Conventional proposals to reform corporate governance based on the rational model of decision
making may be insufficient in preventing future corporate debacles. Typically underestimated are the
pressures from conflicts of interest and bias on reputational intermediaries. Judgements and choices
made by auditors during professional engagements may not strictly adhere to the rational model of
decision making. This is of significance with regard to the gatekeeper function of auditors and relevant
legislation. A discussion on earnings management elaborates by suggesting that strictly numerical
measures are not a reliable guide to the quality of corporate governance. It is suggested that our
understanding of monitor behaviour in corporate governance would be improved by placing it on
psychologically more realistic foundations. Some of these foundations are introduced.
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