Financial Accounting · Duties and responsibilities of those charged with governance

Role of Shareholders, Auditors and Other Stakeholders in Governance

Updated 11 October 2026 · Fact-checked

Directors run the company and prepare the financial statements. Shareholders own it, appoint directors and auditors, and vote at general meetings. External auditors give an independent opinion on whether the statements are fairly presented. Audit committees of non-executive directors oversee reporting and audit. Other stakeholders have interests but no formal control.

Understand Role of Shareholders, Auditors and Other Stakeholders

Governance is the system by which a company is directed and controlled. Directors make the decisions, but they act for the shareholders, who own the company. This split between ownership and management is why oversight is needed.

Shareholders provide capital. They appoint and remove directors, appoint the external auditor, approve the directors' pay in many jurisdictions, and vote on key matters at general meetings. In a listed company, institutional shareholders such as pension funds can press the board directly.

Directors are responsible for running the company, keeping proper accounting records, preparing financial statements that give a true and fair view (a fair presentation under IFRS), and maintaining internal control. Their duty is to the company.

External auditors are independent of the directors. They examine the financial statements and give an opinion on whether they are free from material misstatement and prepared in line with the reporting framework. They do not prepare the statements and they do not run the business. Auditors report to the shareholders, not the directors. An audit gives reasonable assurance, not a guarantee that no fraud or error exists.

The audit committee is a board committee made up of independent non-executive directors. It reviews the financial statements, oversees internal controls and risk management, supervises internal audit, and recommends the appointment, fee and independence of the external auditor. It acts as a link between the board and the auditor.

Other stakeholders are anyone affected by the company: employees, lenders, suppliers, customers, government and tax authorities, regulators, and the community. They cannot vote, but they influence governance through contracts, law, regulation and public pressure.

Key formulas to remember

Directors vs auditors: Directors PREPARE the financial statements; auditors EXPRESS AN OPINION on them; The most tested distinction. Preparation is management's duty; opinion is the auditor's duty.
Who appoints whom: Shareholders → appoint directors and external auditor; audit committee → recommends auditor to the board; Auditors are accountable to shareholders, which protects their independence.
Audit committee membership: Independent non-executive directors only (good practice in most governance codes); Executive directors may attend by invitation but are not members.
Level of assurance: External audit = reasonable assurance, not absolute assurance; Do not say an audit guarantees the accounts are correct or that fraud is detected.

How to solve Role of Shareholders, Auditors and Other Stakeholders questions

Use this method for any question on who does what in governance.

1Identify the party named in the question: shareholder, director, auditor, audit committee or other stakeholder.
2Decide the type of duty: running the business, preparing the statements, giving independent assurance, overseeing, or simply having an interest.
3Match the duty to the party using the concept: directors manage and prepare, auditors give an opinion, the committee oversees, shareholders appoint and vote.
4Check for independence. Anything requiring objectivity points to the auditor or the audit committee, not executives.
5Check the wording for traps such as 'prepare', 'guarantee', 'appoint' or 'report to'.
6Eliminate options that give a party a duty belonging to another, then choose the best match.

Quickest way: Verb-matching shortcut

When to use it: Multiple choice and multiple response questions with limited time.

Underline the key verb: prepare, audit, appoint, oversee, vote, lend.
Link it fast: prepare = directors; opinion = auditor; appoint = shareholders; oversee = audit committee.
Reject any option with absolutes such as 'guarantees', 'all fraud' or 'only'.
For multiple response, pick exactly the stated number and check each against its party.

Common mistakes in Role of Shareholders, Auditors and Other Stakeholders

Saying the auditor prepares the financial statements.
Students mix up audit with accounting work.
Fix: Remember: directors prepare, auditors give an opinion. The auditor checks, never prepares.
Claiming the audit guarantees there is no fraud or error.
The word 'assurance' sounds like certainty.
Fix: Write 'reasonable assurance' that the statements are free from material misstatement.
Saying auditors are appointed by and report to the directors.
Directors deal with auditors daily.
Fix: Shareholders appoint auditors and the audit report is addressed to them. This protects independence.
Putting executive directors on the audit committee.
Students assume all directors can join any committee.
Fix: The committee should be independent non-executive directors, so it can challenge management.
Thinking other stakeholders have no influence because they cannot vote.
Governance is seen as shareholders only.
Fix: Stakeholders influence through contracts, regulation, law, reputation and lending terms.

Worked examples

Example 1

Which of the following is the responsibility of the external auditor?
A Preparing the financial statements
B Expressing an opinion on the financial statements
C Maintaining the internal control system
D Guaranteeing that no fraud has occurred

Show the solution

A is a director duty, so reject it.
C is management's duty, so reject it.
D claims absolute assurance, which an audit cannot give, so reject it.
B is the auditor's core duty: an independent opinion on whether the statements are fairly presented.

Answer: B

Example 2

Select TWO functions normally performed by an audit committee.
A Appointing the directors
B Reviewing the financial statements before approval
C Recommending the appointment of the external auditor
D Preparing the audit report

Show the solution

A: shareholders appoint directors, so reject.
D: the auditor writes the audit report, so reject.
B: reviewing the financial statements is a standard committee role, so select.
C: recommending the auditor's appointment and assessing independence is a committee role, so select.

Answer: B and C

Exam tips

Learn the one-line role of each party; most questions test a simple match between a duty and a party.
Watch for absolute words like 'guarantee', 'ensure' and 'all'. They usually signal a wrong option.
In multiple response questions, mark exactly the number of options asked for; a wrong extra selection can lose the marks.
Remember independence: it explains why shareholders appoint auditors and why the audit committee uses non-executives.
For stakeholder questions, match the group to its main interest: lenders want repayment ability, employees want job security, tax authorities want correct tax.

Practice questions from Duties and responsibilities of those charged with governance

Role of Shareholders, Auditors and Other Stakeholders in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Role of Shareholders, Auditors and Other Stakeholders: frequently asked questions

What is the difference between directors' and auditors' responsibilities?

Directors run the company, keep accounting records, prepare the financial statements and maintain internal control. Auditors independently examine the statements and give an opinion on them. Directors prepare; auditors report.

What does an audit committee do?

It oversees financial reporting, internal control, risk management and internal audit. It also recommends the appointment and fees of the external auditor and monitors their independence. It is made up of independent non-executive directors.

Who are the stakeholders in a company?

Stakeholders are all groups affected by or interested in the company. They include shareholders, directors, employees, lenders, suppliers, customers, government, regulators and the community. Each has different interests, such as returns, pay, repayment or safety.

Does the external auditor detect all fraud?

No. The auditor gives reasonable assurance that the statements are free from material misstatement, whether from fraud or error. Responsibility for preventing and detecting fraud rests mainly with the directors.