 In this presentation we will discuss corporate governance as it relates to audit and the audit committee as we recall thinking about the corporation support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quick books backup files when applicable so once again click the link below for a free month membership to our website and all the content on it and what the corporate structure is we can consider the owners of the corporation being the stockholders we have the stockholders of the corporation being a steps removed from the decision-making process and you can compare this to something in a democratic government say voters voting for representatives representatives that then make the laws well you have a separate kind of stage in the ownership of a corporation as well from the actual decision-making process on a day-to-day basis and that of course means that with publicly traded companies the owners are the stockholders the stockholders holders then vote for the board of directors the board of directors then is the one that's going to hire management management is the one that's going to be making the decision-making process so you have this similar kind of setup where the owners are going to be a step removed from the decision-making process the audit then we can think of one of the main users or one of the main functions of the audit is to build trust within the shareholders or people that would be potential shareholders purchasers investors in the corporation the board of directors is the body primarily responsible for management oversight of us corporations so note of course when we think about the corporation they're there management is there to act as agents of the owners of the corporations the shareholders so how do we know that the management is going to be acting as agents what type of regulations do we have over management what type of control do we have over management as basically the owners as the shareholders well we have the board of directors who is voted on by the shareholders the board of directors then responsible for the management hiring and the decision-making process of management and evaluating that decision-making process and part of that then if we think about the audit well where's the audit going to fit into this process audit committee is a subset of independent board members that oversees the internal and external auditing work done for the organization so we have a subset of the audit committee that's going to be dealing with the the audit because of course the audit is in some sense putting some type of judgment on the performance of management because management is there in part to put together the financial information in accordance with the set of rules that they're required to follow the audit then is judging whether or not that is indeed the case and they will be reporting that to the people that are overseeing management typically that being the board of directors and more specifically in this case the audit committee the audit committee being once again a subset of independent board members that oversees the internal and external auditing work done for the organization as we can consider this setup note that we have the board of directors representing the shareholders and we have the auditor who is basically making a judgment on the management to see if management is putting together the financial information in accordance with generally accepted accounting principles so in a way we have basically a check on management of reporting from the audit from management to the board of directors but also note that it's possible it's still the case that in essence the independent auditor is being hired in some way by the company and although we're reporting to basically the board of directors about in essence the performance of management the auditors need to be considering themselves as independent in essence from the board of directors as well in order to render the best judgment that they make in other words it's possible that the would apply pressure as well to issue a clean audit report if the auditor feels even though an auditor feels that there's some type of qualification that is involved in it as well so although the audit then is going to be a judgment on management to see if the if the financial statements are put together in accordance with generally accepted accounting principles and they are reporting to the audit committee and the audit committee is a subset of the board of directors that is responsible for the oversight of management the auditor still has to be independent of course because the audit committee does still have incentive to want to have a clean audit report avoid any problems with the audit report because they're invested in the company typically and that investment in the company will be better served if the if they had a clean type of audit reports we are back to this issue of independence and we'll talk about this as we go through the auditing process we want to make sure that the auditor is independent because the independence is what's going to lend trust not only to the current board members the current shareholders but to potential shareholders in the future potential investors in the future