Auditors in a changing regulatory environment

Publication Date01 Jan 2006
AuthorDayanath Jayasuriya
SubjectAccounting & finance
Auditors in a changing regulatory
Dayanath Jayasuriya
Securities and Exchange Commission, Nawala, Sri Lanka, and
The Insurance Board of Sri Lanka, Colombo, Sri Lanka
Purpose – The purpose of this paper is to describe how corporate responsibility, at the best of times,
is taken for granted, and at the worst of times, becomes a much maligned concept.
Design/methodology/approach – Describes how the regulatory landscape is rapidly changing and
outlines several conditions that must exist or be achieved to ensure the stability of financial
institutions through a better system of regulation and monitoring and rapid intervention, where
intervention is called for.
Findings – There is a need for greater clarity as to the role of auditors and as to the expectations of
Originality/value – Highlights how, for regulators, auditors and stakeholders, the issue of the role
of auditors in a changing regulatory climate is an important subject that deserves special
Keywords Corporate socialresponsibility, Auditors, Auditingstandards
Paper type General review
Corporate responsibility is a concept which is inherent in the very nature of the
behaviour and conduct of corporations and those who are associated with them.
During the best of times, it is a concept that is taken for granted.
During the worst of times, however, corporate responsibility becomes a much
maligned concept. Regulators are required to set in motion a process to identify,
prosecute and punish those who have been irresponsible. Public policy demands
nothing less even though the applicable legal and regulatory regimes may not clearly
specify situations of culpability with any degree of certainty.
The frontiers of corporate responsibility continue to expand casting a wider net to
encompass almost all those who have something to do with corporate practices and
management. By the very nature of the work they do, auditors are at special risk of
liability for some of the malpractices and mismanagement that may result in financial
losses or with non-compliance with applicable laws, regulations and codes. In several
instances, auditors have not been equipped with the necessary forensic skills and
vested with legal authority to detect such malpractices and mismanagement but
liability has nevertheless attached to them. It is as if it were an “occupational risk”.
Regulators, whether they be of the securities market, banks, insurance companies,
mutual funds or the like, are increasingly under pressure to have in place systems that
would rapidly alert them to emerging problems and to be able to institute corrective or
remedial measures to prevent the collapse of financial institutions. Experience has
shown that each major disaster has followed a different path bypassing the checks and
controls instituted after a previous episode. In an environment like this, it is not
unreasonable to assume that the regulators will seek to impose duties on persons who,
The current issue and full text archive of this journal is available at
Journal of Financial Crime
Vol. 13 No. 1, 2006
pp. 51-55
qEmerald Group Publishing Limited
DOI 10.1108/13590790610641224

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