Audit and Assurance: The Role and Benefits of Audit Committee

This article discusses the importance of the audit committee in maintaining high-quality audit work, including its function, benefits, and membership. It also covers the regulation and oversight to ensure audit firms conduct work in a better quality and the role of the audit committee in ensuring effective auditor conduct. The article concludes with a real-life case study and the importance of providing timely information to the audit committee.

AUDIT AND ASSURANCE

TABLE OF CONTENTS
Introduction......................................................................................................................................3
The function, benefits and membership of the Audit Committee...................................................3
The regulation and oversight to ensure the audit firms to conduct work in a better quality...........5
Audit committee role in ensuring that the auditor conduct their work in an effective manner.......5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

INTRODUCTION
Juvenal is a large firm with more than 3000 employees, the external auditor of the firm
recommended that the firm should conduct audit committee, in this case, Bob was followed to
consider its role, but unfortunately, he was not known about the membership, functions and
benefits of the audit committee. By considering this aspect, the present study is based on the
proper justification of membership, functions and benefits of the audit committee will be
conducted so as to help Bob in getting familiar with the same, and carry on his role smoothly.
The study also covers the regulation and oversight of audit committee to ensure the audit firms to
conduct work in better quality, while considering the role of the audit committee in ensuring that
the auditors conduct their work in an effective manner.
THE FUNCTION, BENEFITS AND MEMBERSHIP OF THE AUDIT
COMMITTEE
An optimal audit committee can offer various benefits to firm which can come in the
form of providing actionable insights to inspect and improvise the financial reporting and
practices, wherein audit committees conduct meeting with the financial officers for maintaining
the efficiency in the controls and outer financial reporting of the organization (Cohen,
Krishnamoorthy & Wright, 2017).
This is highly concerned with the internal reports, financial strategies and operational
issues. In addition, an effective audit committee can help in creating and marinating better anti-
fraud programs in Juvenal, with the conducted insights in terms with the issues of operations and
management, the audit committee has a great role in working with auditors to create and review

the fraud prevention program in organization as a whole while making sure that proper
investigations are taken into account in case the fraud is exposed. This also forms compliance
programs, code of conduct and detailed ethics so that no unethical practices are involved.
Moreover, the audit committee will benefit the Juvenal in enhancing the internal audit function,
by forming an optimal organizational structure that possesses internal auditing team that reports
to the audit committee in a direct manner that makes a contribution to the entire integrity
(Pizzini, Lin & Ziegenfuss, 2014).
By this, the Juvenal firm will be able to satisfy the responsibilities of finance and
compliance while assuring that there is proper adjusting of audit practices and internal controls
accordingly. Along with this, the optimum use of audit committee will ensure oversee of the
external audit of the organization, in which the audit committee has met with the external
auditors to check the services so that there is the maintenance of independence among the
managerial team and external auditors of the firm (Means, 2017). Additionally, an efficient audit
committee can reinforce the credibility with the stakeholders, it aid in communicating about the
independence, trust and relevance, it also promotes confidence.
The audit committee must be primarily based on the UK Corporate governance code and
FRC risk guidance (Icaew, 2018). The membership of audit committee is chosen number of
members of the board of directors of the company, in the Juvenal the Board of Directors is Bob
an expert in Human Resource Management and, as a Non-Executive Director, and Steve, the
Director of Finance, whose roles and responsibilities will be inclusive of assisting auditor in
remaining independent of management. For Bob to interpret the functions of audit committee
effectively, it can be explained that the main function of the audit committee is to conduct audit
overseeing of the books and records of association and to review the internal financial process

and control of the association (Alzeban & Sawan, 2015). Being a part of its function, the audit
committee provides a recommendation to the full board in regards to the termination, selection
and retention of an independent firm to carry out the services of auditing.
Importance of the audit committee has been enhanced after the detailed examination of
the US Sarbanes–Oxley Act of 2002 (SOX), which was passed in the consequences of the affairs
of Enron and Tyco and related corporate scandals (Out-Law. com, 2018). However, there was
the absence of the corporate governance examination that would be complete with no reference
to SOX and an acknowledgement that there is a little circumstance where it might impact UK
companies and their directors.
THE REGULATION AND OVERSIGHT TO ENSURE THE AUDIT FIRMS
TO CONDUCT WORK IN A BETTER QUALITY
To maintain a high audit quality, it is significant to comply with applicable rules,
regulation and laws, inclusive of viable and reliable professional standards. In the UK, wherein
the Juvenal is operating, the Professional Oversight Board is the oversight body. To be
competent to conduct a high-quality audit, it is totally based on the independent auditors and the
audit firm to possess strong auditing skills formed by efficient training and reliable experience.
There must be an appropriate flow of communication and the character strength doe auditing
approach with the high scale of professional scepticism (Malsch & Salterio, 2015).
In addition, the independent auditors are required to state and justify that they consider
the maintenance of higher integrity, independence, consistency, objectivity standards with the
underlying values alongside. Similarly, the auditors must comply with the high professionals and
principles of ethics, inclusive of integrity as well as independence (Raiborn, Butler, Martin &

