Holmes Institute HI6026: Audit, Assurance, and Compliance Assignment

This report provides a comprehensive analysis of the eight principles of corporate governance as outlined by the ASX, and their practical implications for auditing, assurance, and compliance. The report delves into each principle, explaining its core tenets and the expected outcomes of its full adoption by a company. It then meticulously examines how the adoption of each principle influences the auditor's risk assessment process, audit approach, audit strategy, and the nature of audit evidence. The analysis covers a range of areas, including risk management, internal controls, ethical behavior, and financial reporting. The report highlights the importance of these principles in enhancing corporate transparency, accountability, and stakeholder confidence. The report also examines the likely influence of the adoption of each principle on various aspects of the audit process and provides insights into how auditors can effectively assess and evaluate corporate governance practices to ensure compliance and mitigate potential risks. The report aims to provide a complete guide to the principles of corporate governance and their significance in the auditing process, offering valuable insights for auditors, students, and professionals in the field of finance.

Audit, Assurance and Compliance

Corporate Governance
Contents
Introduction...........................................................................................................................................................3
1. Identification and explanation of the 8 principles of corporate governance.........................................3
Principle 1: Lay a foundation for management and oversight.......................................................................3
Principle 2: structure the board to be effective and add value.......................................................................3
Principle 3: Instill a culture of acting lawfully, ethically and responsibly.......................................................4
Principle 4 - Safeguarding the integrity of corporate reports.........................................................................4
Principle 5 - Make timely and balanced disclosure.........................................................................................4
Principle 6 - Respect the rights of security holders.........................................................................................4
Principle 7 – Recognition and management of Risk.......................................................................................4
Principle 8 - Remunerate fairly and responsibility...........................................................................................4
2. Likely effect of full adoption of each corporate governance principle and recommendation will
have for the company..........................................................................................................................................5
3. Full adoption of the 8 principles of Corporate Governance and influence on the following :............6
Conclusion..........................................................................................................................................................12
References.........................................................................................................................................................13
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Corporate Governance
Introduction
With the increasing complexity and requirement for greater transparency, it has become
essential for the corporate houses to adhere to the principles of corporate governance. The
adherence is not only beneficial for the company rather provides a major support to the
community and society at large. This is the sole why corporate governance and its features
has assumed a place of special importance and considered to be pivotal during the process
of audit planning. Auditing and corporate governance should go hand in hand that will help in
fetching positive impacts. It is thereby imperative that the eight principles of corporate
governance should be followed to create greater scope of work and effectiveness. There is a
growing expectation of the regulatory as well as the investor community in the present
scenario. The application of corporate governance principles has become a major objective.
The internal audit function lies in the area of corporate governance and this is mentioned in
the recent guidance notes.
1. Identification and explanation of the 8 principles of corporate governance
The guidelines have been revised after a few records that have occurred recently. In the year
2017, the fourth edition of principles and recommendations was introduced for addressing the
issues relating to the culture, values, and trust. Many companies have different characteristics
from each other such as size and history. Search companies should follow the principles that
best suits them (ASX CG, 2019).
Principle 1: Lay a foundation for management and oversight.
Accompany that is digested should have defined the roles and responsibilities of the board
members, as well as the management and also their performance evaluation, should be done
periodically (ASX CG, 2019).
Principle 2: structure the board to be effective and add value
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Corporate Governance
The board members of the company must have a proper scale and experience that is
required to run the operations of the company smoothly. The size of the board should be
adequate in a show that the duties are discharged effectively (ASX CG, 2019).
Principle 3: Instill a culture of acting lawfully, ethically and responsibly.
A listed company e is always expected to act ethically and follow the laws. This culture should
be followed by the top management of the company which will encourage the juniors to
practice the same (ASX CG, 2019).
Principle 4 - Safeguarding the integrity of corporate reports
An organization needs to maintain appropriate and full proof corporate report so that the
nature and size of business can be determined accordingly (ASX CG, 2019).
Principle 5 - Make timely and balanced disclosure
The organization needs to make timely disclosures to the stakeholders so that the process of
decision making can be carried out smoothly (ASX CG, 2019).
Principle 6 - Respect the rights of security holders
It is one of the most important functions of the organization to provide stakeholders and the
top-level management structure with the best and appropriate information so that they can
exercise their rights as security holders easily (ASX CG, 2019).
Principle 7 – Recognition and management of Risk
It is very important for an organization to have a proper risk management framework so that it
can ensure the effectiveness of the operations carried out by it (ASX CG, 2019).
Principle 8 - Remunerate fairly and responsibility
It is very important for the organization to properly design the remuneration structure so that
superior talent and high-quality executive can be provided with their share and the other
individuals who are not so useful for the organization are provided their share accordingly.
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Corporate Governance
Also, the organization should try and give sufficient remuneration to the directors so that the
quality of the top-level management can be maintained (ASX CG, 2019).
2. Likely effect of full adoption of each corporate governance principle and
recommendation will have for the company
Likely effect of the adoption of the principle:
Principle 1
The adoption of this principle would help in defining the roles and responsibilities of the board
members as well as the management.
The concerns should be addressed by the board and the concerned and should be delegated
to the management.
