Financial Risks & External Auditing in the Supermarket Industry

This report investigates the impact of external auditing on financial risks within the supermarket industry, focusing on factors such as non-audit fees, auditor tenure, and stakeholder expectations. It examines the correlation between these elements and the level of financial risk, particularly in companies like Tesco. The research delves into whether audit quality is affected by financial risks and evaluates the financial impact of external auditing on corporate performance. Key areas explored include identifying the primary financial risk factors affecting the supermarket industry, assessing the influence of stakeholder expectations on audit quality, and determining how corporate performance is measured in this sector. The literature review covers recent audit issues, the occurrence of financial risks, and the effects of non-audit fees and auditor tenure on audit quality. Ultimately, the report aims to provide insights into how external auditing can help supermarkets mitigate financial risks and improve their overall financial health.

RESEARCH PROPOSAL

Table of Contents
INTRODUCTION...........................................................................................................................1
Literature review....................................................................................................................3
RESEARCH METHODOLOGY.....................................................................................................6
Appropriate plan and procedure to determines research specification ..................................8
ANALYSIS......................................................................................................................................1
Resources that require for conducting study..........................................................................1
Relationship between research resources and questions .......................................................1
Investigation with questionnaire.............................................................................................2
Collection of data...................................................................................................................2
CONCLUSION AND RECOMMENDATIONS............................................................................3
REFERENCES................................................................................................................................6

INTRODUCTION
Financial risk assesses that it is the risk that is being faced by firm as they are
not unable to meet its financial obligations. Such type of risk is one of the main concern
in all organizations. Therefore, it is essential for management of firm to identify its
different types of risk and thus undertake effective measures in regard to overcome
them and enhance the performance of firm in market (Wu, Hsu and Haslam, 2016).
External auditing helps in providing a fair and transparent view of the firm to users of
financial statements. Thus, it gives external stakeholders an assurance that potential
risks could threaten their firm. However, sometimes external stakeholders are unable to
detect such risks within the firm and inform investors regarding the financial risks faced
by firm so that they could make their mind for investing within firm. It is essential for
business to provide freedom to external auditors so that they could make fair and
reliable decision through reviewing the past financial performance of firm and then
provide the statements for external users so that they could use the same and thus
invest within business (Dolan, 2015). However, if auditors are not able to provide fair
views about the financial risks of firm then their value is being diminished.
There are different measures which have been adopted by the audit committees
in regard to make sure that high quality audits are being performed so that they could
easily detect the risks and overcome the issues in order to improve the financial
performance (Sarpong, 2014). Supermarket industry is required to adopt several
measures that results in overcoming the financial risk. Thus, business need to identify
and understand certain factors so that external auditors are required to evaluate the
different types of financial risk being identified and thus avoid them so that more number
of investors could be attracted towards firm (Hay, 2013). Therefore, external auditing is
considered as crucial element that helps in identifying the risks faced by firm. Through
evaluating the risk it helps external auditors to provide crucial information to stakeholder
and outside users in regard to identify the financial risks.
External auditor plays a significant role in regard to provide fair view of the
company's financial accounts to users so that they could identify the financial risks
attached with firm. Thus, it helps supermarket businesses to overcome such risk and
create high brand image in market and raise the sales and profitability of firm (Stewart,
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Kent and Routledge, 2015). It is essential for firm to undertake effective measures so
through forming audit committees and thus helps in detecting the risks within firm which
results in evaluating the outcomes and measure the performance of firm in market.
However, if auditors does not carry out their responsibilities in an ethical manner than it
impacts upon the expectations of stakeholders and therefore, quality audit needs to be
carried out so that performance of firm could be measured in an effective way Cohn,
Engelmann and Maréchal, 2015).
However, in regard to overcome the financial risk it is essential for supermarket
to adopt effective measures and thus identify the type of risk being faced by firm.
External auditors are required to identify the financial risk faced by organization and
therefore, it helps enterprise to carry out their operations so that strategic action could
be taken that results in attaining desired goals. For instance, if business is facing
serious problems regarding financial risk than it is essential for them to carry out
external audit and thus overcome the same by adopting effective measures that helps in
improving the performance of firm (Wu, Hsu and Haslam, 2016). Through recognizing
such risk which are unavoidable and therefore, it is essential for enterprise to carry out
effective environmental audit so that performance of firm could be evaluated in terms of
enhancing market share.
