Audit committees, auditors and corporate governance: a theoretical bricolage for epistemological guidance correlating with the Indian context

Abstract

The last two decades offer a pantheon of business failures, which drove modern corporate governance reforms, is demanding a strong assurance function, particularly from Auditors. This paper examines both qualitatively and quantitatively the ramifications of interfaces among the corporate triad members-Audit committee, External auditors and Internal Auditors. Focused on the backstage of corporate governance fiascos such as Carrilion, IL&FS and others, an attempt is made to understand through the Meta study their encumbrance. It is observed from this study is that, while the plethora of reforms are premised on Blue Ribbon Committee’s recommendation, Shareholder activism has brought in paradigm changes in the CG landscape, particularly the activities of the committees and the Auditors. The notable one is what we term it as “Carrilion effect”. Aftermath of Carrilion’s Corporate Governance fiasco, investors are fueling calls for the breakup of the Big 4 audit firms. Another critical observation is that globally, revenue from consulting and advisory services have risen dramatically vis-a vis the marginal increases in audit revenues. It is drawing flak from the investors and regulators. From the flip side perspective, qualitatively in the Indian context, the results of regressions shows that independent audit committees are perceived to be adding value over a short periods of time, as reflected by Tobin’s Q, a proxy measure of financial performance.