders do economic decisions for next year dependent on this financial statement offer by the auditors. At that time, responsibility appears between the auditors and the shareholders. So the auditor is sufficient to ensure provide a reliable sources. It is favorable to the corporate shareholders, because they can get benefit. However there is a different between corporate management and corporate shareholders. The shareholders want to get maximise personal reward from company not lose welfare, but the corporate management have an opposite opinion. Corporate management hope the shareholders put more funds into company, in order to developing it better. So, the shareholders do not observable the true financial statement from the auditors once the company management control the auditors(Sikka 2009 P137).

For example, ' In 2006, three auditors from the Japanese firm of ChuoAoyama PricewaterhouseCoopers were given a suspended prison sentence for their role in accounting fraud at Kanebo Limited, a major cosmetics and textiles company. In 2004, the company admitted to falsifying financial statement for the previous five years and inflating its earning by around 200billion yen(US $ 1.37billion; ï¿¡723million ). For 2002, the company reported net assets of 926 million yen ($7.9billion) but actually was over 80billion yen debt. Three auditors helped the company to meet its targets by helping directors to falsify earning of 200billion yen. They not only turned a blind eye to the falsified books and certified them, but also work with Kanebo executives to produce false consolidated financial statement to cover-up losses.[7](BBS News,29 July 2005[8];The Japan Times,2 Septment 2006 [9];Accountancy Age,1 August 2007[10])' (Sikka 2009 P140).

In this example, the auditors are not Abide by professional rules, it is an unfavourable factor for shareholders. If more and more economic case appear like the example, for one thing it will be effect the shareholders do economic decision for another the shareholders will doubt the auditors profession ability.

Investors do a decision what buy stock or do an investment for a company. The investors are different with the company shareholders. They are not have direct relationship with corporate, but they change another ways have relationship with company which buy stock. They are also dependent on financial statement. Although financial statement only reported one time per annual by the auditors, but it also as have important reference value for investors. It is easy for investors to know the company honesty circumstance. The financial statement performance the company presents the profit it means the investors would like invests funds into this company. If not, it has not value to invest. Thereby if the auditors control by the company management and distortion fact what given untrue information to investors, the investors became director victims. On the other hand, it also a potential invest risk act for the investors. Once matter to expand the victim's investor increase, then the whole society became indirectness victims.


For the auditors current international regulatory make the auditor profession possess independent, it is good for the auditors make work easy and convenient. For the company management have a client-relation with the auditors, it liable to control the auditors to effectiveness for them. Therefore when the company shareholders or the investors do economic decision, they base on financial statement which given by the auditors. The auditors can provide a reliable source financial statement to ensure decision correct became important. The auditors are given expect by the shareholders and the investors.

However, the expect appear gap. In fact for the society, the auditors have closing relationship with the report. In other case, they have responsibilities with report. But this relation became another appearance. This appearance is called auditor expectation-performance gap. This phenomenon appear along time, such as since 80 years before Limperg(1932) said the auditor have important function for society(Porter, 2009 P197 ). In the modern model auditor, the auditor and the company is a client model, their purpose became simple, the profits maximised. At result, the nature of auditors have been change, they control by money even destroy the rule of auditing (Sikka 2009 p139). There are two disadvantageous effect. At first, this active is not allowed on legal, at same time, it given up duties of the auditors when auditors aligned with company management. Secondly, when the auditors appearance expectation performance gap for the shareholders and investors sometimes it means damage. Because the auditors offer a unreliable source lead to the investors make an error decisions.

In view of the above discussion get result, the current international regulatory auditors have became independent, this method of auditors work against the corporate shareholders and the investors. Sometimes it not help them do a correct decision or help them foreseen crisis. In flower that, the shareholder must be protect their own benefit.

There are some way to protect the shareholders and to prevent the auditors not appear unreasonable expectation. At first, make sure the veracity of auditors, such as the financial statement correct and true, and sufficient to ensure the shareholders can get information. Secondly ensure double duties for the auditors. When they build client-relation with company, it is not only having responsibility to corporate also have with shareholders and investor, make the auditors' profession duties increase. At the same time, strengthen the legal consciousness of auditors, improving times to study law rule or case law (Porter 2009 P204). The auditors can observe legal when corporate financial statements do.

At last to improve the quality of audit, prevent and avoid the audit risk. The quality is not only refers to the no mistake in report, but also means the company can know problem about own company's financial statement, and then do measure to prevent crisis happened. This is a vital importance for a corporate. For example, according to the survey, often have some corporate appear the case like company have black hold because the auditor did not find it(Sikka 2009 P145)'A former president of the Chartered Accountant of Scotland said: 54 per cent of the Finance Directors of major UK companies felt that the quality of audits had declined noticeably(Sikka 2009 P145)'Therefore, increase auditors quality is matter of necessity, because it have many major function in different aspect for a company even for a society. On the other hand, the corporate shareholders should be attention the background of auditing who not belong to company owner. If an auditor who have enough professional quality, employee by a company, they would be attention the company's produce and profit when provide service. If they do not have, they will not attention a company's profit.


In summary, the auditor have to exits more than 100 years and it have to received by people(Porter 2009 P197) it also have variety fault, it not perfect. The auditors could not be change but it can be became perfect by people as auditing developing. In the further auditor will have an importance function at the economic developing. Complete the auditor profession and ensure at the current international regulatory background auditor can provide an independent effectiveness financial statement to corporate shareholders do economic decisions.