Aim and objectives
“Does external auditing of organizations in the supermarket industry have an impact of
the financial risks?”
 To determine the various types of financial risk generically occurs in the
supermarket industry. How does Tesco compare to the average?
 To explore and identify the correlation between non audit fees, length of tenure
and stakeholder expectations on the level of financial risk in the supermarket
industry in general and specifically Tesco.
 To evaluate if audit quality is impacted by financial risks of does financial risk
impact audit quality. To investigate the financial impact of external auditing on corporate performance.
Research question
 What are the main financial risk factors that affect the supermarket industry?
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 What impact does stakeholders expectations on audit quality?
 How audit quality is impacted by financial risk?
 How is corporate performance measured in the supermarket industry?
Literature review
Recent history of audit issues in supermarket industry
As per the view of Kamal, Brown and Sundin, (2015), in today's time supermarket
are facing various issues which creates problem to dealing with aims and objectives.
There are major grocery market facing problems to invest their money in new
operations and functions. In this aspect, retailer employ special teams which examines
old emails and trails to deal with disputes with quality, quantity and timing to delivery.
Tesco is the largest supermarket retailer which determines effective impact on the
business performances and outcomes (Kamal, Brown and Sundin, 2015). Tesco faces
high scandals in 2014 which create problem to deal with various situation. Their auditor,
PwC make high premier league of global financial services within the firm in auditing
and advising vast tranches in public and private sector of UK market. However, Davey
and Richards, (2013) stated that employees of the company regularly seconded make
their outcomes and performances with Ed Balls and Chuka Umunna. In order to
understand that what wrong thing goes in Tesco, it is essential to simply walk into
different stores to analysis their performances (Davey and Richards, 2013). It will make
profitability and positive outcomes within the enterprise. Manufacturers also frames with
prime position that appears to book early for achieve more profits and revenue.
On the other hand, Elson, O'Callaghan and Walker, (2015) said that technical is
the main sound which frames to ascertain the profitability at workplace. In this aspect,
audit is considering that is key part of the scaffolding of shareholders capitalism. It is the
primary way in which investors and business partners regulate true state that assist to
dealing with trust and audited accounts (Elson, O'Callaghan and Walker, 2015). In
addition to this, PwC has given three decades which frames for 10 directors on Tesco
board. For conducting effective analysis, PwS paid £10.4m by Tesco for its auditing
services within the market. It is very costly for lucrative relationship.
How has financial risk occurred in the industry
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According to Cohn, Engelmann and Maréchal, (2015), it is very important to
overcome financial risk in which organisation identify and understand risk element in
effective way. In this aspect, the latest scandal create issues so that regular intervals
were takes place which can be support to little more outcomes. In this way, results is
stills being paid which creating for analysis auditors performances (Cohn, Engelmann
and Maréchal, 2015). This is because, Tesco help of outsiders stakeholders
performances the company can get more profits and revenue through investigating
money. They get fund to incorporate new activities and outcomes with true of public
limited companies. However, Bushman, (2014) argued that revenue recognition
irregularities were spotted in every half year results. With including financial conduct
authority, it has been decided that suitable punishment need to be ascertain which
frames for profit prediction. With discovering overstatement in figures results,
independents results can be made which comprises with the latest interim results
(Bushman, 2014).
As per the point of Vogel, (2014), Tesco is working in dominant position in UK
grocery marketplace. It has been revealed that due to the growing problems, the chosen
firm need to implement healthier quality in products and services through they will make
their brand value. In addition to this, Tesco various resources are also requires make
positive results and performances for dealing with issues (Vogel, 2014). These benefits
are kept to make effective payments through offering such benefits in the next financial
period. Beside this, Kwon, Lim and Simnett, (2014) stated that suppliers suggests
contributing effective participation in business targets and roles. With the help of making
payments, aggressive accounting of the company is serves acceptable within the limit of
course. With the help of such practices, it has been seen that for long time perspective
emerge doc tom has been created for enhance results and outcomes (Kwon, Lim and
Simnett, 2014).
