“Critically discussed if there are real reasons why institutional investors should be concerned about the independence and genuine effectiveness of the audit function? Search the findings of academic papers and other published sources to support your view.”
Introduction
An institutional investor is an organization that invests on behalf of the organization’s members. These investors are a part of corporate governance for companies and they have large amounts of money to invest. In Malaysia, there are five leading institutional investors; Employees Provident Fund of Malaysia (EPF), Pertubuhan Keselamatan Sosial (Social Security Organisation), Lembaga Tabung Haji (Pilgrimage Board), Khazanah Nasional, Permodalan Nasional Berhad (National Equity Corporation) and Lembaga Tabung Angkatan Tentera (Armed Forces Fund Board) have taken various measures over the years to put better governance practices in their investee companies. As they can afford to buy more shares and bonds, sometimes automatically put them as majority and proactive shareholders. They have power to influence over management decision making, conduct regular engagements with management of companies, placing new shares, demand meetings with the senior managements of companies regards to their performance, vote on key issues at general meetings and communicate on other matters affecting shareholders' interest.
The institutional investor which is an external party that are independence from the management can be seen as a check and balance mechanism in enhancing the effectiveness of the audit function because of their unique position in the company. They are the outsiders but they have voices that can be heard by the management. They are also in ultimate position to challenge the Board of Directors on critical issues in the companies, contribute approaches to maximizing shareholders’ wealth and to achieve