Busn7008 Financial Statements And Reporting: Assessment Answers

Answer:

Introduction:

This report has been prepared to analyze the financial report and the preparation of financial report of a company by fulfilling all the statutory requirements. In this report, directors concern about the financial report has been analyzed to resources allocated to company for the process of monitoring. Further, audit committees objective has been discussed. More, a recommendation has been given to the committee about the preparation of financial report. The constitutor of the committee has been examined and the Interaction between audit committee and audit functions has been analyzed. Thus this report totally concentrates over the final financial reports of a company.

This report focuses over the audit committee, their functions, audit functions etc to understand the worth of annual report. These reports summarize all the aspects of annual report and functionality of audit committee on those aspects. The report briefs about the audit function in the company. The constitutor of the committee has been examined and the Interaction between audit committee and audit functions has been analyzed.

Director’s Concern:

Directors are the key person to prepare the annual report of a company. Most of the decisions are taken by the directors only for annual report. Directors allocate the resources to the monitoring process after doing a great analysis (Zhang, Zhou & Zhou, 2007). Mostly, the performance indictor, monitoring the budget, right people at right place etc concerns are given by the directors and while preparing the annual report, they concern about the right information to the stakeholder, brief summary about the financial and non financial activities of company.

Directors try to show only required information to the stakeholders in the annual report. Directors try to hide some facts so that the investment capability of the company could be more attractive. The allocated resources to the monitoring process must be quite attractive according to the directors so that company could raise the funds from outside too. Directors prepare their reports according to the risk treatment, going concern, risk mitigation, risk documenting and risk monitoring (Pomeroy & Thornton, 2008).

Objective of an audit committee:

Audit committee is the set of people who analyzes the financial report of a company. The main objective of an audit committee is to offer supervision on the process of financial reporting, internal control system, audit process and compliance with regulations and laws (Lennox & Park, 2007). A good audit committee of an organization contains matching key tasks with suitable people for achieving the better result.

Audit committee helps an organization into improving the internal control through leading the high efficiencies in entire processes, more objective evaluation method, less waste of resources and accurate measurement of management. This helps the organization to guide in the right way by audit committee.

Audit committee improves the financial management and reporting of an organization. It offers expertise of high level in critical area to enhance the financial condition of a company (Cohen, Gaynor, Krishnamoorthy & Wright, 2011). It determines the creditworthiness of insider and outsider success and of insiders.

Audit committee clarifies the responsibilities and roles of board of directors. Audit committee assigns them the responsibilities and helps them to do work with accuracy and perfection. Financial reporting has been important and quite complicated every year. Audit committee helps the company to reduce that complexity.

Audit committee helps the auditor of the company to make all the things understandable and it also help the company to manage a good relationship with auditors. Thus it could be said that the auditor of a company offers many benefits to a company.

Recommendation to the committee:

It is recommended to the audit committee to appoint the suitable and appropriate people in the team so that the best of the outcome could be gained by company and audit committee. An audit committee decides the terms, roles and responsibilities of the management of a company (Ruiz-Barbadillo, Biedma-López, & Gómez-Aguilar, 2007). So it is recommended to committee to set the terms accordingly. Audit committee must evaluate the financial report of a company properly. The committee must oversight the financial reporting process of organization and must disclose all the financial information to ensure that the prepared financial statement is sufficient, credible and correct.

Committee must review and monitor the performance, independence of auditor and audit process’s effectiveness. Committee must evaluate the risk management system and financial control (Al Najjar, 2011). Valuation of assets or undertaking of organization wherever it is necessary. Audit committee is recommended to investigate over the final financial data of the company before submitting it.

Constitutor of the committee:

Audit committee is the committee of board of directors who are responsible to oversight the process of financial reporting. Constitutor of audit committee is the auditor institute of nation which obligates the company to monitor over all the activities of the company. Audit institute of nation constitutes this committee to oversight the process of company while preparing the final financial statements (Sharma, Neikar, lee, 2009). This committee contains chairperson, member and some financial experts. The members of the committee are internal as well as external which monitors all the activities. This committee helps the organization into maintaining the risk, the objective of financial reports etc.

