This report is focused on evaluating the role of Audit Committee on quality of financial statement prepared by management of the company. Financial statements are very important for both management and shareholders of a company. Therefore this research is evaluating whether involvement of audit committee in preparation of financial statement improved the quality of financial reports or not.

B.Key audit areas and standards discussed in the report

One of the key areas of audit discussed in this report is evaluating the efficiency of audit committee to analyse whether they have actually improved the quality of audit or not. Auditor should use ASA 315 to evaluate the actual work done by audit committee to improve quality of report. Auditor should not make any preconception in the process of discussion with the audit committee regarding the audit risk. Actual evidence should be assessed by auditor to check efficiency of the audit committee. For example auditor of the company can check the internal audit report and working papers used by audit committee while assessing the work of management in preparation of financial statement. Other audit areas discussed in the report is checking the actual actions taken by audit committee to identify fraud and errors in the financial statement. ISA 300 and ISA 315 should be used by auditor to get an overview of business and gain detailed knowledge in relation to business environment and nature of business.   

C.Findings of the report

Research has collected data from primary sources to determine the factors or characteristics that are usually checked by an external auditor to assess the effectiveness of work done by audit committee. A list of characteristics was provided to external auditors in the research and they were asked to select five factors that they use for evaluating capabilities of audit committee. According to the data analysed by the researched there were six factors that were commonly selected by external auditors that they use to assess the capabilities of the audit committee. These five factors are as follows-

55% of the auditors selected whether audit committee has asked challenging question from management.   

Sufficient time is given by audit committee to addressed issues in financial statement (37%).

Sufficient time given by audit committee to perform listed functions of audit committee (30%).

A copy of internal audit report is given to audit committee after its completion by management (30%).   

Whether minutes of the audit committee meeting shows that financial statement were actually discussed in the meeting (30%).

D.Implication for audit profession and audit regulators

Role of audit committee has direct implication on audit profession and audit regulators. It can be said that on some level audit committee are also responsible for the corporate frauds in past few years. Audit regulatory bodies has made rule that top 300 companies in Australia should form audit committee and their roles and responsibilities are specified in these rules and regulations. Still the function of audit committee are not taken seriously by the business organisation (Lee & Fargher, 2017). External auditors can assess the fraud and errors up to specific level because they are not working with the management throughout the year. They have to make audit opinion on the basis of financial statement prepared by management at the end of financial year and management might conceive important information from disclosure in financial statements (Brennan & Kirwan, 2015). On the other hand audit committee are working as a part of management and conduct regular meeting. Other stakeholders such as shareholders, debenture holders, employees, internal auditor should also be involved in the process of selecting audit committee. 

References

Lee, G., & Fargher, N. L. (2017). The role of the audit committee in their oversight of whistle-blowing. Auditing: A Journal of Practice & Theory, 37(1), 167-189.

Brennan, N. M., & Kirwan, C. E. (2015). Audit committees: practices, practitioners and praxis of governance. Accounting, Auditing & Accountability Journal, 28(4), 466-493.