Watchdogs, not Lapdogs - The power of auditors in corporate governance and corruption
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Corporate governance and transparency are the backbone of a strong, thriving economy.
As highlighted by the King IV report on ethics, good corporate governance practices and transparency help to improve overall ethical conduct and build trust. Ultimately, this will lead to the overall sustainability of any enterprise.
South Africa is known for its quality of audit and assurance providers. As an auditor, I play a key role in confirming an entity's commitment to transparency and good governance practices.
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Corporate governance relates to the various:
- plans
- practices
- and controls
A company has in place to perform activities ethically and transparently, seeking to benefit everyone.
Our long history of corruption highlights one of the many difficulties auditors in South Africa have in confirming clients have good corporate governance practises and transparent controls in place.
In 2023, The South African Independent Regulatory Board for Auditors (IRBA) reported that 31% of audits had deficiencies (errors or inaccuracies), demanding enhanced auditor oversight and accountability.
An auditor's independent opinion on a company's financial statements, internal controls and overall operations is crucial. Ideally, this helps companies operate ethically and comply with legal/regulatory standards.
The independent verification of records means that the auditor is not duly influenced and allows external investors, shareholders and members to see an entity's financial performance and corporate governance truly.
Just look at Steinhoff, one of South Africa's most prominent corporate scandals. Once a retail giant, weak corporate governance and fraudulent accounting practices led to massive financial losses.
Auditors failed to detect the irregularities for years, reminding the public of the importance of auditor vigilance and the need for strong governance frameworks.
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A PwC study found that companies with strong corporate governance practices experience a 20-25% higher investor confidence rate than those with weak governance.
Auditors are also responsible for:
- Identifying risk
- Identifying controls in place
- and confirming the controls function effectively.
This ensures that more attention is paid to the area where most of the risk lies and that the company has controls to prevent fraud and unethical conduct.
Through the various processes performed by auditors and the strict corporate governance frameworks in place, it is clear that auditors play a substantial role in promoting corporate governance and identifying instances of non-compliance, fraud, and corruption.
Auditors play a key role in reducing unethical practices, fraud and corruption in future, which will assist in boosting the economy, promoting investment and creating a more sustainable future for all its citizens.
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