Effectiveness Of Audit Committee In Improving Audit Quality

Project Objectives

In this particular research proposal, main aim of the study is to demonstrate a proper methodology for conducting the study. In the study, project objectives and scope are depicted for detailed description on how the study should be conducted. Moreover, the literature review is presented for in-depth analysis of secondary and prior studies for seeking insights about the topic. Research questions and hypotheses are formulated from the research objectives so that research analysis could be continued (Lennox, Wu and Zhang 2014). The design, methodology, and time schedule planning of the study is included for study to be systematic and on-point over the audit quality improvement from audit committees.

Primarily, the study is centered towards analyzing the roles of audit committee for improvement of audit quality. This research aimed to depict connection and correlation between audit committee performance effectiveness and quality of audit. These objectives are to be formulated as research questions. Therefore, the objectives of the study are listed as following:

1. To synthesize related prior studies for providing necessary insights about audit procedures and quality improvement  
2. To provide efficiency and efficacies about audit committee for improving audit quality
3. To investigate relevant studies to provide findings that support that audit committee effectiveness ensure better quality audit function

The research scope is identified to review studies that discussed about effectiveness of audit committee. The studies are chosen from a certain period when the corporate government and audit committee are connected over agenda. In this selected period, the study scope is to analyze audit quality improvement and identify impact of audit committee effectiveness (Gunny and Zhang 2013). Furthermore, the scope identifies proper planning activities so that the research could be conducted. The time schedule is prepared in terms of activities as per ordering and priorities. Research limitations are depicted so that future scopes can be identified while conducting the studies, certain gaps that could be fulfilled in further study.

In this literature review section, the major findings from secondary studies are demonstrated along with supportive ideas about audit committee performance and audit quality improvement. Furthermore, the actions of board directors are depicted in terms of audit functions so that improvement aspects could be stated.

Director board hands over several working responsibilities for auditing towards the committee for monitoring the audit functions (Cohen et al. 2013). Managing directors conduct major role over corporate governance to audit process. Committee of audit monitors the impartment mechanisms for financial reporting. Not only the financial reporting, they monitor two important aspects of auditing other than financial reporting and those are internal controlling for identifying primary risks, and activity of auditor. Tepalagul and Lin (2015) claimed the audit committee effectiveness so that expert members and authority could keep stakeholders interested about reliable financial reporting, risk management, and internal control addressing. Allegrini and Greco (2013) opined that there are several alternatives for estimate or measure audit committee performance effectiveness for monitoring roles. Effective audit committee could conduct specific monitoring activities over the auditors taking immense responsibilities of the organization.

Van Leersum et al. (2013) found that existing audit committee that is entirely independent could decrease burden of incomes and spending over a management body of organization. Audit committee could overtake major interconnected activities such as internal audit, external auditor activity monitoring, and financial reporting. The interconnected activities could ensure audit and reporting process for enabling independent system and control efficiency verification. Chi et al. (2013) identified that audit committee could improve audit quality, when audit committee is not in major part of audit process; there is greater tendency for occurrence of fraud and financial record manipulation. Audit committees are expected to take major actions over corporate governance and ensures about organization to produce better quality audit and financial reporting (DeFond and Zhang 2014). Moreover, audit committee being independent, they are entirely related with reporting practices and financial statement fraud can occur while audit committee is independent in audit function.  

Project Scope

Audit committee overtakes entire responsibility for entire board and performs personal contacting, communication among the board members such as operating executives, finance manager, and internal and external auditors (Cohen et al. 2013). The audit committee takes consideration of the stakeholders in regards of audit function for improving the audit quality; moreover, the external director in audit committee could collect and verify audit information from corporate entities and external marketing personnel. Boone, Khurana and Raman (2014) investigated that UK audit committees monitor the financial reporting process taking the activity as their primary responsibility. Audit quality significantly depends over UK audit personnel committee. Reviewing of secondary studies identified wider aspects of effectiveness and their influence over audit quality.

Audit committee covers three major inputs in audit quality improvement such as authority, resources, and composition (DeFond and Zhang 2014). Independent audit committee facilitates the monitoring activities for maintaining Code of Corporate Governance. The corporate governance states that all significant audit committee members should be independent as well as the managing chairman.

The research questions and hypotheses are formulated from identified study objectives in terms of setting methodology to be properly aligned with study. The formulated research questions are listed as following:

1. What are the necessary insights about audit procedures and quality improvement?
2. What are the efficiency and efficacies about audit committee for improving audit quality?
3. Does audit committee effectiveness ensure better quality audit function?

Hypothesis is identified as tentative generalization of idea that is used for validation over testing a particular agenda. Hypothesis presents relationship between dependent and independent variables in form of testable principle. Now, hypothesis testing should be conducted with proper level of significance and measurements (Bruynseels and Cardinaels 2013). These hypotheses are to be tested in further research and analytical study for in-depth outcomes and findings. As per the formulated questions in the study, projected hypothesis is identified as following:

H₀: Audit committee effectiveness does not significantly ensure better quality audit function.

H₁: Audit committee effectiveness significantly ensures better quality audit function.

In this segment, the review diagram is set up alongside appropriate plan decision, legitimization of decision, and research technique decision, and avocations. In the specific section, detail investigates systems to examine the quality of audit effectively and its impact for audit committee will be assessed with reference to audit capacities. Moreover, deductive approach will enable the specialist to direct the review construct at first with respect to auxiliary sources that can help in characterizing audit committee execution and impact of viability of audit committee on quality of audit in a vastly improved way. Distinct outline will help the analyst in characterizing the utilized and connected ideas in the detail way additionally helping in characterizing the effect of study too. Use of primary and secondary sources will help in much points of interest of the examination subject and will bring better quality of investigation. Sample for this research will include 40 auditors for quantitative study and 3 managers for qualitative study.  

