Audit, Assurance and Compliance

This report discusses the role of audit committee in ensuring integrity and transparency in corporate reporting, the application of ASX corporate governance principles, compliance issues with the current structure of the company, and a breach of corporate governance principle by Edward. It provides insights into the importance of auditing, assurance, and compliance in organizations.

AUDIT, ASSURANCE AND
COMPLIANCE

EXECUTIVE SUMMARY
Auditing is an important process that is required to be conducted by the entities for
ensuring that their financial statements are free from errors and misstatements. Audit committee
has significant role to play for ensuring that the corporate reporting process is transparent and
free from misstatements. For ensuring integrity ASX has laid corporate governance principles
and recommendations to comply by the organisation for having good outcomes.

TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................2
TABLE OF CONTENTS................................................................................................................3
INTRODUTION..............................................................................................................................1
REPORT..........................................................................................................................................1
a) Role of Audit Committee........................................................................................................1
b) Application of ASX Corporate Governance Principles..........................................................3
c) Compliance issue with the current structure of the company..................................................4
d) Corporate governance principle breached by Edward............................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUTION
Auditing refers to the process of examining the financial records of the enterprise for
ensuring that they are free from errors and material misstatements. Auditing ensures that the
financial information provided to the external user is accurate and not misstated. Corporate
governance involves establishing internal controls to ensure that the errors and frauds are not
committed in the company. Present report is based over auditing, assurance and corporate
governance. The report addresses the role of audit committee and corporate governance
principles laid by ASX for entities to comply.
REPORT
a) Role of Audit Committee
Ensuring the integrity and transparency of corporate reporting
Audit quality is essential to be ensured by the companies for making the investors
informed and confident when making the investment decisions. Audit quality refers to matter
that affect ability of auditor to achieve the fundamental objective of the audit. it requires
reasonable assurance that the financial statements of the company are free from errors and
material misstatements
Audit Committee is committee of board of directors which focuses over the issues
relevant to integrity of financial reporting of company. Listing rules of ASX requires the
specified listed companies of having the audit committee. Other entities may also choose for
having an audit committee. Existence of the audit committees do not alter requirement for
directors to take their responsibility for the financial reporting processes (Mihret and Grant,
2017). Audit committees could play a significant role in financial reporting and promoting the
audit quality.
Auditor gives independent opinion which follows after opinion of director on financial
report. Company is required to have own processes, systems and controls and the appropriate
resources for producing high quality of financial reports. Directors should not rely over the
auditor when forming own opinion over financial report. This will undermine objective of the
audit as they are required to provide an independent assurance to the users of financial reports.
Audit committees must raise concerns regarding the audit quality which are not resolved
satisfactorily with auditor with board. Audit committees can seek advice from the ASIC where
appropriate and needed.
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Audit committee plays an important role in ensuring the integrity and transparency in the
reporting process. Audit committee has the role of establishing effective governance procedures
for the business. Audit committee ensures that the required independence is provided to the
auditors of company for identifying the errors and misstatements. Members of the audit
committee are required to have quality work (Audit Committee, 2019). The members of audit
committee must have the required knowledge regarding the key concepts of financial reporting
process so that they could identify the errors and misstatements.
Internal controls are overseen by the audit committee and they are required to ensure that
the internal controls are effective enough to identify the errors in the financial records at the early
stage. This prevents the risk of fraud or errors being conducted in the company. Oversight for the
Audit committee also extends to the IT security and the operational matters. CPAs are required
to report directly to audit committees as opposed with the reporting to management (Chandler,
2019). Audit committees are required to ensure that the concerns raised by the auditors regarding
the issues identified in the company are addressed appropriately. Serious and immediate actions
should be taken for the concerns related to the reporting process.
Audit committee is required to understand the management develop and report on the
internal financial information of the entity. Review enables the committee to ask questions
related to the integrity, completeness and accuracy of the audit reports. Understanding of the
audit report enables the audit committee to identify the impact of different transaction carried out
over the financial reports of the company. Audit committee has an interrelationship with the
management and auditors. Audit committee ensures that the auditors are performing their work
with integrity and accuracy and are provided with independence to inspect the business
transaction where the errors could occur. Committee is required to oversee that all the matter of
concerns have been adequately audited by the auditors and all the key issues are identified and
reported in the audit report. Audit committee ensures that the opinion framed by the auditors is
accurate and is formed after adequately auditing the financial statements. Committee is also
responsible for ensuring that the significant concerns raised by the auditors are reported in the
financial statements to ensure transparency in the financial reports.