Non-audit fees and length of tenure of auditors
According to André, Broye and Schatt, (2016), non audit fees creating negative
impact on audit quality and short term tenure. Thus, it is essential to compare the
auditors performances with long established customers and clients. They carried their
study to make proper expectations for enhance profitability outcomes. In addition to this,
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they have examines that auditor is independence to provides non audit services within
the market. It can be make support to create results within three tests for independence
of mind and appearance as well (André, Broye and Schatt, 2016). However, Kwon, Lim
and Simnett, (2014) said that such the demise of market and scandals creates issues to
make proper functioning and outcomes within the enterprise. They conducted many
studies to provides investigation on effects the provision of non audit services. It can be
focuses on US, UK and Australia market. Hence, purpose of conducting the study
program assist to create purposes which add effects to provide non audit services in
independence way (Kwon, Lim and Simnett, 2014).
Stewart, Kent and Routledge, (2015) evaluates that international comparisons of
the determinants of audit fees includes interest that shows concern with effective
provision of services. Lower audit fees are used that procure the clients who gives
lucrativeness consultancy businesses in effective accounting term. Negative
relationship between audit and non audit fees assess the data which established
through ascertain relationship (Stewart, Kent and Routledge, 2015). Within the Tesco,
they have found that auditor receives higher fees which less likely to modified issues of
the business. In respect to perform such earning responses in recent years' Kamal,
Brown and Sundin, (2015), argued that auditor provides relevance to disclose restrictive
regulations governing the provision of NAS. Their testes are examines earning
response coefficient at the time of publicity that are related to breaching independence
rules. They are also studied that results can be supported by three approaches to
create tests independence of mind and approach for ascertain effective results and
performances (Kamal, Brown and Sundin, 2015).
Financial impact of external auditing on corporate performance
As per the opinion of Sarpong (2014), it can be assessed that financial impact of
external auditing impacts upon the corporate performance of firm in market. Therefore,
it is essential for businesses to maintain its audit so that it does not impact upon the
performance of organization. However, it is signifiant for enterprise to carry out effective
external audit so that it should not impact upon the performance of firm in market.
External auditors are required to be responsible for providing quality information about
the financial performance and thus enhances the transparency of audit report so that
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brand image of firm could not get affected (André, Broye and Schatt, 2016). Therefore,
business aims to improve its financial performance through avoiding the risks and thus
enhance the long term impact within firm. However, Dolan (2015), argued that auditors
are required to enhance its performance in terms of raising their corporate brand image
and thus improve the market share. Hence, it is signifiant for firm to bring quality audit
report so that image of firm could be improved. In addition to this, Kwon, Lim and
Simnett, (2014) stated that external auditing functions is the important aspect which
determines several functions that enhance controlling and monitoring is make their
significant role in designing and developing of internal control system. It is also
contributes to measure and evaluates the risk element that surrounding the work
environment. It is very important to assess the factors which would be beneficial to
assess current situation of the company (Kwon, Lim and Simnett, 2014). It is committed
with different laws and regulations which need to be follows to control the performances
in different sides of managerial and financial effective.
RESEARCH METHODOLOGY
Research philosophy-It is one of the important tools of the research
methodology. There are different philosophy which are used by the researcher it
conducting the research. Further, the main benefit of the research philosophy is that it
provides direction to the individual in effectively arising at the outcome (Taylor and
et.al., 2015). For carrying put the research, interpretivism and positivism philosophies
are adopted by the scholar. For the present research report, interpretivism can be
adopted to evaluate the topic. Further, in case of positivism it cannot be use by the
scholar because the data is obtained by observing results and this is not effective in this
study. This is used by the researcher because it is based on the nature of the people
which will further help in obtaining the data (Stewart, Kent and Routledge, 2015).
