The Role of External Auditors in Accounting Assignment

The Role of External Auditors in Accounting - Assignment Example In most cases, a fraudulent act exists when one or more auditors approve inaccurate accounting on behalf of a company for the reason of tax evasion or to strategically register for an Initial Public Offering (IPO). To prevent moral hazards associated with the auditors’ liability, the British Serious Fraud Office has imposed heavy penalties for swindlers and white-collar criminals to shut down or suspend a suspicious business (Country Updates, 1997). On the other hand, auditors who are found guilty of professional negligence may end up facing a monetary loss or penalty through punitive fines and/or the confiscation of their license to practice auditing in the United Kingdom. As stated by Michael Power of London School of Economics, â€Å"it may not be reasonable to expect that auditors would be challenging business models directly and raising strategic issues with finance directors, that is not their job and if we want it to be their job then things would have to change quite substantially †¦ The direction of my comment is that we might be expecting too much from this black box [External Audit] in terms of what it actually delivers† (Priddy, 2011, p. 59). In response to the statement made by Power, this report will first discuss the role and responsibilities of external auditors followed by providing a brief overview with regards to the corporate governance. In line with this, there is a strong need to go through business theories and concepts that will enable the readers to have a better understanding of how businesses in a corporate world function. Based on the individual roles and responsibilities of shareholders, internal and external auditors, the board of directors, and the CEO, this report will explain the limits in the role and responsibilities of external auditors when it comes to detecting and controlling fraud activities in business.