Development of UK Audit Committee for Effective and Good Governance

A CRITICAL ANALYSIS OF THE DEVELOPMENT OF THE ROLES AND
RESPONSIBILITIES OF THE UK AUDIT COMMITTEE FOR EFFECTIVE AND
GOOD GOVERNANCE
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Table of Contents
Executive Summary........................................................................................................................5
CHAPTER ONE..............................................................................................................................6
Introduction......................................................................................................................................6
1.1 Background to the Study........................................................................................................6
1.2 Statement of Problem in research..........................................................................................7
1.3 Objectives..............................................................................................................................8
1.4 Research Questions................................................................................................................8
1.5 Justification............................................................................................................................8
1.7 Organisational context...........................................................................................................8
1.8 Summary................................................................................................................................9
CHAPTER TWO...........................................................................................................................10
Literature Review and Theoretical Framework.............................................................................10
2.1 Introduction..........................................................................................................................10
2.2 The UK Corporate Governance Code..................................................................................10
2.3 Evolution of the UK Corporate Governance Code..............................................................11
2.4 Principles of Good and Effective Corporate Governance....................................................13
2.5 The Importance of Good and Effective Corporate Governance .........................................14
2.6 Composition of the UK Audit Committee...........................................................................16
2.7 UK Audit committee............................................................................................................17
2.8 Objectives of the UK Audit Committee...............................................................................19
2.9 Context and Background to the UK Public Sector Audit Committee.................................19
2.10 Foundation Trusts (FTs)....................................................................................................20
2.11 Theoretical Framework .....................................................................................................21
2.12 Summary............................................................................................................................22
CHAPTER THREE.......................................................................................................................23
RESEARCH METHODOLOGY...................................................................................................23
3.1 Introduction..........................................................................................................................23
3.2 Research Methodology .......................................................................................................23
3.3 Research Design ..................................................................................................................23
3.4 Research strategies ..............................................................................................................24
3.5 Data and Discussion.............................................................................................................24
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3.6 Summary..............................................................................................................................25
CHAPTER FOUR..........................................................................................................................26
PRESENTATION AND ANALYSIS OF DATA.........................................................................26
4.1 UK Audit Committee and Foundation Trusts Financial Performance.................................26
4.1.1 Income and Expenditure...................................................................................................26
4.2 Discussion of Results ..........................................................................................................29
4.3 Summary..............................................................................................................................31
CHAPTER FIVE...........................................................................................................................32
SUMMARY, CONCLUSION AND RECOMMENDATIONS....................................................32
5.1 Summary of the Findings.....................................................................................................32
5.2 Conclusion...........................................................................................................................33
5.3 Recommendations................................................................................................................34
References......................................................................................................................................35
.......................................................................................................................................................38
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Executive Summary
Main purpose of this dissertation is to identify responsibilities and roles of the UK audit
commission on the effectiveness of public corporations in the UK. Sir Robert Smith produced
‘The Smith Guidance on Audit Committees’ that is subjoined to the UK Corporate Governance
Code. The audit administrative body is designed to oversee the financial process of the
companies and the organisations with the objective of getting accurate, reliable, and valid reports
to the stakeholders. Though there have been innovations in the role for audit administrative unit,
the committee is designed deal with the current and the emerging issues of sustainability,
adherence to the ethical and legal laws and the environmental considerations. The study is
exploratory and explanatory in nature. The study is related to make motivated with the dearth of
conformable studies as compared to the backstage sector. The conflicting and complex nature of
the accounting expectation underscores the constraint on how the corporate administration
mechanism contributes to the effectiveness and efficiency of the public sector performance. The
findings show that the audit committee’s functions are effective, although still developing and
with some challenges. It was recommended that training programs should be organized for
associate of the audit commission in order to boost their efficiency. Auditors must be honest and
fair in their dealings and being more professional in carrying out their duties. Auditors should
encourage cordial relationship with the management for a better result. The audit committee
needs interact more frequently with the management of Foundation Trust (FTs) in order to
develop a reliable and quality accounting report.
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CHAPTER ONE
Introduction
1.1 Background to the Study
A Foundation trust introduces to the semi-autonomous organisational unite in national
health work in United Kingdom. An inaccurate financial information possesses the potential to
ruin a company and damage its reputation and goodwill. This is one of the major reason due to
which the responsibilities and roles of the UK audit committee cannot be overemphasized when
it comes to effective and efficient corporate governance. Foundation trust is the organisation that
is supported by central government. These trusts are helpful for accountable and make local
population, patients and other staff of the government. These are appointed by the stakeholder’s
analysis and are elected for the growth of trust within the organisation. Foundation trust is
helpful to make a local involvement, local employment and different type of partnerships for the
growth of different auditors and financial controls for the growth of ventral government. The UK
audit commission is anticipated to provide the essential and relevant review process. It is
necessary for a sound corporate administration and to enable direction and focus of its attention
on the review process as a check, so that the credibility of the financial statements can be ensured
(Zhou and Maggina,, 2018.). This will be very helpful for generating effective techniques and
make systematic changes in the foundation trust for analysing UK CGC. UK Corporate
Governance Code exist for the UK organisations to own an audit administrative body, and the
services of the extraneous auditors are still much needed by the public organisations. The reports
were lacking credibility and this made the Institute of Chartered Accountants of England
declared an audit plans to be carried out in order to know the standards that were adopted to
analyse the financial statements whether they comply with the IFRS or GAAP accounting
principles.
