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The Role of Audit Committee Essay

Audit committee play an important role in ensuring organization is properly run. The committees are used as a check to management of organization in compliance of various set regulations. Worldwide audit committees have specific roles. There are a few differences between role of auditors in the US and other countries. In assignment am going to enlist the role of audit committees in general and the differences and similarities of audit committees in the US and United kingdom. The audit committee has enlisted by the chatter of audit committee states that;
audit committees should always consist of independent directors who are supposed to be familiar or have expertise in financial reporting and accounting for the purpose for executing their duties effectively
the audit committee should always meet regularly with both internal and external auditors . this is meant to assist the m have knowledge on the changing trends in the audit environment and audit requirements from external auditors .it also assists them to learn the audit requirements of the company and have regular reports from the internal auditor .the meeting should be organized in a manner that it is on a specified date
the audit committee has a onerous responsibility of nominating the external auditor who would be eventually be appointed by the shareholders at the annual general meeting

(iv) They also have a responsibility of negotiating terms of appointment of external auditor. Before the external auditor commences his work or is appointed by the shareholders terms of agreement and remuneration are agreed upon by the audit committee.
The audit committee ensures the audit plan by the external auditor is approved.
The audit committee ensures that the external auditor delivers quality job through regular contact with the external auditor discussing the organizations accounting processes ,procedures and results .they are required to mange the flow of knowledge from the external auditor to the internal auditing department.
They also receive and act upon reports from external auditors relating to significant matters in the accounts reports. They act upon on such information if material to ensure that the organization improves.
Once they receive reports from auditors, they ensure that they comply to the requirements of corporations act, securities and exchange commissions.
The audit committee is required to carry out or conduct investigations highlighted by the external auditor and the matters that should be investigated include misstatement in the financial maters ,improper records , wrong accounting reports and other unprofessional accounting practices (Carlson S; 1969).

In carrying out these responsibilities of the audit committee is required to do a number of activities, such as ensuring that they review all policies of the firm ensuring that the policies comply with the written down law as relating the organization. Secondly they should receive reports and financial statements from external and internal auditors and review them to detect differences between the two .they should also ensure that the policies are reviewed to ensure they are compliant with international auditing standards. it should also be compliant to international or countries accounting standards.

The audit committee is required by the certified public accountants and international accounting body to ensure that the report produced by the external auditor of high quality and this report should be discussed with the management and the external auditor to ensure that the financing reports are in order and that they comply with the accounting standards. They are also required to ensure that the accounting policies is used is of quality(Choi F. S.; 2003)

The accounting policies that are always used should be similar those used in the industry.

They do not have the authority of conducting un audit or planning an audit for the organization. The audit committee is not required to carryout the following functions;

(i) The member of the audit committee cannot act as the external auditor of the organization. This will amount to conflict of interest

(ii) An member or members of the audit committee are not required by law to act as employees of the company. This will amount to creating a mutual relationship which can be conflict of interest.

(iii) They are also not required to offer bookkeeping or consultancy services relating to the accounting in which they are audit committee members.

(iv) They are also not required to help in designing and implementing accounting systems and software

(v) They are also not required to have any business transactions direct or indirect with the organization in which they are audit committee members. This will avoid conflict of interest.

(vi) they are also required not to offer an services similar to actuarial ,legal, human resource outsourcing or an service that requires opinions about the company’s performance (Carlson S; 1969).

Similarities of Audit Committee in The US And UK.(Choi F. S.; 2003)

The audit committee in the US and UK performs the following functions which are similar.
audit committees should always consist of independent directors who are supposed to be familiar or have expertise in financial reporting and accounting for the purpose for executing their duties effectively
The audit committee should always meet regularly with both internal and external auditors . this is meant to assist the m have knowledge on the changing trends in the audit environment and audit requirements from external auditors .it also assists them to learn the audit requirements of the company and have regular reports from the internal auditor .the meeting should be organized in a manner that it is on a specified date
the audit committee has a onerous responsibility of nominating the external auditor who would be eventually be appointed by the shareholders at the annual general meeting
They also have the responsibility of negotiating terms of appointment of external auditor. Before the external auditor commences his work or is appointed by the shareholders terms of agreement and remuneration are agreed upon by the audit committee.
The audit committee ensures the audit plan by the external auditor is approved.
The audit committee ensures that the external auditor delivers quality job through regular contact with the external auditor discussing the organizations accounting processes, procedures and results .they are required to mange the flow of knowledge from the external auditor to the internal auditing department.
They also receive and act upon reports from external auditors relating to significant matters in the accounts reports. They act upon on such information if material to ensure that the organization improves.
Once they receive reports from auditors, they ensure that they comply to the requirements of corporations act, securities and exchange commissions.
The audit committee is required to carry out or conduct investigations highlighted by the external auditor and the matters that should be investigated include misstatement in the financial matters ,improper records , wrong accounting reports and other unprofessional accounting practices

(x) The member of the audit committee cannot act as the external auditor of the organization. This will amount to conflict of interest

(xi) an member or members of the audit committee are not required by law to act as employees of the company. this will amount to creating a mutual relationship which can be conflict of interest.

