In today’s dynamic and highly scrutinized business environment, corporate governance stands as the cornerstone of long-term sustainability and trust. It encompasses the systems, principles, and processes by which companies are directed and controlled, shaping the relationship between management, the board of directors, shareholders, and other stakeholders.
A company with weak governance rarely stands the test of time. Without clear accountability, risk oversight, and transparency, even the most promising businesses can falter. This is where the role of auditors becomes indispensable.
Auditors: The Third Line of Defence
In the widely adopted “Three Lines of Defence” model, auditors—both internal and external—form the third line, offering independent assurance that the first two lines (management controls and risk oversight functions) are operating effectively. Their role goes far beyond number crunching; they assess the adequacy and effectiveness of risk management, internal controls, and governance processes, providing organizations with the insights needed to navigate complexity and change with confidence.
Auditors act as watchdogs of governance—ensuring that ethical practices are followed, regulatory obligations are met, and financial information is presented with integrity.
Corporate Governance in the Indian Context
In India, the significance of corporate governance has grown exponentially in recent years. The increase in listed companies, investor participation, and global scrutiny has made transparency, accountability, and ethical conduct essential pillars of the corporate landscape.
The Securities and Exchange Board of India (SEBI) plays a central role by mandating governance norms—ranging from board independence and composition to disclosure standards and shareholder rights. In parallel, the Reserve Bank of India (RBI), in its regulatory capacity, continues to emphasize governance principles for financial institutions, reinforcing stability and public confidence in the financial system.
The Auditor’s Mandate: Integrity, Oversight, and Accountability
At the heart of effective corporate governance lies auditor independence—a non-negotiable principle that ensures unbiased assessments. Auditors serve as a check on management, helping maintain a healthy distinction between ownership and executive control.
Their responsibilities include:
- • Monitoring adherence to laws, regulations, and corporate policies
- • Ensuring accurate and transparent financial disclosures
- • Verifying the ethical and social responsibility practices of the organization
- • Communicating critical information clearly and credibly to stakeholders
Auditors may deploy both manual and automated tools to fulfill their duties. In complex or specialized areas, they may even engage external domain experts. However, the ultimate responsibility for audit outcomes rests squarely with the auditor, regardless of any outsourcing.
In a nutshell, the audit function should be viewed as the organization’s perpetual watchtower—ever-vigilant, ever-ready to raise red flags when necessary. It is not just a compliance mechanism but a strategic asset that supports ethical growth, investor confidence, and business sustainability.
In an era where corporate reputation can make or break a company, strong governance and diligent auditing are no longer optional—they are essential. Together, they form the silent backbone of every responsible and resilient enterprise.
PRADIP KUMAR NATH (CA, CIA, CISA, DISA, ISO 9001, 27001 & 27701)
(Mr. Nath is the Assistant Vice President, Internal Audit, Arohan Financial Services Limited, an Aavishkaar Group company – views expressed above are personal).