Audit Committee Role and Compliance in Financial Reporting Analysis

This report delves into the crucial role of audit committees within organizations, emphasizing their responsibilities in ensuring accurate and transparent financial reporting. It examines the composition of audit committees, including the appointment, reappointment, and removal of auditors, as well as auditor remuneration. The report explores the complexities of engaging auditors for non-audit services, categorizing these services and analyzing the implications on auditor independence and objectivity. Through a case study of NEXT PLC, the report illustrates practical applications of audit committee compliance, including composition, remuneration, and the management of non-audit services. The conclusion underscores the significance of audit committees in maintaining best practices and upholding the integrity of financial reporting within listed companies, referencing various academic sources to support its findings.

AUDIT AND ASSURANCE

Table of Contents
INTRODUCTION................................................................................................................................3
TASK A................................................................................................................................................3
Composition of Audit Committe......................................................................................................3
Appointment, reappointment and removal of the Auditors.............................................................3
Remuneration of the Auditors..........................................................................................................4
Engaging of the Auditors for the Provisions of non audit services.................................................4
Auditors Interdependence and objectivity.......................................................................................5
TASK B................................................................................................................................................5
CONCLUSION....................................................................................................................................6
REFERENCES.....................................................................................................................................6

INTRODUCTION
Audit committee is made for the development of the organisation. It is made because the
entity needs a true and fair report of its compliances and this can be done by using the elements of
the corporate governance report. If the transparent view or report is made by the entity then it will
be able to have the more effective relations with its stakeholders (Messier, 2016). So it can be said
that the audit committee is having very vital role in making the true and fair report of the
organisation. Next Plc is a retail company and is operating its activities in the filed of the clothing
and footwear. Along with this it is providing the services in the filed of home appliances. In this
report the role of the audit committee and its compliances are described. The purpose of the report
is to find out and address the provisions related with the audit commit.
TASK A
Composition of Audit Committe
Audit committee is made for the good governance of the company and its functional
activities. There are some norms made by the corporate laws of the UK so that the functions can be
operated in the most effective way. It should consist three independent non executive directors or
two from the outside of the company. There is a chairman of the audit committee should be an
independent director. Apart from this he can be an additional member of the committee provided the
should not chair the committee at the time of the appointment (Tepalagul and Lin, 2015). Along
with this the board members of the organisation should ensure that all the members of the audit
committee should be financial literate. They should have the professional qualification of the
relevant filed. If the company or the members of the audit committee are not fulfilling this criteria
then they will be held liable for the penal provisions. The expert of the committee members must be
retired fiancée director from the another company or a partner from an accountancy firm.
Appointment, reappointment and removal of the Auditors
Appointment of the audit committee is made on the recommendation of the nomination
committee. The appointment of the members of the audit committee should be of three years. Thus
it can be said that the auditors must be appointed at the recommendation of the board of the
directors. In the annual report of the company appointment of the auditor is included. Resignation
of the auditors must be approved by the board of the directors in the meeting of the board. The
reappointment of the auditors can be done after expiry of the auditor's work duration (Miko and
Kamardin, 2015).

Remuneration of the Auditors
Audit committees have wide ranging, time consuming and they have to work for the
development of the business. Their role is to have a true and fair view about the company and its
proceedings. The level of the remuneration which is to be paid to the auditors should not exceed the
fees paid to the other board members. Along with this the remuneration of the chairman is much
higher than the other members as he pays more time and efforts to the functioning of the business
(Rupšys and Stačiokas, 2015).
Engaging of the Auditors for the Provisions of non audit services
The audit firm is made so that a true and fair view report of the company and its matters.
They are trained to understand the various external elements of the business and provide their view
point about it. If the auditors are doing non audit services then these can be included in below
mentioned categories:
A service which require some legislation and contracts undertaken by the auditors of the
business. These can be:
 Prudential Regulatory Authority.
 Legal and statutory requirements on the matters such as issue of shares for non cash
consideration and expenditure for grant application purpose (Lenz and Hahn, 2015).
 And the requirements related with the contracts such as lenders and vendors on net asset.
Services that are most effective for the benefit of the business and these can be:
 The matters can be related with the financial records and it is not described under law for the
auditors to do these activities of functions.
 Tax compliances, these are the issues which can be related with the taxation policy of the
entity.
 To make some reports which are required on a urgent basis (Lord, 2016).
There are some another most important functions which can be related with the trade activities these
can be:
 Management consultancy
 Tax Advice
 Human Resource Consultancy
Thus, in above mentioned way some functions of the auditors related with the non audit

services are described.
Auditors Interdependence and objectivity
The auditor is liable to conduct the research in such manner that it could not have any
adverse impact on the business and its activities. He should be an independent officer so that all the
tasks can be done in the most effective way. A true and fair report of the functioning of the company
should be presented by the auditor. So it is required to take care of all the essential elements related
with the business (Dobija, 2015). He should not be related with anyone as his work should be
transparent and independent. To determine the independence of the auditor some points must be
ensured. Such as there must not be any relationship in the company and the auditors. The audit
committee should consider whether there is any relationship with or service provider by an auditor:
 Creates a mutual or any conflict interest with the client of the company.
 Places the audit work in his own work.
 Places them in a position of being an advocate for the audit client.
 The member must not be employed with the company.
 He should not have been in any professional post of the company in last three years of the
appointment.
 He should not be related with any of the employees of the company.
So it can be said that the auditor should be independence and he should not have any relation
with the any of the member of the company. By this he will be able to address the issues of the
company in most effective way (Alzeban and Sawan, 2015).
TASK B
It is very important for a listed company to manage all the essential requirements for the
business. The entity must insert in its annual reports and Directors reports the compliances and their
effectiveness (Sultana and Mitchell Van der Zahn, 2015). In below mentioned way the compliances
related with the audit committee are described in the context of the NEXT PLC are described as
under:
NEXT is a listed entity at London Stock exchange, as per the latest data of the company there is a
Audit committee in the organisation and there are four members in the committee.
Composition : The chairman of the committee is Steve Barber and he is independent non
executive Director. As the compliance is fulfilled here, the chairman of the audit committee must be
independent. He has experience of thirty years, and was a fiancée director of Mirror Group. So the