Mandatory audit committee
ASX Listing Rules 12.7 has specified that the entity included in S&P All ordinaries Index
at beginning of the financial year must have audit committee in that financial year. Further
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requirements are given if entity is included in A&P/ASX 300 Index at beginning of the financial
year. other listed companies are required to have disclosure on whether they are having an audit
committee. They are required to disclose on “if not, why not” in accordance with ASX
recommendations. Unlisted and not for profit organisation is not required to establish audit
committee.
b) Application of ASX Corporate Governance Principles
The governance practice that will be implemented by the listed entity is completely
dependent upon the board of directors as it is having the responsibility for managing the
businessin terms of due care and diligence (Hay, Stewart and Botica Redmayne, 2017). As per
theprinciples and recommendations, if the entity finds that the recommendations are not
appropriate in the specific situation that it is not entitled to adopt it but, in such circumstances, it
should disclose the fact about why it has not adopted the recommendation.
These principles apply to all types of the entities listed under ASX official list
irrespective of their legal form, whether they are established in Australia or somewhere else or
whether they are internally or externally managed. These principles provide a contemporary
view of the corporate governancestandards and can be helpful to other bodies as well. There are
8 principles and recommendations which are stated below.
“Laying solid foundations for management and oversight”
A listed entity is required to clearly delineate the respective roles and responsibilities of
its board members and management as well and also review their performance on a regular basis
“Structure the board to be effective and add value”
The stricture of the board of an entity listed under ASX should be properly structured
with appropriate size. Along with this, it should also have collective skills, commitment and
knowledge with respect to the entity and the industry as a whole in which the business is
operating (Saputra and Yusuf, 2019). This will help in effectively managing and discharging the
duties effectively and will add value to the entity.
“Implementing a culture of acting lawfully, ethically andresponsibly”
The listed entity should incorporate and reinforce a culture which will help the
organization in acting in a lawful manner, ethically and responsibly.
“Safeguarding the integrity of corporate reports”
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The business entity should adopt appropriate processes to verify and preventing the
integrity of the corporate reports.
“Make timely and balanced disclosure”
A listed entity is required to make timely and balanced disclosure of the matters by taking
into consideration that a reasonable person would be expecting a material change in the price of
its securities.
“Respect the rights of security holders”
A listed entity should provide its shareholders with the relevant and appropriate
informationwhich will facilitate the shareholders to exercise their rights effectively.
“Recognise and manage risk”
All the entities which are listed under ASX should establish a strong risk management
system and framework. It should also periodically review the effectiveness of that framework.
“Remunerate fairly and responsibly”
The entity is required to pay directors remuneration which is sufficient enough to attract
and retain the experienced directors. It should also design the remuneration of its senior
executives in such a way that it will motivate them and align their interest with the creation of
the value for security holders and risk appetite.
With respect to the internal control, the principle 7 applies, which states that a listed
entity should disclose:
a) In case it has an internal audit function, how the audit function is structured and operating
and what role does it performs, or
b) In case, the entity does not have internal audit function, then the entity is required to
disclose the fact and the processes it is employing to for evaluating and improving its
governance, risk management and the internal control processes.
The internal audit function can assist the listed entity in accomplishing its objectives by
implementing a systematic approach which will help in managing the risk and internal control
processes. Entities that does not have internal audit function, the board should review on a timely
basis to identify whether there is a need for it or not.
c) Compliance issue with the current structure of the company
The role of audit committee is mainly to review and make recommendation to the board with
respect to the entity’s adequacy in terms of corporate reporting processes and also the internal
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control framework. It also reviews whether the financial statements reflect the understanding of
the committee and also represents the true and fair view of financial position and performance of
the business (Safari, 2017).It also has the role to appoint or remove the external auditor. It takes
decision in respect to the fees payable to the auditor for both audit and other work, review the
adequacy of the internal and external audit. Another importance role is to exercise the
appropriateness of the accounting decisions taken by the management while preparing the annual
reports of the company.All these roles make it essential for the board to have an audit committee.