Research approach- Research approach is significant for the study because it
helps in initiating continuous improvement in the report. This is beneficial for the study
because with the improvement, proper results can be drawn from the research. There
are two types of research one is the inductive and the other is deductive (Smith, ed.,
2015). In this report deductive approach will be adopted by the researcher as it is
suitable for the current topic. In case of deductive approach the information and the
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materials are collected by the scholar on the basis of research and objectives. In this
approach, particular method is gathered which can be useful in the research.
Research design-It can be defined as the framework on the basis of which the
study will be conducted. It sets a particular direction of the study and reduces the
chances of misleading (Stewart, Kent and Routledge, 2015). Due to this reason
appropriate result can be arrived in the study. In this study, descriptive research design
will be adopted by the scholar as it will help in gaining huge data which will further assist
in conducting the study effectively.
Research methods- For conducting the research regarding the external auditing
of organization in the supermarket industry have impact on financial risk; both
qualitative and quantitative methods will be adopted. The reason is that with the help of
both the methods appropriate and huge information can be gained which will aid in
concluding the study effectively (Jensen ed., 2013). In case of qualitative data, the
scholar can focus on the nature, belief of the individual and further there are various
sources which can be used for gaining the qualitative data. On the other hand, for
quantitative data, statistical tools, graph and financial information from the supermarket
will be inferred. This will help in gathering the specific information. Further, quantitative
data is useful because it will help in eliminating the undesired information and will
provide exact figures from the research (Stewart, Kent and Routledge, 2015).
Data collection-in case of the data collection methods, there are two ways
through which the data can be gathered. Secondary method is adopted by the scholar
to effectively collect the data (O'Leary, 2013). Secondary data, different books, journals
will be referred by the researcher to gain the knowledge of the past studies which have
been conducted on the similar topic.
Sampling- For gathering the information from questionnaire sample size of
around 10 will be considered by the researcher. For getting the valid and the
appropriate data, 10 auditors will be asked questions regarding external auditing in
supermarket have impact on the financial risk Cohn, Engelmann and Maréchal, 2015).
Through this, the researcher will get deep insight of the knowledge which is useful for
the further study (Kwon, Lim and Simnett, 2014).
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Data analysis technique- Data analysis techniques is known as assessment of
data and analytical it in the best way. It includes different types of aspects which assist
to measure the outcomes and performance in effective way. With the help of inspecting,
cleansing, transforming and modelling the data which assist to achieve the goals and
objectives which discovers useful information, suggest conclusion and support to
decision making (Cohn, Engelmann and Maréchal, 2015).
Reliability and validity of data- In this aspect, researcher need to concentrate on
their method which includes to assess the data that are related to the goals and
objectives. For assessing the data, researcher need to make sure that all elements are
reliable that creates opportunity to enhance market share and profitability at workplace
(André, Broye and Schatt, 2016).
Ethical consideration- An accumulation of the values and principles, it is essential
to demonstrate that what is good and what is bad. In this way, researcher need to make
sure that ethics searches for the reasons to act or refraining from the different acting. In
respect to approves conduct and believing to denying something that is related to good
and evil rules. This element of present research ensure that all data and other aspects
are not harm to make proper and effective research programs (Stewart, Kent and
Routledge, 2015).
Limitation- This element of the present research measures restricted that
includes time and cost to carry various types of survey. There are several types of
resources are tends that make undesirable effects to investigation with limited scope.
Further, researcher have responsibility to concentrate on primary breakdown which
confining to the sources to interpret the study (Kwon, Lim and Simnett, 2014).
Appropriate plan and procedure to determines research specification
In this section of the research program, surveyor need to conduct for guiding the
study that defined time period to completion of time. Following is the guiding elements
which includes time period to completion of each activity Cohn, Engelmann and
Maréchal, 2015). In this aspect, Gantt chart has been prepared to follow all instruction
and performances to describes each activity with specific element:
Key Elements Week
1
Week
2 & 3
Week Week Week Week Week Week Week
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4 5 6 7 8 & 9 10 & 11 12
Preparation of
Introduction
Literature Review
Collection of
Secondary
Information
Examination of the
Collected Data
Research Design
Research
Methodology
Acquiring Primary
Data
Analysing Primary
and Secondary
Data
Conclusion and
Recommendations
Completion of
Leftover Work
Revision and Draft
Final Submission
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