This project provides a deep understanding of the major changes in the UK auditor
administrative body to monitor the financial matters, the risks, and the issues of sustainability
(Bravo and Alvarado, 2019).
The rising level of corruption have been responsible for the collapse of major
corporations and also as an indicator of weak and poor governance. To this light, there is a great
need for transparency and accountability to shield all the stakeholders and investors (Glaum et
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al., 2004; Fearnley and Beattie, 2004). The role of the governments of the Western world have
come up with relevant initiatives which include the UK Combined Code and the Sarbanes Oxley
Act (SOX) (2002) (FRC, 2003), that clearly state and make governance mechanisms to assist
boards of directors and other stakeholders of different organisations promote the management of
firms and avoid their liquidation. For instance, the study carried out by Fichtner (2010) revealed
the collapse of Enron made various regulators and governments from developed countries to give
new attending to the audit committee as a major administration mechanism. The study of Rustam
et al. (2013) revealed that the current corporate use of scandals that have given birth to the
corporate governance guidelines that give a crucial function to the UK audit committee.
However, the expectations surrounding audit committees in advanced countries has a quite. The
study of Okpara (2011), for example, in Nigeria found series of bottlenecks that hinder the
promotion and implementation of corporate governance which include non-existent or weak
institutions like weak law enforcement framework and the absence of disclosure and
transparency. This may lead to adverse effects on their practice and effectiveness as a
mechanism of corporate governance.
1.2 Statement of Problem in research
This research is actuated by the dearth of empirical survey of the UK voluntary sector
administration structures and performance as compared to backstage sector corporate governance
inquiry (Broadbent and Guthrie, 2008). The issues of the UK public sector corporate governance
go further than of private sector. The stewardship of UK state-supported funds is prioritised and
due process requirements only mean that transparency surpasses the requirements of the
corporate plane figure. Furthermore, most projects are usually more convoluted given the wonder
of the shareholders different conflicting but legitimate answerability expectations (Evans and
Freeman, 1990). The complex requirements, structures and processes in the context of a UK
public plane figure and the paucity of studies in this area deformation our perceptive of how the
mechanism of corporate governance contribute to the UK public sector performance and
consequently, creating a vacuum for further research (Pollitt, 2011). However, the few studies
that exist about the audit committee in the UK public sector context revealed why the UK public
sector audit committees are very typical in they exist in different structures and forms
(Boardsource, 2010), A poor cognition exist about the structure of the UK audit committee and
its broad responsibilities. Besides, there exist no comparative study on audit committees in the
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context of a UK national sector as the existing few survey examine the audit committees
isolation to institutional setting or organisational context (Chien et al., 2010).
1.3 Objectives
The main purpose of this research is to investigate the set-up of Audit Committee (AC),
responsibilities, development and roles in Foundation Trusts (FTs), a UK public sector
organisation. The study adopted an approach that is based on Institutional Theory (IT). The
approach explains how the Audit Committees (ACs) have come to be adoptive into public sector
organize through Code of Corporate Administration implementation that was copied from the
consecutive UK Codes of Firm Administration. The specific objectives include to:
(i) Examine the responsibilities and roles for UK audit committee on the effectivity of
voluntary sector in the UK
(ii) Ascertain the strategies and policies employed by the UK audit committee in
achieving its aims and objectives as it relates to good and effective governance.
1.4 Research Questions
The study develops two research questions as follows:
(i) What is the composition including appointment, size and membership of Foundation
Trusts (FTs) as it relates to good and effective governance?
(ii) How have the roles and works of the audit committee developed in Foundation Trusts
(FTs) as it relates to good and effective governance?
1.5 Justification
This is deliberately investigates how and why UK audit committee has developed in a
public sector framework. The NHS Foundation Trusts (FTs), within health, represents a good
sample of adopting the NPM techniques to the UK public people. The NHS Foundation Trusts
(FTs) came into existence and set up as an independent and separate legal entity. With a
centralised top-down direction structure, the UK corporate governing body structure and model
is similar to a private sector corporate governance model. Their board of politician is elected by
associate of the Foundation Trusts (FTs) of who is part of those serving in the audit committee.
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1.7 Organisational context
The first chapter captures an introduction to the study while chapter two reviews relevant
and related literature which analyze audit committees in different organization framework and
organizational contexts as it relates to good and effective corporate governance. This chapter
examines the theoretical framework approaches. Chapter three covers the research methodology,
including the method of data aggregation and beginning of information from Foundation Trusts
(FTs). Chapter four analyses the data and discussion of the results while chapter five concludes,
made some empirical findings, summarise, and make some recommendations for the study.
1.8 Summary
It presents a clear view to a critical analysis of the development of the responsibilities and
roles of the UK audit committee for effective and good corporate governance in Foundation
Trusts (FTs), a public sector entity. The study is actuated by the complex nature of UK public
sector with different legitimate but conflicting accountability expectations. The study adopted an
approach that is based on Institutional Theory (IT) and is justified by the fact that the health
sector has a complex process, characteristics and history and is one of the biggest public sectors
in the UK. The study adopted an explanatory and exploratory methods and a qualitative –case
study approach including document reviews.
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