Final answer:
Auditors are external professionals who review a company's financial records to ensure their accuracy, while accountants manage these records internally. Corporate governance involves various levels of oversight, with auditors serving as a second institution following the board of directors. The case of Lehman Brothers exemplifies a failure in corporate governance.
Step-by-step explanation:
The distinction between auditors and accountants primarily lies in their roles and responsibilities within corporate governance. Auditors, often from outside the company, are crucial in verifying the financial records of a firm to ensure they are accurate and reasonable. This practice adds credibility to the financial statements that are later presented to shareholders and the public. On the other hand, accountants typically work inside the company, managing and preparing these financial records on a daily basis.
The board of directors, being the first line of defense in corporate governance, is expected to oversee top executives. They are supplemented by auditing firms, which serve as a second institution by providing an objective review of the company's financials, and by outside investors, particularly those with significant investments like mutual funds and pension funds, acting as a third institution. However, these layers of governance can fail, as seen in the case of Lehman Brothers, where investors were misled due to inaccurate financial reporting.