In the present review, the subject will attempt to concentrate the ideas identified with auditors’ committee effectiveness with the assistance of different hypothetical learning. However, inductive approach neglects to be actualized in the present theme as no new ideas or hypotheses are stressed by the analyst. Utilization of exploration was excluded from the study as it lacks the idea of longitudinal review that was impractical with the specific point. Aside from that, proper plan could characterize the detail procedure required in the utilization of audit committee for enhancing audit quality. The degree of impact conferred by marking over the auditors’ enhancing procedure is appropriately investigated with the assistance of elucidating configuration similar to the chose look into plan. 

Literature Review

As the literature review states prior study findings are mixed and mostly the studies reveal that there is positive connection between audit committee characteristics and quality of audit. However, some studies have identified that audit committees reduce reporting problems regarding audit quality and improving audit as well (Pizzini, Lin and Ziegenfuss 2014). Audit committee is identified as major concept for corporate government and audit performance improvement. There is significant gap about studying legislation over audit committee and audit committee over law system. The research could be further extended with critically evaluating the effectiveness of audit committee and quality of audit in the study.

Any study and research either longitudinal or cross-sectional in nature, contingent on the time assignment considered for research for a specific topic. In the present research, cross-sectional review is embraced that has restricted day so utilization of time schedule is considered for simple culmination of the exploration work. Bratten et al. (2013) expressed that time schedule helps in isolating the key errands according to the structure of the review and aides in better fruition of the subject. Time scheduling is performed in this study to address key activities in terms of completion.

Main activities/ stages	Week 1	Week 2	Week 3	Week 4	Week 5	Week 6	Week 7
Selection of topic	•
Collection of data from secondary studies	•	•
Creating layout		•
Literature review		•	•	•
Formation of the research Plan			•	•
Stating proper research methodology and techniques				•	•
Collection of Primary Data					•	•
Analysis of collected data					•	•
Stating the findings						•
Conclusion of the Study						•
Formation of Rough Draft						•	•
Submission of Final Work						•	•

Table 1: Time Schedule

(Source: Created by author)  

As delineated in the above table, the analyst will apply Gantt diagram at ceaseless interims so that the status according to general interims can be investigated.

Conclusion 

This particular paper proposed planning and proper methodology so that research could be conducted. The research focused over reviewing literatures over determining how audit committee is effective over increasing audit quality. Major findings in literature review supported the fact that audit committee improve audit quality and reporting quality. Primarily, the study is centered towards analyzing the roles of audit committee for improvement of audit quality. This research aimed to depict connection and correlation between audit committee performance effectiveness and quality of audit. The research scope is identified to review studies that discussed about effectiveness of audit committee. The research questions and hypotheses are formulated from identified study objectives in terms of setting methodology to be properly aligned with study. Audit committee is identified as major concept for corporate government and audit performance improvement. There is significant gap about studying legislation over audit committee and audit committee over law and legislation system.

References

Allegrini, M. and Greco, G., 2013. Corporate boards, audit committees and voluntary disclosure: Evidence from Italian listed companies. Journal of Management & Governance, 17(1), pp.187-216.

Boone, J.P., Khurana, I.K. and Raman, K.K., 2014. Did the 2007 PCAOB disciplinary order against Deloitte impose actual costs on the firm or improve its audit quality?. The Accounting Review, 90(2), pp.405-441.

Bratten, B., Gaynor, L.M., McDaniel, L., Montague, N.R. and Sierra, G.E., 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice & Theory, 32(sp1), pp.7-44.

Bruynseels, L. and Cardinaels, E., 2013. The audit committee: Management watchdog or personal friend of the CEO?. The Accounting Review, 89(1), pp.113-145.

Chi, W., Lisic, L.L., Long, X. and Wang, K., 2013. Do regulations limiting management influence over auditors improve audit quality? Evidence from China. Journal of Accounting and Public Policy, 32(2), pp.176-187.

Cohen, J.R., Hoitash, U., Krishnamoorthy, G. and Wright, A.M., 2013. The effect of audit committee industry expertise on monitoring the financial reporting process. The Accounting Review, 89(1), pp.243-273.

DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326.

Gunny, K.A. and Zhang, T.C., 2013. PCAOB inspection reports and audit quality. Journal of Accounting and Public Policy, 32(2), pp.136-160.

Lennox, C.S., Wu, X. and Zhang, T., 2014. Does mandatory rotation of audit partners improve audit quality?. The accounting review, 89(5), pp.1775-1803.

Pizzini, M., Lin, S. and Ziegenfuss, D.E., 2014. The impact of internal audit function quality and contribution on audit delay. Auditing: A Journal of Practice & Theory, 34(1), pp.25-58.

Tepalagul, N. and Lin, L., 2015. Auditor independence and audit quality: A literature review. Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

Van Leersum, N.J., Snijders, H.S., Henneman, D., Kolfschoten, N.E., Gooiker, G.A., Ten Berge, M.G., Eddes, E.H., Wouters, M.W.J.M., Tollenaar, R.A.E.M. and Dutch Surgical Colorectal Cancer Audit Group, 2013. The Dutch surgical colorectal audit. European Journal of Surgical Oncology (EJSO), 39(10), pp.1063-1070.