Pizzini, 2017). To this note, the auditor must avoid all the commercial and individual interest that
can conflict or breach with their delegated roles and responsibilities. In this way, the audit firm
must support a suitable individual mindset meant for auditor and a fitted audit culture of the firm.
The high-quality audit is totally based on the structures of legal and regulatory bodies, containing
the professional standards that are reliable to the financial statements and audit. Better quality
control of the audit is engaged with the audit quality risks and forming necessary controls at the
level to mitigate the same, by considering the controls at the level of the audit firm. In
accordance with the same, auditors are likely to comply with principles provided to maintain
ethics and professional standards, i.e. objectivity and integrity (Financial Reporting Council
Financial Reporting Council, 2015). Auditors are expected to be highly experienced, knowledge,
skills regarding the audit and business. This is inclusive of the industry, the corporate operations
and environment and regarding the regulatory and legal structures that support their
responsibility being as a statutory auditor and the financial reporting procedure and output of the
firm. Most significantly, the mindset, knowledge, skills, character, culture of the auditor and
their quality controls are crucial to sustaining them in taking an objective, integrative and reliable
judgments, in all auditing stages. Therefore, these judgements are critical to deliver higher audit
quality, support audit opinions and allow them to make a win-win situation while reporting.
Firms operating in the regulated audit area must comply with the Audit Regulations and
Guidance which are namely; ICAEW (The Institute of Chartered Accountants in England and
Wales) ICAI (The Institute of Chartered Accountants in Ireland operating as Chartered
Accountants Ireland), ICAS (The Institute of Chartered Accountants of Scotland).
These regulatory bodies state the rules that are set out on the proper regulation of
auditors, and the guidance they are required to follow. The purpose of the audit regulations is to

ensure that there is adequate maintenance of high standards of audit work by registered auditors.
The related law needs that the rules in regards to conducting the audit work are required to be
written down by the independent body (Icaew, 2018). Therefore, the audit firm has to apply the
ethical standards, quality control and auditing all through, and the adopted standards are
the International Standards on Auditing (UK and Ireland), the International Standards on Quality
Control (UK and Ireland) and the ethical standards.
AUDIT COMMITTEE ROLE IN ENSURING THAT THE AUDITOR
CONDUCT THEIR WORK IN AN EFFECTIVE MANNER
The board is required to create formal as well as a transparent arrangement for taking into
account the manner they must apply the corporate reporting, principles of internal control,
maintaining a strong relationship with the auditors of company and risk management. The major
roles played by the audit committees are provided as: it works to check the integrity of the
corporate financial announcements, structure and statements (OutLaw.com, 2018). It role lies in
reviewing the internal financial control and risk management system while reviewing and
monitoring the functions of internal audit. The role of the audit committee is to recommend
either appointment or replacement of the outer auditors and to monitor the efficiency of their
work. It also plays a role in developing and implementing the policy on the implementation of
the auditors meant for non-audit services. The audit committee is considered as the guardian of
the company financial statement’s integrity. This standard oversight of the corporate account
states that the audit committee has a significant role in investigating the internal financial control
of the company, and simultaneously reviewing them along with operational activities and
making sure that there is adequate risk management system, where a corporation has an audit