(xii) They are also not required to offer bookkeeping or consultancy services relating to the accounting in which they are audit committee members.

(xiii) They are also not required to help in designing and implementing accounting systems and software

(xiv) they are also not required to have any business transactions direct or indirect with the organization in which they are audit committee members. This will avoid conflict of interest .

(xv) they are also required not to offer an services similar to actuarial ,legal, human resource outsourcing or an service that requires opinions about the company’s performance (Carlson S; 1969)

Differences in Audit Committees in the US and the UK

The US have incorporated securities and exchange commissions requirements as the audit committees responsibility to ensure the creditors and investors. Securities and Exchange Commission in the US controls the trading of stock in the market. In carrying out these responsibilities of the audit committee is required to do a number of activities, such as ensuring that they review all policies of the firm ensuring that the policies comply with the written down law as relating the organization.

In the US there is an introduction of SOX. This changed the role of audit committees in USA which is different from UK. The Act provides was provided as an answer to public held companies from collapsing or following Enron fiasco, Enron was the 7th largest company in the US. But because of mismanagement and financial fraud the company collapsed. World com also followed suit, the government realized that public held companies were not keeping proper books of accounts and records.

To provide accountability truthfulness, accuracy, the government introduced Sarbanes –Oxley Act to protect the companies from collapsing. This act as seen many companies split position of the president and chief finance officers, many corporation had one person with the responsibility of both, SOX also address the role of auditing and accounting in compiling with the traditional audit. It also touches the accounting practices and procedures and its relations with the officers of the company.

The impact of SOX on generally accepted accounting principles and standards has been addressed by the Act. The SOX requires reporting of information which is secure to avoid the scenario of Enron saga. This company collapsed in the year 2001 and there has been a financial crowd relating to the similar sagas in the United States. SOX reports about business risk and ensures there is an accurate process of reporting financial statements of the company.

SOX have many impacts to the United States publicly listed companies. It addresses the information technology data security within an organization of a company held on public. The SOX does not spell out how the company reports on generally accepted accounting principles.

The SOX is only a measure of internal control and data security. The internal control of most companies which were held public was seen to be managed in a fraudulent manner. SOX evaluate the risk but do not ensure proper management of Information Technology data. Some chief finance officers have put strict internal controls in their companies but they have not managed to make them compliance with generally accepted accounting principles.

SOX allow business to manage risk or mitigate actions that can cause business losses. This depends with the size of the company and the cost associated with acquiring the software. The act that was passed addresses many problems and has made them pro­active.(Carlson S; 1969)

Among the issues that it has stresses are:-
Tracking the audit procedure- The auditing procedure has changed drastically has
most firms are forced to go Information technology rather than manual.
Document processing- It ensures that there is a proper control in document
process which will be used by auditors. These have changed the auditing procedure
where an auditor follows the information technology department for documents
rather accounting department.
It makes the responsibility of the management to ensure the Information
technology Department became custodian of the company’s important document.
It provides that the users of accounting information should be able to access data to the companies website, it states that accounts payable and receivable should be put in the system running and it is easer for the users t o access it. This requires public held companies to have libraries with websites but indicating areas where the public will not access information.
It requires that all security systems of public companies should be over hold and documents having current settings should show step by step how they are changing their settings.

Conclusion

Audit committees play important roles in various organization and with the current globalization there is an increase in simulates in audit committees roles almost in all parts of the world. It is estimated by many organizations that by the end of this decade there will be harmonization and convergence towards international accounting standards leading to uniform auditing standards. Since the year 2005 there has been harmonization of accounting standards so as to improve transparency and there have been radical changes that are paving ways for convergence of accounting standards. This convergence in accounting standards has led to uniform accounting reporting and the recent finance trading technologies.

Have contributed greatly to the harmonization of auditing committees allover the world. Auditing committees have become important since most companies trading in the US and Europe and other parts of the world are the same.

References

Carlson S; (1969) International Financial Decisions; North Holland Pub;

Choi F. S.; ( 2003) International Finance and Accounting Handbook; Wiley

Sanzo R, (2005) Ratio Analysis for small Business, Yale University Publishers, USA.

Unidas N; (1993) Transnational Corporations & Management Division; International Financial Management; Routledge,

Vandyck C, (2006) Financial ratio analysis, Wiley books, USA

Weaver S, and Weston J; (2001); Finance and Accounting for non-financial Managers; Mc Graw-Hill.

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