Audit Report

This report explores the significance of audit committees in business, focusing on their functions, benefits, and the regulations governing audit firms. It examines the role of audit committees in ensuring the effectiveness of audit work and preventing accounting fraud, using the Tesco PLC case as an example.

Audit
(ACCOUNTING)

Table of Contents
INTRODUCTION...........................................................................................................................3
1. Functions and benefits and membership of Audit committee................................................3
2 Regulation and oversight to ensure high quality of the Audit firms.......................................5
3. Role of Audit committee assuring the work carried out by Audit firm is effective...............6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Audit can be detailed inspection and analysis into the accounts and operational activities
of an organization. Under the audit investigation of books of accounts, financial statement,
statutory records and documents is carried out by an external team or firm which is referred as
the auditor. In the present report Bob, the non executive director of the Juvenal Plc is provided
with significant information about the roles and importance of audit committee for his
organisation. Along with this, regulations are defined which audit firms must comply with when
carrying on audit of an organization. Audit committee is advised on what role they can play for
ensuring the effectiveness in the work of auditors.
1. Functions and benefits and membership of Audit committee
Membership and composition of the audit committee:
The audit committee in big firms need be formed by the board with at least three
members in it. In case of smaller business two members are sufficient who can be independent
non executive directors. In smaller companies the company chairman may be a member of, but
not chair, the committee in addition to the independent non-executive directors provided he or
she was considered independent on appointment as chairman. The main requisite while forming
an audit committee is that, at least one of the member of committee must have relevance
financial expertise. The audit committee as a whole shall have competence relevant to the sector
in which the company operate.
Role of Audit committee: The main roles and responsibilities of the Audit committee involves:
 To monitor the integrity of the financial statements as well as any announcement related
with business and its performance.
 To review the Internal control and risk management system of the business.
 To make recommendation to board regrading the external auditors, this included there
appointment, re-appointment ans removal (Audit Committees, 2018).
 Reviewing and monitoring the internal audit function and its effectiveness.
 To carry on the assessment related with independence and objectivity of the auditors.
 To develop and implement the service and policies related with non audit matters.
 To review the internal financial controls.
 The audit committee also provide recommendations and advise on matter related with
annual report and account, when it has been requested by the board (Role and

Responsibilities of an effective audit committee, 2017). Advise is given that whether
accounts are fair, balances and understandable or not.
 The committee must review the measures and arrangement made for the staff through
which they may raise a concern related with possible improperness in matters in
reporting of financial to other matter related with organization.
Advantages or benefits of Audit Committee:
1. Provide an insight int other financial practice and reporting: the audit committee
have an essential duty to look into the reporting and recording of the financial transaction
of the organisation. With this a default and mistake is detected. Also, the committee can
identify and fraudulent activity or misrepresentation in the financial statement and this
helps in early detection of the frauds and thefts.
2. Enhance the internals audit functions: the organizational structure which have an
internal audit system report directly to the audit committee and his contributes in
enhancing overall integrity of internal audit function. The internal audit team work as
eyes and ears of the audit committee and provide them with all essential information
related with the organization.
3. To oversee the external audit of the organisation: the audit committee meets the
external auditors and monitors the service and activities to ensure the maintenance of
independence between management of the firm and external auditors. The committee
also sees in to the matters that appropriate financial reporting and sound business
practices have been followed.
4. Strengthen the credibility with the stakeholders: the audit committee communicate
the massage of independence, reliability and trust to the stakeholder. It also builds
confidence among present and potential constituents, donors, creditors, and other
stakeholders. The audit committees can maintain and further build on this positive
message by disclosing the audit committee’s role and composition.
5. Improvise quality of the management: with reviews all the recording of the transaction
and reporting system of the organization the management quality is improvised. This
also places a critical evaluation system in the business, this makes all the employees and
department across the firm more effective and vigilant in performing their duties and
carrying out the day to day operation in the entity.

6. Implementation of effective governance perspectives: audit committee reviews the
effective implementation of all the rules, regulations and provisions related with
reporting of the financial and other matter of the firm (Audit committee: Definition,
Requirements, Role and Responsibilities, Advantages, Disadvantages, 2018). This makes
the organization to abide of the rules and guidelines and this enhances the governance
perspective if the business as all the legal and organizational policies are being abide
with, without any lag and default.
2 Regulation and oversight to ensure high quality of the Audit firms
The audit firms are required to follow certain regulations which are provided by the
regulatory authorities of the UK. Regulatory oversight of the UK accountancy profession
transferred from the Accountancy Foundation and the Review Board to the FRC in 2004. The
FRC in UK are responsible for independent regulation and promoting high quality corporate
governance and reporting. This set codes and standard and also oversees the regulatory activities
of the professional accounting bodies.
The new Audit Directive and Regulation have published in the Official Journal of the
European Union (Audit Quality Review, 2017). As a result they are now a part of EU law with a
coming into force and will be applicable to UK as well. The Directive makes amendments to the
previous Audit Directive 2006/43/EC, while the Regulation (the first to apply to statutory audit)
is directly applicable to UK.
All the Audit firms in there uK are requires undertaking the PIE and large audits are
subject to AQR inspection in context of the audit work carried out by them. The frequency of
AOQ depends with larger firms and their annual inspection with other firms, the inspection is
generally carries out once in every three years.
Monitoring Approach: the FRC regulation provides the guidelines that while taking the audit
of the firms they must comply with all the rules and regulations and standard established by the
local authorities. The individual audits focus on the appropriateness of key audit judgments made
in reaching the audit opinion and the sufficiency and appropriateness of the audit evidence
obtained.
Reporting: the reporting the audit carried out by the audit firm for different audit clients must
be accordance to the thematic presentation made and published by the Frc. They must act in
accordance to ‘Relevant Requirements’ as defined in the 2016 Regulations

