Can employees be used to overcome independent audit limitations?

Joe Christopher, Philomena Leung, Shane Leong

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Independent financial statement auditors are appointed by shareholders to provide reasonable assurance on the reliability of financial statements published by management of reporting entities. However, in the last two decades questions have been raised concerning the credibility of external audits due to their apparent failure, especially following the spate of corporate collapses. This paper applies a critical review of literature and a multi-theoretical governance perspective to examine the inherent limitation of independent external audits and argues that employees can contribute to reducing the limitation gap by strengthening governance through a structure that incorporates a board and employee management representation. It is argued that through this arrangement, auditors can benefit as they will be privy to additional information from employees about issues such as irregular matters that impact upon shareholders and other stakeholders, and control weaknesses across governance levels, allowing auditors to establish a broader understanding of organisational information that may otherwise be less readily available. Thus auditors can base their judgements in terms of audit risks, and develop audit plans based on more reliable information. The theoretical proposition emerging from these findings is that the traditional governance model should be refined to include employees as an additional component of governance.

LanguageEnglish
Pages442-456
Number of pages15
JournalAustralian Accounting Review
Volume27
Issue number4
DOIs
Publication statusPublished - 1 Dec 2017

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Governance
Employees
Audit
Auditors
Shareholders
Financial statements
External audit
Assurance
Stakeholders
Credibility
Audit risk

Cite this

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title = "Can employees be used to overcome independent audit limitations?",
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Can employees be used to overcome independent audit limitations? / Christopher, Joe; Leung, Philomena; Leong, Shane.

In: Australian Accounting Review, Vol. 27, No. 4, 01.12.2017, p. 442-456.

Research output: Contribution to journalArticleResearchpeer-review

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