Role of Auditors in Corporate Governance in the Light of Satyam Scam

10 Pages Posted: 13 Aug 2012

Date Written: July 10, 2012

Abstract

Corporate governance loosely refers to the whole system of rights, processes and controls established internally and externally over the management of a business entity with the objective of protecting the interests of its stakeholders. At the most basic level, it can be described as the processes by which investors and stakeholders attempt to minimize the transaction costs and agency costs associated with doing business within a company. To do so the principal prerequisite is to have a clear, transparent and true picture of the company’s financial affairs. This has been achieved by the process of auditing, however willful or negligence in auditing process has led to disastrous consequences. Satyam scam has been the greatest scam in the history of corporate world of the India. Satyam is the fourth largest IT Company in India. The CEO of the company Ramlinga Raju has made a scam of around $2 billion. There has been a lot of controversy regarding the misuse of the post by the CEO of the company. The fake number of jobs which was shown by the CEO was an abuse of power and it was a clear violation of the prevailing laws in India. This gives the impression that in India the power and position is what matters and the people in the top position make a clear violation of the rights provided to them. This scam has seriously affected the corporate bodies in India. Hence auditing has an important place in the hierarchy of ideal corporate governance structure. This paper will focus on the role of auditors, liability of auditors in satyam scam, appointment and remuneration of auditors, standard of care and skill that auditor should maintain and auditor as gate-keeper to the finance of the company. Last but not the least I am hopeful that if the recommendations as proposed by me are implemented then transparency is bound to increase and would have a domino effect on corporate governance, thus by governing the auditors we may insure that corporate governance as a whole receive a fillip.

Keywords: corporate governance, duties of auditors, independence of auditors, liability of auditors, Irani Committee Report

Suggested Citation

Mitra, Amrita, Role of Auditors in Corporate Governance in the Light of Satyam Scam (July 10, 2012). Available at SSRN: https://ssrn.com/abstract=2128528 or http://dx.doi.org/10.2139/ssrn.2128528

Amrita Mitra (Contact Author)

KIIT LAW SCHOOL ( email )

Bhubaneswar -751024
School of Computer Engineering
Bhubaneswar, IN Odisha 751024
India

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