The external auditor’s role in the corporate governance of Maltese listed entities

Abstract

PURPOSE: The objective of this study is to analyse the role that external auditors play in the corporate governance of Maltese listed entities. It assesses the auditor’s relationship with the audit committee, the auditor’s extent of corporate governance reporting and other aspects of their accountability. It also looks at any recommendations for improving such a role in the future. DESIGN: In order to achieve the objectives of the study, a qualitative approach was adopted. Data was collected through eighteen semi-structured in-depth interviews. The interviews were held with seven external auditors and eleven representatives from Maltese listed entities. FINDINGS: The general consensus was that external auditors do not have a direct role to play in designing or maintaining the corporate governance framework of an entity. The primary role of the external auditor is to review the financial statements of companies and produce a report including their opinion on the truthfulness and fairness of the financials presented by the entity. Auditors also monitor the internal control system of entities and advise on any deficiencies. However, in fulfilling their primary role, they do play an indirect role in enhancing an entity’s corporate governance. The auditor’s report on the corporate governance statement provides a level of comfort that the entity is maintaining good governance practices and is following the principles set out in the Code of Principles of Good Corporate Governance. CONCLUSIONS: Although the external auditor’s role has changed over time, the auditor’s role specifically in relation to corporate governance has remained fairly stable, with the auditor reporting on the Corporate Governance Statement produced by the entity’s directors. The level of importance attached to maintaining good corporate governance has increased substantially over the years, making it a more prominent issue to look out for on the regulator’s agenda. VALUE: This study raises awareness on an area not frequently studied. Through the recommendations put forward, it is hoped that the perceptions and the auditor’s role in Maltese listed companies can be improved in the future.