Review of Company’s Administration – Auditor as a Monitor of the Legality of Business Judgments

Abstract

The audit of administration as part of the statutory audit is not widely known in Europe and is not identified as a separate audit subject in international auditing standards. However, it is an important aspect of the Finnish audit. The audit of administration can be seen as a management tool to gain the trust of shareholders, creditors and other stakeholders. As part of the audit of administration audit, the auditor is required to examine the legality of management's actions and the conditions for the continuity of operations. The purpose of this article is to provide an overview of the current legal environment regarding the auditor's duty to review the compliance of the management of an LLC, drawing on agency theory discussions. It is not realistic to suggest that such a feature should be widely adopted in EU countries or incorporated into international auditing standards, as a new audit subject would impose additional administrative costs on companies. However, the findings of this study may serve as an opening for discussion as to whether an emphasis on the review of compliance could increase shareholder and stakeholder confidence in companies.