Principle 2
Likely effect of full adoption of the principle
The process of appointment, as well as reappointment, is a very major task because it will
help in maintaining the confidence of the investors. The board should be competent enough
to discharge its duties properly and add value.
Principle 3
Likely effect of full adoption of the principal
There is a direct link between the objective of existence and the approach of achieving this
objective.
Principle 4
Likely effect of full adoption of the principle
The audit committee is required to take proper measures for maintaining the integrity of the
corporate reports.
Principle 5
Likely effect of full adoption of the principle
It is observed that the organization may face several types of situations both inside and
outside because of which it is very important for them to timely disclose all the events in the
audit report (Fazal, 2013).
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Corporate Governance
Principle 6
Likely effect of full adoption of the principle
If the organization is providing stakeholders with the appropriate information, then it will be
able to increase its credibility in the market.
Principle 7
Likely effect of full adoption of the principle
An organization will be very successful if it will have proper risk management strategies
designed by them before conducting operations (ASX CG, 2019).
Principle 8
It is very important for the organization to properly design the remuneration structure so that
superior talent and high-quality executive can be provided with their share and the other
individuals who are not so useful for the organization are provided their share accordingly.
Also, the organization should try and give sufficient remuneration to the directors so that the
quality of the top-level management can be maintained (ASX CG, 2019).
3. Full adoption of the 8 principles of Corporate Governance and influence on the
following :
Principle 1
Likely influence of adoption on:
Risk assessment process
There should be a proper evaluation done before the appointment of any board member or
the management. The credibility of the person has to be checked before appointing him.
Audit approach- an audit approaches carried out to check that the selection procedure is
effective and the activities that are discharged are as per their skills and experience. The
following points should be taken into consideration by performing audit:
There should be a written agreement defining the terms and conditions with the senior
executives and directors of the company (Baldwin, 2010).
There has to be a diversity policy setup
Review of the performance by the board members
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Corporate Governance
Review of the performance by the senior executive
This review can be carried out by any third person or an external agency.
Audit strategy- the audit strategy is planned to check ok weather performance evaluation
has been done with compliance of proper procedure and guidelines. Proper documentation
and checklist should be prepared that would help to know whether the task has been done
timely (CPA, 2018).
Audit evidence- it helps in insurance whether there is the proper execution of the principles
and the recommendations. This evidence is a part of the periodic reports.
Principle 2
Risk assessment process- there are various skills that different members of the board have.
The combination of these skills leads to the formation of a skill matrix which helps in
improving the accountability of the board members and also ensures that they have the
required experience for addressing the upcoming issues (ASX CG, 2019).
Audit approach- the audited comprise of certain important information like the names of all the
independent directors, the term for which the service has been provided, and if there is any
such interest that is present which would harm the independence of the auditor.
Audit strategy- the chairman of the board should always be an independent director of the
company. Also, he cannot be the CEO of the company at that time. The Independence of a
chairperson is tested throughout the year and not only in the beginning. The directors should
always keep their knowledge updated which will help them in developing professionally (CPA,
2018).
Audit evidence- all the information relating to the interest, relationships, and positions of the
directors with the company has to be mentioned. If any director has any kind of personal
interest in passing a resolution then he should be abstained from voting.
Principle 3
Likely influence of full adoption on:
Risk assessment process- there should be an adequate control system set up in an
organization for avoiding frauds. Any kind of unethical behavior that is carried out in the
company would lead to risk both outside and within the organization (ASX CG, 2019).
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Corporate Governance
Audit approach- the values should be communicated to all the members of the company.
Proper training should be provided to the employees which will help them to upgrade than
knowledge about the existing laws and principles.
Audit strategy- Whistle blowing should be encouraged in every organization. The operational
efficiency of the policy should be evaluated periodically and if required then changes have to
be made (CPA, 2018).
Audit evidence- if there is any violation in the company regarding the principles then it should
be reported and disciplinary action should be taken. These violations should be
communicated to the appropriate authorities which will form a part of the audit evidence.
Principle 4
Risk assessment processes
When the corporate report is carefully ascertained, the risk will be minimized. Any deviance in
the report will be carefully ascertained and this will help in knowing the differences if any.
Moreover, this will help in projecting an error free report.
Audit approach
The members of the audit committee need to pass specific criteria so that they can act
independently.
Audit strategy
Before making the report public, the organization should ensure the accuracy and spell out all
the necessary strategies that are needed to be published with the help of such reports
(Deloitte, 2018).
Audit evidence
The top-level management structure of the organization should ensure true and fair
representation of the financial reports by establishing risk management systems and internal
control measures (Deloitte, 2018).
Principle 5
Likely influence of full adoption on:
Risk assessment processes
The top-level management structure of the organization is needed to make the quality
inspection of all the material information provided in the reports (Fazal, 2013).
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Corporate Governance
Audit approach
The director should fulfill their roles and responsibilities for maintaining the credibility of the
information provided in the market.
Audit strategy
Cross verification of all the announcements made by the organization in the media should be
properly analyzed. Safeguarding confidential information is also required (Gay & Simnet,
2015).