Constitutor of audit committee looks over the members and tells them to work ethically so that the organization needs not to face any issue in near future. The constitutor could be the chairperson of the company or any one from the board f directors to manage the annual report and final financial reports of the company (Krishnan & Visvanathan, 2008). This committee helps the company to mitigate the risk, forecast the future risk, monitoring the activities and help the auditors to do audit properly.

Interaction between audit committee and audit functions:

Audit committee is the internal part of a company. It is a set of few people who monitors over all the financial activities of company to manage the risk, mitigate the risk and enhancing the process of company whereas the audit functions are the functions performed by the auditor of company to monitor and evaluate business functionality, operations, final statements, annual report and internal functioning of company.

Audit committee sets an interaction with the audit functions to manage the functions of audit properly. Audit committee does not get involve with preparing the annual reports but it analyzes the process of preparing the annual report. The audit committee sets the function of auditing (Hutchinson, & Zain, 2009). They help the external auditor to analyze every function and process of the company briefly so that the audit functions could be reduced and could be done quickly.

Audit committee and audit functions have a connection with each other. The more audit committee would work deeply to investigate over the activities, process and aspects of the annual report the more the functions of external auditor get reduced and the function of auditor could be enhanced (Chan, li, 2008). Thus it could be said that audit committee of the company plays an important role to manage every financial and non financial aspect of company.

Conclusion:

Through this report, it has been found that the annual report of a company is quite crucial. It helps the stakeholder of the company to analyze all the aspects of the company. Auditors play crucial role in preparing the annual reports. Through this report it has been analyzed that companies set an audit committee inside the company who consists the internal members and external auditor to monitor the process of financial report. This committee helps the auditor to understand the aspect of annual report and explain them about all the financial and nonfinancial activities of company.

Through this report it has been found that the directors shows their concern about many aspects in an annual report to make it the true report as well as an attractive report so that more investors could be attracted to invest in the company. This report focuses over the audit committee, their functions, audit functions etc to understand the worth of annual report. These reports summarize all the aspects of annual report and functionality of audit committee on those aspects. The report briefs about the audit function in the company. The audit committee sets the function of auditing. They help the external auditor to analyze every function and process of the company briefly so that the audit functions could be reduced and could be done quickly.

Thus it could be concluded that auditors play a crucial role to enhance the value and worth of annual report of a company and it also help the company to engage with any kind of unethical practices.

References:

Al?Najjar, B. (2011). The determinants of audit committee independence and activity: evidence from the UK. International Journal of Auditing, 15(2), 191-203.

Chan, K. C., & Li, J. (2008). Audit committee and firm value: evidence on outside top executives as expert?independent directors. Corporate Governance: An International Review, 16(1), 16-31.

Cohen, J. R., Gaynor, L. M., Krishnamoorthy, G., & Wright, A. M. (2011). The impact on auditor judgments of CEO influence on audit committee independence. Auditing: A Journal of Practice & Theory, 30(4), 129-147.

Hutchinson, M. R., & Zain, M. M. (2009). Internal audit quality, audit committee independence, growth opportunities and firm performance. Corporate Ownership and Control, 7(2), 50-63.

Krishnan, G. V., & Visvanathan, G. (2008). Does the SOX definition of an accounting expert matter? The association between audit committee directors' accounting expertise and accounting conservatism. Contemporary Accounting Research, 25(3), 827-858.

Lennox, C. S., & Park, C. W. (2007). Audit firm appointments, audit firm alumni, and audit committee independence. Contemporary Accounting Research, 24(1), 235-258.

Pomeroy, B., & Thornton, D. B. (2008). Meta-analysis and the accounting literature: The case of audit committee independence and financial reporting quality. European Accounting Review, 17(2), 305-330.

Ruiz-Barbadillo, E., Biedma-López, E., & Gómez-Aguilar, N. (2007). Managerial dominance and audit committee independence in Spanish corporate governance. Journal of Management & Governance, 11(4), 311.

Sharma, V., Naiker, V., & Lee, B. (2009). Determinants of audit committee meeting frequency: Evidence from a voluntary governance system. Accounting Horizons, 23(3), 245-263.

Zhang, Y., Zhou, J., & Zhou, N. (2007). Audit committee quality, auditor independence, and internal control weaknesses. Journal of accounting and public policy, 26(3), 300-327.