fulfilment of the compliances of the eligibility of the chairman of the audit committee is done.
Caroline Goodall, Francis Salway and Damme Dianne Thompson are the another major members of
the audit committee of the NEXT. They are financially literate and having professional expertise.
Thus, the composition of the audit committee is done in the most effective way (Kerber and et.al.,
2015).
Remuneration: as per the annual reports the remuneration of the chairman and non
executive director is increased by 2% in February 2016, in line with the wider company award. The
chairman will be paid the fees of £267,955. The basic fee of the non executive director is £55,168
with a further £11,033 (2015 /16: £10,817) paid to the chairman of the Audit and Remuneration
committees respectively so the remuneration compliance of the company is fulfilled.
Interdependence Of The Auditors: As per the given information the members of the audit
committee are independent as they are not having any relation with the company and not related
with the any employee of the organisation. So it can be said that the members of the audit
committee are working in a independent way and are providing a true and fair report of the
company (Samaha, Khlifand Hussainey, 2015).
Non Audit Services: The Audit committee's approval is required in advance for the
provision of the non audit services if the fee exceeds £100,000 for an individual assignment. The
fees for non audit services is £50,000 and it is paid for the competitive tender and decisions which
are to be taken for the cost effectiveness and legislation matters. So the auditors are performing
their workings as per the compliances of the non audit services. The external auditor of the group is
prohibited if they are creating any issue or the provisions are out of the compliances of objectivity
or interdependence which are to be followed (Kang, Trotman and Trotman, 2015).
CONCLUSION
In the above mentioned report role of the audit committee is described. For every listed
company it is very important to have the audit committee it is liable for providing a true and fair
report of the company. So the compliances of the Audit committee must be fulfilled. Thus it can be
concluded that the role of the audit committee is very high in managing and operating the best
practices of the entity.

REFERENCES
Books and Journals
Alzeban, A and Sawan, N., 2015. The impact of audit committee characteristics on the
implementation of internal audit recommendations. Journal of International Accounting,
Auditing and Taxation. 24. pp.61-71.
Dobija, D., 2015. Exploring audit committee practices: oversight of financial reporting and external
auditors in Poland. Journal of Management & Governance. 19(1). pp.113-143.
Kang, Y.J., Trotman, A.J and Trotman, K.T., 2015. The effect of an Audit Judgment Rule on audit
committee members’ professional skepticism: The case of accounting estimates.
Accounting, Organizations and Society. 46. pp.59-76.
Kerber, K.J and et.al., 2015. Counting every stillbirth and neonatal death through mortality audit to
improve quality of care for every pregnant woman and her baby. BMC pregnancy and
childbirth. 15(2). p.1.
Lenz, R and Hahn, U., 2015. A synthesis of empirical internal audit effectiveness literature pointing
to new research opportunities. Managerial Auditing Journal. 30(1). pp.5-33.
Lord, C., 2016. A democratic audit of the European Union. Springer.
Messier Jr, W., 2016. Auditing & assurance services: A systematic approach. McGraw-Hill Higher
Education.
Miko, N.U and Kamardin, H., 2015. Impact of audit committee and audit quality on preventing
earnings management in the pre-and post-Nigerian corporate governance code 2011.
Procedia-Social and Behavioral Sciences. 172. pp.651-657.
Rupšys, R and Stačiokas, R., 2015. Internal audit reporting relationships: the analysis of reporting
lines. Engineering Economics 43(3). pp.49-53.
Samaha, K., Khlif, H and Hussainey, K., 2015. The impact of board and audit committee
characteristics on voluntary disclosure: a meta-analysis. Journal of International
Accounting, Auditing and Taxation. 24. pp.13-28.
Sultana, N and Mitchell Van der Zahn, J.L., 2015. Earnings conservatism and audit committee
financial expertise. Accounting & Finance. 55(1). pp.279-310.
Tepalagul, N and Lin, L., 2015. Auditor Independence and Audit Quality A Literature Review.
Journal of Accounting, Auditing & Finance. 30(1). pp.101-121.
Online
Audit Committees: The Roles and Responsibilities. 2016. [Online]. Available through:
<http://www.grfcpa.com/resources/publications/audit-committee-responsibilities/>.
[Accessed on 26th November 2016].
Next Plc. 2016. [Online]. Available through: <http://www.nextplc.co.uk/~/media/Files/N/Next-PLC-
V2/documents/reports-and-presentations/2016/NEXT-Annual%20report%20Web
%20FINAL.pdf>. [Accessed on 26th November 2016].
The provision of non-audit services to audit clients. 2016. [Online]. Available through:
<http://www.icaew.com/en/technical/ethics/auditor-independence/provision-of-non-audit-
services-to-audit-clients>. [Accessed on 26th November 2016].