Auditing and Control Report: University Audit and Control Analysis

This report, focusing on auditing and control, begins by examining the functions and benefits of an audit committee, emphasizing its role in supervising audits, reviewing internal financial controls, and recommending external audit firms. It then assesses the advantages and disadvantages of appointing specific non-executive directors, considering factors like experience and potential conflicts of interest. Finally, the report evaluates the pros and cons of outsourcing internal audit functions, highlighting the benefits of specialized skills and cost-cutting, while also acknowledging potential drawbacks such as increased costs and the influence of external auditors. The analysis references several academic sources to support the arguments presented, providing a comprehensive overview of the key considerations in auditing and control practices.

Running head: AUDITING AND CONTROL
Auditing and Control
Name of the Student
Name of the University
Author’s Note

1AUDITING AND CONTROL
Table of Contents
Answer to Requirement (a)........................................................................................................2
Functions................................................................................................................................2
Benefits..................................................................................................................................2
Answer to Requirement (b)........................................................................................................3
Answer to Requirement (c)........................................................................................................3
Advantages.............................................................................................................................3
Disadvantage..........................................................................................................................4
References..................................................................................................................................5

2AUDITING AND CONTROL
Answer to Requirement (a)
The Board of Directors of Cavendish is needed to consider the functions as well as
benefits of an Audit Committee. These are discussed below.
Functions
The function of audit committee is distinct from that of finance or budget committee.
The primary function of audit committee is supervising the audit of the books and records of
association while reviewing the internal financial control and procedures. As a part of its
function, it is needed for an audit committee to recommend to the Board of Directors
regarding selection, retention and termination of an indepdence audit firm (Ege 2014).
Benefits
 An audit committee offers actionable understandings for overseeing as well as
improving the practices of financial reporting. The audit committee meets with the
senior management for reviewing and maintaining external financial reporting and
organizational control.
 An audit committee plays a crucial role in creating as well as maintaining efficient
programs for eliminating accounting and financial frauds. Audit committee members
play an active role through their expertise and insights in legal, management, financial
and operational matters (Garven 2015).
 The presence of an audit committee is required for improving the internal audit
function. Audit committee maintains the overall integrity of internal audit since the
internal audit team reports directly to the audit committee.
 An audit committee plays a crucial role in monitoring the activities and services of
external auditors through meetings with the external auditors (Garven 2015).

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Answer to Requirement (b)
Omar Smyth – The main advantage of appointing Omar Smyth is his experience as a
member in the audit committee of another large company since this experience will majorly
help him in understanding as well as playing his roles in the audit committee. However, this
can also be considered as a disadvantage of selecting him as a non-executive director due to
the fact that this can create conflict of interest. Another advantage is that the fee of Omar
Smyth is not related to profit which is helpful in maintaining independence of the non-
executive director (Gopalan et al. 2014).
Jordan De Brune – The main advantage of appointing Jordan De Brune as the non-executive
director of Cavendish is that he does not belong from the same industry in which Cavendish
operates. However, the main disadvantage of appointing Jordan De Brune as a non-executive
director is that he is the brother of the Chief Executive of Cavendish. It is needed for the non-
executive directors to maintain independence from the company by not having any interest in
the company. However, Jordan De Brune’s relationship with the Chief Executive can create
conflict of interest and may compromise his independence (Gopalan et al. 2014).
Answer to Requirement (c)
Advantages
 Outsourcing service providers have staffs with good quality having specialized skills
in the internal audit areas along with high degree of professionalism which is good for
effective internal audit.
 Outsourcing can provide the companies with immediate audit departments which
helps in cost cutting like salaries, allowance, benefits and others.
 Outsourcing leads to improved independence and minimal room for conflict of
interest.

4AUDITING AND CONTROL
 Outsourcing improves the auditor’s understanding about the business environment,
policies and procedures that increases financial reporting credibility (Abbott et al.
2016).
Disadvantage
 Companies have to bear the cost of outsourcing the internal audit which may create
burden on them.
 A company can appoint the same organization as both the internal and external
auditors which can lead to the creation of mediocre audit report.
 For the small businesses, outsourcing internal audit is not a good option due to
expensiveness.
 External auditors can influence the internal auditors in case internal audit is
outsourced (K. Johl et al. 2013).

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References
Abbott, L.J., Daugherty, B., Parker, S. and Peters, G.F., 2016. Internal audit quality and
financial reporting quality: The joint importance of independence and competence. Journal
of Accounting Research, 54(1), pp.3-40.
Ege, M.S., 2014. Does internal audit function quality deter management misconduct?. The
Accounting Review, 90(2), pp.495-527.
Garven, S., 2015. The effects of board and audit committee characteristics on real earnings
management: Do boards and audit committees play a role in its promotion or
constraint?. Academy of Accounting and Financial Studies Journal, 19(1), p.67.
Gopalan, R., Milbourn, T., Song, F. and Thakor, A.V., 2014. Duration of executive compensation. The
Journal of Finance, 69(6), pp.2777-2817.
K. Johl, S., Kaur Johl, S., Subramaniam, N. and Cooper, B., 2013. Internal audit function,
board quality and financial reporting quality: evidence from Malaysia. Managerial Auditing
Journal, 28(9), pp.780-814.