function based internally, the audit committee will be required to expand its role to monitor to
internal audit. The committee has placed certain particular duties in regards with the external
auditors, it makes recommendations on the auditor appointment to the board and makes approval
of their fees and other related terms by which their retaining is done (Contessotto & Moroney,
2014). In addition, the audit committee also has a major role in the prevention of fraud. It is
required to have confidence that act as opportunities all across the company and employee, and
conduct reporting of abuses and misconduct. This might work by providing the employee with
comprehensive details for the members of the committee for use is there is a failure of avenues.
The role of the audit committee is to review with the help of independent auditors, by monitoring
the policy adequacy on yearly terms and acquire the approval of Board of any policy revisions
(Badolato, Donelson & Ege, 2014). The audit committee also reviews the standard extent and
scope of the general audit of the independent auditor and consider the audit results with the
auditors as well as managerial and regulatory authorities. The audit committee is also tasked with
a review with yearly engagement letter inclusive of necessary arrangements while reviewing the
important accounting practices and policies of the firm and the controls of financial reporting
with their adequacy in mind (Lee & Fargher, 2017). Most of the company have established
private fraud system for employees, and the other trusted parties that can provide the information
to the right individual at the right time. Thus, the audit committee’s role is extremely important
in maintaining good governance overall.
Considering the real-life case of the Tesco and the consequences of not adhering to the
auditing professional standards, the company, wherein two former officials of Tesco Plc
succeeded in the dismissal of crime-fraud in regards with the 2014 accounting scandal that
provoked a boardroom house-cleaning as well as an overhaul of the supplier relations of the

grocer of UK The (Guardian, 2018). The case was held that the retailer did the income
overstating by 246 million pounds ($313 million), which further washed 2 billion pounds of the
market value of the company. Lastly, the retailer made agreements to make payment of 214
million pounds to resolve the problems of regulatory in the accounting scandal.
CONCLUSION
On the basis of above analysis, the conclusion can be drawn that audit committee is
required to be well marinated by the firm, with the qualified and experienced auditors in order to
prevent frauds and maintain proper internal control and financial statements. The effectiveness of
the audit committee is related mainly with the effectiveness of the Board of directors and upper
management. In this way, Bob and Steve must not wait for the committee to request for
information. It is required to be ensured by them that there is adequate information provided to
audit committees timely and they must initiate to supply information to it.

REFERENCES
Books and Journals
Alzeban, A., & Sawan, N. (2015). The impact of audit committee characteristics on the
implementation of internal audit recommendations. Journal of International Accounting,
Auditing and Taxation, 24, 61-71.
Badolato, P. G., Donelson, D. C., & Ege, M. (2014). Audit committee financial expertise and
earnings management: The role of status. Journal of Accounting and Economics, 58(2-3),
208-230.
Cohen, J., Krishnamoorthy, G., & Wright, A. (2017). Enterprise Risk Management and the
Financial Reporting Process: The Experiences of Audit Committee Members, CFO s, and
External Auditors. Contemporary Accounting Research, 34(2), 1178-1209.
Contessotto, C., & Moroney, R. (2014). The association between audit committee effectiveness
and audit risk. Accounting & Finance, 54(2), 393-418.
Lee, G., & Fargher, N. L. (2017). The role of the audit committee in their oversight of whistle-
blowing. Auditing: A Journal of Practice & Theory, 37(1), 167-189.
Malsch, B., & Salterio, S. E. (2015). “Doing good field research”: Assessing the quality of audit
field research. Auditing: A Journal of Practice & Theory, 35(1), 1-22.
Means, G. (2017). The modern corporation and private property. Routledge.
Pizzini, M., Lin, S., & Ziegenfuss, D. E. (2014). The impact of internal audit function quality and
contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), 25-58.

Raiborn, C., Butler, J. B., Martin, K., & Pizzini, M. (2017). The Internal audit function: A
prerequisite for good governance. Journal of Corporate Accounting & Finance, 28(2),
10-21.
Online
Financial Reporting Council Financial Reporting Council, (2015). Audit Quality Practice aid for
audit committees. Retrieved from < https://www.frc.org.uk/getattachment/1738ea4e-
167a-41e5-a701-f169e6b7e264/Audit-quality-practice-aid-for-audit-committees-May-
2015.pdf>.
Icaew, (2018). Audit Regulations and Guidance (effective November 2013 – 16 June 2016).
Retrieved from < https://www.icaew.com/library/subject-gateways/corporate-
governance/audit-committees>.
Out Law. com,. (2018). The audit committee – the UK Corporate Governance Code. Retrieved
from <https://www.out-law.com/page-8219>.
The Guardian, (2018). Two Tesco directors cleared of fraud as judge labels case 'weak'.
Retrieved from < https://www.theguardian.com/business/2018/dec/06/two-tesco-
directors-cleared-of-false-accounting>.