AN ASSESSMENT OF THE FUNDAMENTAL ROLES OF EXTERNAL AUDITORS IN CORPORATE GOVERNANCE IN SELECTED ORGANISATIONS IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The separation of ownership from control gives rise to different interests between shareholders and management, so exposing investors to the danger that management may potentially misappropriate entrusted resources and prioritise their own self-interest (Wright, 2018). In order to enhance shareholders' trust, a firm is obligated to have an auditor provide an impartial assessment of its financial accounts in accordance with certain legislation or regulations. Financial report users, including investors, government agencies, and the general public, depend on and make economic choices based on an auditor's impartial and unbiased assessment (Sane et al, 2017).

Louise (2017) asserts that effective corporate governance is essential for the success of an organisation. Corporate governance plays a central role in investment decisions, and investors consider it equally important as financial indicators when evaluating various investment opportunities. Under the framework of corporate governance, it is the duty of management to create the yearly financial statements that provide a comprehensive overview of the company's operational outcomes and financial status. Financial statements are provided to provide accountability and managerial stewardship. However, these statements may lack credibility, making it challenging for shareholders to trust the information they include (Chemangui, 2019). Corporate governance serves as a method or tool to achieve a specific goal, rather than being the ultimate objective itself. In order to address the issue of credibility of the financial statement as perceived by the shareholders, an external auditor is appointed. This auditor is independent of the management and is responsible for examining the information presented by the management in the financial statements. The purpose of this examination is to verify that the financial statements accurately and objectively reflect the financial position and performance of the entity (Louise, 2017).

Corporate governance refers to a collection of regulations that dictate how a corporation chooses to manage itself by offering guidance and oversight in order to accomplish its goals. Good governance refers to the implementation of corporate procedures that aim to achieve outcomes that align with the objectives of society and the success of the organisation, while effectively utilising its available resources (Théophile, 2023). Effective corporate governance is essential for firms to strategically position themselves to withstand a difficult economic environment.  Mikky (2019) asserts that corporate governance establishes an effective framework for attaining business objectives. When decisions are made taking into account important stakeholders such as employees, suppliers, and the community, it leads to a more comprehensive vision for achieving successful outcomes. Each stakeholder contributes valuable input, fostering a culture of responsibility and increasing the likelihood of meeting organisational objectives. According to Eden et al. (2019), corporate governance has the potential for achieving a stronger competitive advantage. As industries continually develop, implementing effective governance may establish a sustainable climate for maintaining standardised procedures. Corporate governance enables an organisation to establish a functional and transparent system, promoting fairness and accountability. This, in turn, fosters a stronger sense of responsibility and awareness among individuals regarding their role in creating value within the organisation (Julio, 2018).

According to Faraday (2020), external auditors have a crucial function in the corporate governance framework. They are responsible for ensuring that the board of directors and management are behaving in a responsible manner towards the shareholders' interests. External auditors, via maintaining neutrality, can enhance the value for shareholders and ensure the company's internal control is robust and effective (Marvel, 2017). The external auditor must possess independence from the management as a necessary condition. However, they also have the responsibility of overseeing the management and occasionally provide assistance to the management in a separate undertaking. The primary responsibility of external auditors is to provide an audit opinion on the accuracy and integrity of the financial statements, which is intended for the shareholders and other stakeholders (Kola et al., 2019). Therefore, the external audit is a fundamental aspect of corporate governance. It serves as an independent assessment of the accuracy and presentation of financial statements, allowing shareholders to oversee and manage the company's operations, hence improving transparency (Xiang, 2019). Hence, it is crucial to choose an autonomous specialist to examine the financial statements.

According to Jon (2018), evaluating internal controls is crucial for auditors to fulfil their responsibilities. This opportunity will enable the auditor to comprehend the client's environment and determine the most suitable audit plan to apply. Auditors are required to inform management of any weaknesses in internal control using a Letter of Weakness of Internal Control, as outlined in ISA 400 (Polsen et al., 2020). Studies have shown that assessing the management and functioning of a company, which is a responsibility of an external auditor, improves corporate governance. External auditors implement methods and regulations that enforce accountability. For example, if management manipulates the financial accounts by inflating data, an external auditor may suggest sanctions for such actions and offer suggestions to prevent them from happening again (Polsen et al., 2020). An external auditor in corporate governance has the responsibility of safeguarding the interests of the company's shareholders (Chen et al., 2019). This is typically accomplished through the impartial assessment of auditors, who are not subject to influence from management.  External auditors are mandated to assess the financial situation and performance of the organisation and verify the accuracy of the financial reports. 

