Audit & Assurance Essay Example | Topics and Well Written Essays - 1750 words

Audit & Assurance - Essay Example Therefore US introduced the Sarbanes Oxley Act in 2002 and UK, in 2003, set up two reviews- RRAP (Regulatory Regime of Accountancy Profession) and CGAA (Coordinating Group on Audit and Accounting) (Gray & Manson, 2007, p.140). The audit committee consists of board of directors who are entrusted with the oversight of financial reports preparation and disclosures. The more reliable the information is the more it is useful and through the auditing this purpose is achieved. The shareholders of a company are its owners who appoint the stewards in the form of directors and managers to manage the company on their behalf. The problem arises when the stewards place their personal interests before the owners’ interests. And as the managers are at an advantage over shareholders in terms of information the auditing (both internal and external) functions become all the more important. The recent financial crisis has led to the requirement of enhancing the transparency on the managerâ€℠¢s activities and their risk management. The identification, analysis and management of the operational as well as strategic risk are the key to avoid failures of firms if the crises were to occur in future. The audit committee alone is not responsible to prevent the economic downturn but plays an important role by challenging the assumptions and estimates the auditors undertake as part of the audit process as the economic environment changes with time (FRC, 2011). Objectives of the Paper This paper has mainly five objectives. Firstly, to understand the rights and responsibilities of the audit committee and their importance in today’s volatile financial environment. Secondly, why firms need audit committees and what they are doing to improve audit committees’ effectiveness. Thirdly, the meaning and importance of Audit Assurance has been explained. Fourthly, there is an explanation of the audit process both internal as well as external. Fifthly, the role of regulators a nd audit firms in bringing more effectiveness in audit process and transparency in financial disclosures so that the investors able able to take informed decisions. Rights and Responsibilities of the Audit Committee The Financial Reporting Council has provided the guidelines on Audit Committees. The rights of audit committee are as follows: 1. All the directors and management staff are obligated to keep the audit committee properly informed even if not asked. They must be cooperative with the audit committee. 2. The opinions of the audit committee should be listened and discussed by both the management and the board. 3. The audit committee has a right to intervene if it finds any discrepancy in the audit and financial controls process. And if not satisfied by the explanations given by the management then it may seek independent advice. 4. The work of the audit committee gets time consuming and intensive; therefore management must provide them with the necessary resources including t he payment. There should also be a provision of induction and training of the new audit committee members in the company. The training may be continued if required. The board of the company should establish an audit committee with at least two to three members in consultation with the nomination