The board of the entity is required to have an audit committee which comprises of:
 at least 3 members and all of them should be non-executive directors and also majority of
them should be independent directors, and
 the committee should be chaired by an independent director and that person should not be
chair of the board,
and disclose:
 charter of the committee
 all the qualification and experience of the members of the committee
 with respect to the reporting year, the number of times meetings held among the members
along with the attendance of the members at each of these meetings.
The above stated criteria’s is based on the fourth principle of ASX’s Corporate Governance
which describes about the safeguarding the integrityof the corporate reports. This principle
demonstrates about the effectiveness of implementing appropriate processesin order to
safeguarding the integrity of the corporate business reports.
The three major concerns with respect to the audit committee of Baxby Fashion Ltd are stated
below.
1. One of the three members of the committee is executive director of the board, who is
Bluberry Richard (chief information officer). As per the “ASX’s Corporate Governance
Principles and Recommendations” and as stated above, there should be at least three
members and all of them should be non-executive members (Maxwell, 2019). This is the
first and the foremost requirement of the audit committee.
2. The committee requires to have majority of its members as independent directors which
refers to the person having no material interest or relationship with the company. In case
of Baxby Fashion Ltd, only one among the three seems to be independent directors, that
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is, LucyBrian, a well recognised furniture designer. Other than Lucy, other two Tully
McDonald and BluberryRichardboth seems to have an interest with the company as Tully
is solicitor of the company since 2000 and Bluberry is the Chief Information Officer of
the company having much to do with the company. Thus, it does not comply with the
requirement to havemajority of the members to independent directors.
3. The third concern is in respect to the knowledge and expertise of the member in respect
to the business entity and industry in which it is operating. One of the member name,
LucyBrian who is well known furniture designer and has nothing to do with the business
of clothing (Singh and Rose, 2018). Lucy also doesn’t have any knowledge in respect to
the accounting and finance, business operation which will be helpful for the business in
taking relevant decisions. Lucy Brian being a furniture designer will not be able to
discharge the committee’s mandates effectively.
Thus, based on the above it can be said that the company is ineffective in complying with 3
major requirements of the audit committeein order to fulfil their role and responsibilities
effectively.
d) Corporate governance principle breached by Edward
Corporate governance describes framework of relationships, rules, systems & processes
within and by which the authority is controlled and exercised within the corporations. This
encompasses mechanism through which the companies and authorities in control are held for
account. Corporate governance is essential for promoting the investors’ confidence that is crucial
to ability of the entities listed over ASX to compete for the capital.
For ensuring the compliance with corporate governance ASX council has laid down the
governance principles and recommendations to be followed by the organisations. Principles and
recommendation set out the governance practices recommended for the entities listed on ASX.
The Council is of the view that the entities achieve good outcomes for governance outcomes and
meeting reasonable expectations of the investors (Bansal and Sharma, 2016). Council recognises
that different entities can adopt the different factors practices of governance based over factors
such as complexity, size and the corporate structure.
The type of governance practices listed entity chooses is the fundamental matter for the
board of directors. Board is charged with legal responsibility to manage the business with due
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care & diligence. Therefore it is essential for ensuring that the company is having adequate
arrangement in place. Principles & recommendation applies to the entities admitted to ASX
official lists the ASX listings, regardless of legal form of the business, whether it is intentionally
or managed externally.
Principles & recommendation specifically are directed and is applicable to the ASX listed
entities. They reflect contemporary views of the corporate governance standard, entities may find
these useful for formulating the governance rules and practices (Principles & Recommendations,
2019). There are 8 central principles given by the ASX council which are
 Laying solid foundation for the management & oversight
 Structuring board of company to be effective & add value
 Instil culture to act ethically, lawfully and responsibly
 Safeguarding integrity of the corporate reports.
 Making balanced and timely disclosures.
 Respecting rights of shareholders.