Boseman (2019) argues that external auditors play a crucial role in enhancing corporate governance through the implementation of risk assessments. Risk assessment is typically conducted to detect ambiguous areas and evaluate the measures that a corporation has implemented to counteract corporate fraud or corruption. Auditors evaluate the company's risk tolerance and the measures taken by the company to reduce risk in order to determine prospective risks (Manasseh, 2020). Furthermore, the external audit process enables organisations to enhance their crisis management strategy and receive comprehensive feedback to assess internal resources and make necessary adjustments to achieve the intended purpose and implementation (Zuma, 2019). Pedro et al. (2021) state that crisis management enables management to evaluate the efficacy, extent, comprehensiveness, and preparedness of emergency plans that may need to be put into action. Crisis management highlights internal controls and shortcomings that could hinder the execution of emergency plans and have a negative effect on the company's reputation and brand (Abioye et al., 2021).

External auditors play a crucial role in the corporate governance framework by offering an impartial evaluation of an organization's financial statements. Independent verification ensures the accuracy and reliability of financial reporting, which in turn increases stakeholders' confidence in the organization's management and financial well-being. In Cameroon, similar to numerous other emerging nations, the corporate governance framework is undergoing changes. The nation has been endeavouring to synchronise its corporate governance policies with global benchmarks. Nevertheless, there are also ongoing issues in areas like as insufficient regulatory enforcement, lack of transparency, and the necessity to enhance the skills and knowledge of company boards and management. The function of external auditors in Cameroon is crucial given the distinct obstacles encountered by organisations operating in this context. An analysis of their positions in specific organisations offers valuable insights into the ways in which these experts assist to improving corporate governance procedures in the nation. Therefore, the necessity for this investigation arises.

1.2 Statement of the problem

Corporate governance has become a topic of growing global interest in recent years, with external auditors playing a vital role in promoting openness, accountability, and integrity within organisations (Gbadebo, 2022). The function of external auditors in corporate governance has gained significant attention in Cameroon due to persistent concerns over financial mismanagement, corruption, and insufficient corporate monitoring.

Fossung (2022) asserts that external auditors in Cameroon frequently encounter difficulties associated with upholding independence and objectivity. Factors such as strong connections with management or inadequate regulatory supervision can undermine the efficiency of audits and, as a result, corporate governance. Verges (2021) suggests that external auditors may encounter difficulties in doing audits of high quality due to limitations in resources, insufficient experience, or inappropriate auditing standards. The roles and contributions of external auditors in promoting corporate governance procedures within Cameroonian organisations are not well understood and lack clarity (Ndjetcheu, 2017). The absence of clearness can result in weak systems of governance and inadequate mechanisms for holding individuals accountable.

Furthermore, expertise in auditing is contingent upon a comprehensive understanding, adeptness, and practical familiarity with the profession (Raphael, 2021). Enhancing capacity can be achieved by the inclusion of supplementary proficiencies such as certification, training, and mentoring programs. Regrettably, Cameroon does not provide any courses or programs to bolster the capabilities of the audit profession (Mahmour et al., 2022). Furthermore, the future advancement in the auditing profession depends on the level of demand from client agencies for audit services. Likewise, the effectiveness of external auditors is determined by their abilities to provide services that meet the requirements of client agencies. If regular courses or programs were available for internal professions like as accounts, procurement, IT, etc., the problem of competency and career development would not exist, and performance would improve significantly (Raphael, 2021).

Ultimately, the issue revolves around comprehending the extent to which external auditors effectively carry out their essential duties in improving corporate governance in specific organisations in Cameroon. It is essential to tackle these problems in order to enhance the quality of audits, reinforce governance standards, and guarantee that external audits make a significant contribution to accountability and transparency in the business sector. The objective of the study is to evaluate the essential functions, recognise obstacles, and suggest remedies to improve the efficiency of external audits in bolstering strong corporate governance structures.

Objectives of the study

The primary objective of this study is to critically an assess the fundamental roles of external auditors in corporate governance in selected organizations in Cameroon. Specific objectives of this study are to:

To identify responsibilities of external auditors in corporate governance in Cameroon

To evaluate the Impact of External Auditors on Corporate Governance in organizations in Cameroon

To analyze the effectiveness of auditors in mitigating financial fraud in organizations in Cameroon.

To identify barriers that external auditors encounter in performing their roles effectively in organizations in Cameroon

To suggest strategies for addressing identified barriers and enhancing the overall impact of external audits on governance.

1.4 Research Questions

The following research questions which are in line with the objectives of this study will be answered in this study:

What are the responsibilities of external auditors in the context of corporate governance in Cameroon?

What is the Impact of External Auditors on Corporate Governance in organizations in Cameroon?

How effective are auditors in mitigating financial fraud in organizations in Cameroon?