Confidentiality, independence and conflicts of interest: Audit firms must look into matters
that confidentiality of the data and information of the clients must be maintained. All team
members are required to see that both initial declarations and annual declarations confirming
that they are aware of these detailed requirements and will comply with them at all times.
3. Role of Audit committee assuring the work carried out by Audit firm is effective
The Audit Committee of company is entitled to effectively carry out oversight of
effectiveness of financial reporting and processes of business in the best manner possible.
Moreover, it has role for making organisation culture favorable, values and recognize any type of
fraud which will mislead financial statements up to a high extent. Frauds leads to misstatements
and as a result, firm's performance does not provide true and fair view of overall performance of
company. Juvenal PLC is also required to form the Audit Committee so that auditors can work
out in a better manner.
Real life example of accounting fraud was found when PWC (Price Waterhouse Coopers)
took its audit work for Tesco PLC when accounting fraud of £250 million was found in 2017 and
overstated profits were emerged which had led to misstatements of financial reporting prepared
by company in effective manner. The attention should be paid so that accounting fraud may not
take place which misleads financials and as a result, stakeholders' could not be able to take
decisions in the best way possible. Tesco PLC which is a high-profile retailer in UK has agreed
with the Serious Fraud Office and has paid £129 million fine for overstating its net profits in the
financial year of 2014. It had agreed to pay the penalty in effective manner to abide the law.
In September 2014, Tesco PLC released statement to the recognised stock exchange by
admitting that £250 million of overstated profits for the half-year was found (Tesco fined £129
million by Serious Fraud Office for overstating profits. 2017). The watchdogs found that firm
deliberately withheld money owed to suppliers for boosting its sales revenue growth artificially
and caused serious breach of regulations of supermarkets up to a high extent. This means that
company has made a fraud by overstating amount. This has led to false view of financial
statements and stakeholders' expectations were harmed accordingly. The investors have
communicated that they have sued organisation and alleged that they have lost millions of money
because of the shares purely by focusing on misleading financials furnished by firm. This means
that company's share price was also deteriorated and lost around half of their value in months
after this accounting scandal took place.

It can be assessed from the case of Tesco PLC that Juvenal PLC is required to effectively
implement Audit Committee so that business may be able to provide true and fair view of the
accounts and no type of fraud may prevail. This can be accomplished by initiating Audit
Committee as it regulates risk management systems and internal control in effective manner.
Moreover, firm will be able to attain true and fair view in effectual way which will help
stakeholders to rely upon the financial in order to take decisions. If misleading statements are
provided to them, then stakeholders cannot take better decisions so that no losses may be
incurred and business may be able to attain trust of stakeholders. Furthermore, laws and
regulations will be also be met quite effectually.
Recommendation:
This is suggested to Bob, that he need not to worry about having an audit committee in
Juvenal Plc. As this will definitely add to the effective work performance of the organization.
This is stated with the fact that the audit committee will review all the recording and reporting of
financial and other matters of the organisation on regular basis and this makes all the employee
of the firm to work in legal and ethical manner and to follow all rules and regulation on
recording of the transaction this will eliminate the chances of fraud, also with this any default
and mistake can be identifies on time and rectified accordingly. This is advised to Bob that an
audit committee must be formed in the Juvenal Plc. and this will be better for the organisation
only, this will enhance the effectiveness of the firm.
CONCLUSION
From the above report it can be concluded that Audit as crucial for Juvenal Plc and
formation of audit committee in the organization is essential. This committee will assure that all
regulations are completed with when carrying out the recording of the transactions. Also, this
committee can regulate the working and effectiveness of the audit firm. Any lag or default done
by the auditors can be identified by the audit committee easily. The Audit firm must comply
with all the standards and regulatory legislation formed by the government authorities
specifically for the auditors while carrying out the audit of a particular organization.

REFERENCES
Online
Tesco fined £129 million by Serious Fraud Office for overstating profits. 2017 [Online]
Available Through: <https://www.independent.co.uk/news/business/news/tesco-fined-129-
million-by-serious-fraud-office-overstating-profits-a7653166.html>
Audit Committees. 2018 [Online] Available Through:
<https://www.icaew.com/archive/technical/corporate-governance/uk-corporate-
governance/audit-committees>.
Audit committee: Definition, Requirements, Role and Responsibilities, Advantages,
Disadvantages. 2017 [Online] Available Through:
<https://www.wikiaccounting.com/what-is-audit-committee/>.
Role and Responsibilities of an effective audit committee. 2017 [Online] Available Through:
<https://www.icsa.org.uk/assets/files/branches/Role%20and%20Responsibilities%20of
%20an%20effective%20audit%20committee.pdf>.
Audit Quality Review. 2017. [Online] Available Through:
<https://www.frc.org.uk/auditors/audit-quality-review>.