 Recognising and managing risks
 Remunerating fairly and responsibly.
In the present case it could be seen that the Baxby Fashion dealing in the fashion products
based over latest trends and reasonable prices. Company had signed an agreement for setting up
and running fashion watch kiosk in bug departmental stores in venture with Clette Hayman
Handbags. CFO of the company advised that the agreement was not good as the company was
not having knowledge about the operations of such type and also company was not having
knowledge about the Hayman handbags.
In this case Edward has breached the principles laid by Council for corporate governance.
Edward has breached the two principle of corporate governance that are :
Principle 3 – Instilling culture of acting lawfully, responsibly and ethically.
Principle 7 – Recognising and managing risks.
Both the principles of corporate governance are essential for the growth and success of any
business enterprise.
The principles are breached in the following manner:
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Principle 3 requires the company to ensure that the company and its authorities are acting
ethically, lawfully and responsibly. Edward has not acted ethically and responsibly on deciding
about the venture with the Hayman handbags. Edward was required to discuss with all the board
of directors regarding the new joint venture with which it has signed the deal. As because of this
company may suffer losses. Edward has not acknowledged the suggestion of CFO that the
company has not been into such deals previously and was not having any knowledge of
reliability of Handbags (Anafiah, Diyanty and Wardhani, 2017). Edward took the decisions all
on his own without concerning the directors.
Principles 7 requires the company to have sound risk management system. As the Edward
entered into contact all on his own the other directors are not aware of the business. due to this
directors are not able to frame sound risk management strategies for the business or risk that may
arise due to the new venture. Company is required to have sound risk management framework so
that the business manages the exposure to different risks.
The agreement entered by the Edward without considering the board and other officials
of the company is unethical and may impose serious risk over the business. The directors of the
company will not be able to add the value to the business as the company has for the first time
taken the joint venture. Also they are not having knowledge about the business because of which
the effective risk management strategies could not be framed.
CONCLUSION
The above report is concluded by identifying that the audit committee plays critical role in
ensuring the integrity and transparency of the reporting process. Audit committee has the
authority of making improvements to the financial statements of company. Every company is
required to have effective corporate governance practices and ASX has given the principles and
recommendations for the corporate governance.
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REFERENCES
Books and Journals
Mihret, D.G. and Grant, B., 2017. The role of internal auditing in corporate governance: a
Foucauldian analysis. Accounting, Auditing & Accountability Journal.
Chandler, R., 2019. Auditing and corporate governance in nineteenth century Britain: the model
of the Kingston Cotton Mill. Accounting History Review. 29(2). pp.269-286.
Bansal, N. and Sharma, A.K., 2016. Audit committee, corporate governance and firm
performance: Empirical evidence from India. International Journal of Economics and
Finance. 8(3). p.103.
Anafiah, V.A., Diyanty, V. and Wardhani, R., 2017. The effect of controlling shareholders and
corporate governance on audit quality. Jurnal Akuntansi dan Keuangan Indonesia. 14(1).
pp.1-19.
Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The role of auditing in corporate
governance in Australia and New Zealand: A research synthesis. Australian Accounting
Review. 27(4). pp.457-479.
Saputra, I.G. and Yusuf, A., 2019. The Role of Internal Audit in Corporate Governance and
Contribution to Determine Audit Fees for External Audits. Journal of Finance. 7(1). pp.1-
5.
Safari, M., 2017. Board and audit committee effectiveness in the post-ASX Corporate
Governance Principles and Recommendations era. Managerial Finance.
Maxwell, C., 2019. Governance institute guidance on the corporate governance principles and
recommendations. Governance Directions. 71(2). p.86.
Singh, G. and Rose, A., 2018. Forthcoming principles and recommendations focus on corporate
culture. Governance Directions. 70(7). p.432.
Online
Audit Committee. 2019. [Online]. Available through :
<http://aicd.companydirectors.com.au/resources/all-sectors/roles-duties-and-
responsibilities/role-of-the-audit-committee?no_redirect=true>.
Principles & Recommendations. 2019. [Online]. Available through :
<https://www.asx.com.au/documents/regulation/cgc-principles-and-recommendations-
fourth-edn.pdf>.
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