What are the barriers that external auditors encounter in performing their roles effectively in organizations in Cameroon?

What are the strategies for addressing identified barriers and enhancing the overall impact of external audits on governance?

1.5 Research Hypotheses

To determine the effectiveness of this study, the following research null hypotheses will be formulated to guide the study and it will be tested at 0.05% levels of significance.:

Ho: External auditors have no significant impact on Corporate Governance in organizations in Cameroon

Ha: External auditors have significant impact on Corporate Governance in organizations in Cameroon.

1.6 Significance of the study

The importance of this study rests in its ability to improve corporate governance practices, provide information for policy and regulatory development, boost organisational performance, assist professional development, and contribute to both academic and practical knowledge. The report offers a thorough analysis of how the actions of external auditors might impact governance and lead to favourable results for organisations.

The study emphasises the contribution of external auditors in enhancing corporate governance mechanisms. Efficient external audits play a crucial role in ensuring that organisations comply with optimal procedures and regulatory obligations, promoting openness and responsibility. The study highlights the significance of external auditors in establishing confidence among stakeholders, such as investors, customers, and regulatory organisations. Superior audits bolster the trustworthiness of financial statements and organisational procedures, which is vital for recruiting investment and upholding public trust.

Moreover, the results might provide valuable insights to legislators and regulators regarding the efficacy of existing auditing standards and methods. This can result in more focused and efficient regulatory reforms with the goal of enhancing corporate governance. Gaining insight into the function of external auditors in governance is crucial for developing policies that promote efficient auditing procedures and improve compliance in the business sector.

Moreover, through the assessment of the impact of external auditors on corporate governance, the research can elucidate the correlation between enhanced governance practices and superior organisational performance. Efficient resource utilisation and prudent management of financial risks are ensured by effective governance. The study's findings can assist organisations in enhancing their internal controls and decision-making processes, hence promoting more efficient management and strategic planning.

Moreover, the study enhances the professional growth of auditors by pinpointing critical domains where their functions are vital. This can result in improved training and development programs specifically designed for auditors in the context of corporate governance. Emphasising the responsibility of auditors in upholding ethical standards underscores the significance of integrity and professionalism in the field of auditing, fostering an ethical environment within organisations.

In conclusion, the study contributes to the existing academic knowledge on auditing and corporate governance, serving as a significant resource for scholars and researchers with an interest in these areas. The findings provide valuable information for business leaders, auditors, and corporate governance specialists on how to improve governance procedures through efficient auditing.

1.7 Scope of the study

Broadly, this study focus is to critically assess the fundamental roles of external auditors in corporate governance in selected organizations in Cameroon. Specifically, this study seeks to identify responsibilities of external auditors in the context of corporate governance in Cameroon, evaluate the Impact of External Auditors on Corporate Governance in organizations in Cameroon and analyze the effectiveness of auditors in mitigating financial fraud in organizations in Cameroon. 

Further, this study will focus on identifying barriers that external auditors encounter in performing their roles effectively in organizations in Cameroon and it also seeks to suggest strategies for addressing identified barriers and enhancing the overall impact of external audits on governance.

 The study is carried out in Cameroon. Selected organizations used as case study includes Nestle Cameroon, Afriland First Bank and Tridem Pharma Cameroon

1.8 Limitations of the study

As with any human endeavour, the researchers faced many minor constraints during the investigation. The main limitation was the lack of extensive literature on the subject, due to the limited availability of data about the evaluation of the essential functions of external auditors in corporate governance within specific organisations in Cameroon. Hence, a significant allocation of time and energy was necessary to ascertain the appropriate materials, books, or information and gather data. 

Furthermore, this study is constrained by its small sample size and narrow geographic scope, focussing just on Cameroon. Therefore, the conclusions of this study cannot be extended to other situations, thus requiring further investigation. 

Moreover, the researcher's restrictions were primarily due to financial constraints, as they are a student without any source of income to sustain themselves. The exorbitant transportation charges at the research location posed a challenge in covering the expenses for transportation fees.

Furthermore, the researcher faced a time constraint due to the need to conduct this study while still fulfilling the obligations of attending lectures and participating in other educational activities.

1.9 Definition of terms

External audit: An external audit is a financial review that is conducted by a party not associated with the company or department that is voluntarily or involuntarily under audit. An external audit takes place within a defined set of rules or laws.

Corporate governance: Corporate governance is the structure of rules, practices, and processes used to direct and manage a company. A company's board of directors is the primary force influencing corporate governance.

Accountability: Accountability is the practice of being held to a certain standard of excellence. It is the idea that an individual is responsible for their actions and, if that individual chooses unfavorable actions, they will face