Audit evidence
Proper disclosure of requirements should be periodically reviewed.
Principle 6
Likely influence of full adoption on:
The process of risk assessment
It is a common fact that an organization will start to gain the confidence of an investor if it will
not provide them with proper risk management strategies (Geoffrey et. al, 2016). Hence it is
important for the companies to create a situation where both the management and investors
are happy. The organization may also face audit risk if it is not taking into consideration the
opinion of the investors (ASX CG, 2019).
Audit approach
It is very important for an organization to ensure that the stakeholders are present in every
meeting organized by the company. The website of the organization should also include all
the notices, materials and leaflets so that the investors and informed about any such meeting
that can be used by them to gain information about the financial status of the company
(Ghafran & Sullivan, 2013).
Audit strategy
The organization should also try to evaluate whether the strategy adopted by them for
conducting the audit process is able to fulfill the requirements or not. An open door
communication policy should be entitled so that proper security register can be done with the
help of technology (Hoffelder, 2012).
Audit evidence
Different type of resolution can be passed at the meetings with the help of poles which makes
it necessary for the organization to maintain and record the details of meetings properly.
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Corporate Governance
Principle 7
Likely influence of full adoption on
Risk assessment process
It is very important for the committee of an organization to have a mutual judgment strategy
so that the transparency of the operations can we maintain.
Audit approach
The management of the organization should try and monitor all the risks and material frauds
that can take place while carrying out an operation (Tricker & Mallin, 2012).
Audit strategy
The word should try to put the risks and its control measures in front of the management of
the organization so that proper plans can be designed for execution (Kaplan, 2011).
Audit evidence
The management is needed to disclose various types of information and details of periodic
reviews to form part of the audit evidence.
Principle 8
Likely effect of full adoption of the principle
It is important for an organization to have a smooth flow of business with a low attrition rate.
Likely influence of full adoption on:
Risk assessment process
The remuneration committee of the organization should try and develop a package where the
top executives and directors are being provided with appropriate funds. No dispute all
conflicts should arise in an organization because of the remuneration structure (Kowaleswski,
2016).
Audit approach
There are different types of remuneration schemes which are based on the basis of
performance, equity, etc. all these types of schemes should be properly elaborated by the
committee and then it may be subjected for auditing.
Audit strategy
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Corporate Governance
The organization should try and determine the powers that can be exercised over the
committee for interviewing the management and seeking professional advice from external
parties (Livne, 2015).
Audit evidence
Proper remuneration policies are very necessary for an organization and proper details of
meetings or periodic reviews can act as evidence for the same (Andon, Free & Scard, 2015).
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Corporate Governance
Conclusion
From the overall report, it can be commented that the eight principles of corporate
governance provide major support to the organization. It influences the risk assessment
process, audit strategy, and audit approach. It is imperative that if the principles are
implemented then the audit process will be more pronounced. The eight principles of
corporate governance are a major support to the business and the procedure of audit that has
been clearly indicated by the influence of the principles.
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Corporate Governance
References
Andon, P., Free, C. and Scard, B 2015, Pathways to accountant fraud: Australian evidence
and analysis. Accounting Research Journal, 28(1), 10-44, viewed on 9 September 2019
<https://www.researchgate.net/publication/279275433_Pathways_to_accountant_fraud_Austr
alian_evidence_and_analysis>
ASX CG 2019, Corporate Governance Principles and Recommendations 2019, viewed on 17
September 2019 < https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-
recommendations-fourth-edn.pdf
Baldwin, S 2010, Doing a content audit or inventory, Pearson Press.
CPA 2018, The Evolving role and exposure of Audit Committees, viewed on 17 September
2019 <https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-
resources/auditing-assurance/evolving-roles-of-audit-committees.pdf?la=en>
Deloitte 2018, Governance in focus: Effectiveness of the external audit process, viewed on 17
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deloitte-uk-audit-governance-in-focus-effectiveness-of-the-external-audit-sep2013.pdf>
Fazal, H 2013, What is Intimidation threat in auditing?, viewed on 9 September 2019
<http://pakaccountants.com/what-is-intimidation-threat-in-auditing/>
Gay, G. and Simnet, R 2015, Auditing and Assurance Services, McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli S. and David A. W 2016, Attracting Applicants for In-House
and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons,
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Ghafran, C. & Sullivan, N. (2013). The Governance Role of Audit Committees: Reviewing a
Decade of Evidence. International Journal of Management Reviews, 15, 381–407.
Hoffelder, K 2012, New Audit Standard Encourages More Talking, Harvard Press.
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Kaplan, R.S 2011, Accounting scholarship that advances professional knowledge and
practice. The Accounting Review. 86(2), pp. 367–383. Viewed on 9 September 2019
<https://doi.org/10.2308/accr.00000031>
Kowaleswski, O 2016, Corporate governance and corporate performance: financial crisis.
Management Research Review, 39(11), 1494-1515.
Livne, G 2015, Threats to Auditor Independence and Possible Remedies. viewed on 9
September 2019 <http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-
independence-and-possible-remedies?full>
Tricker, B & Mallin, C 2012, Business ethics is the bedrock of corporate governance. viewed
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and-ethics/>
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