Audit committee effectiveness : informal processes and behavioural effects

Purpose This paper seeks to investigate the conditions and processes affecting the operation and potential effectiveness of audit committees (ACs), with particular focus on the interaction between the AC, individuals from financial reporting and internal audit functions and the external auditors. Design/methodology/approach A case study approach is employed, based on direct engagement with participants in AC activities, including the AC chair, external auditors, internal auditors, and senior management. Findings The authors find that informal networks between AC participants condition the impact of the AC and that the most significant effects of the AC on governance outcomes occur outside the formal structures and processes. An AC has pervasive behavioural effects within the organization and may be used as a threat, an ally and an arbiter in bringing solutions to issues and conflicts. ACs are used in organizational politics, communication processes and power plays and also affect interpretations of events and cultural values. Research limitations/implications Further research on AC and governance processes is needed to develop better understanding of effectiveness. Longitudinal studies, focusing on the organizational and institutional context of AC operations, can examine how historical events in an organization and significant changes in the regulatory environment affect current structures and processes. Originality/value The case analysis highlights a number of significant factors which are not fully recognised either in theorizing the governance role of ACs or in the development of policy and regulations concerning ACs but which impinge on their governance contribution. They include the importance of informal processes around the AC; its influence on power relations between organizational participants; the relevance of the historical development of governance in an organization; and the possibility that the AC’s impact on governance may be greatest in non-routine situations.

Regulating audit quality : restoring trust and legitimacy

The global financial crsis, corporate failures and scandals in amny countries raise significant questions audit quality. In the UK, the FRC took the unprecedented step of codifying audit quality in its ‘Audit Quality Framework’. We analyze the extent to which audit firms, professional bodies, and investors considered the FRC proposals sufficient for addressing concerns about audit quality. Using impression management and legitimacy as a framework to analyze stakeholder responses we go beyond audit quality drivers identified by the FRC. In contrast to the drivers identified by the FRC, our focus on transparency, expertise, professionalism and commercialization of the audit shows that FRC, audit firms and professional bodies have mainly focused on issues which possibly do not pose a threat to the commercial interest of audit firms. Overall, our analysis shows that regulatory and professional bodies engaged in image management and the promotion of audit quality in an attempt to remedy tarnished image and augment their legitimacy and standing. In attempting to restore trust and legitimacy regulatory bodies, such as the FRC, have to reconcile complex often contradictory stakeholder demands.

A study of the informal interactions between audit committees and internal auditors in Australia

This paper finds evidence for the growing importance of informal interactions between the internal audit function and the audit committee (AC) in Australia – a relatively unexplored topic in the literature – using a survey of Chief Audit Executives (CAEs). It also describes the nature of these informal interactions. The most innovative elements of this paper are the findings that certain personal characteristics of CAEs, the specific knowledge and expertise of the AC chair, as well as some of the AC chair’s personal characteristics are associated with the existence (and increase) of informal interactions.

Informal interactions between audit committees and internal audit functions : exploratory evidence and directions for future research

Purpose – This paper aims to recognise the importance of informal processes within corporate governance and complement existing research in this area by investigating factors associated with the existence of informal interactions between audit committees and internal audit functions and in providing directions for future research. Design/methodology/approach – To examine the existence and drivers of informal interactions between audit committees and internal audit functions, this paper relies on a questionnaire survey of chief audit executives (CAEs) in the UK from listed and non-listed, as well as financial and non-financial, companies. While prior qualitative research suggests that informal interactions do take place, most of the evidence is based on particular organisational setting or on a very small range of interviews. The use of a questionnaire enabled the examination of the existence of internal interactions across a relatively larger number of entities. Findings – The paper finds evidence of audit committees and internal audit functions engaging in informal interactions in addition to formal pre-scheduled regular meetings. Informal interactions complement formal meetings with the audit committee and as such represent additional opportunities for the audit committees to monitor internal audit functions. Audit committees’ informal interactions are significantly and positively associated with audit committee independence, audit chair’s knowledge and experience, and internal audit quality. Originality/value – The results demonstrate the importance of the background of the audit committee chair for the effectiveness of the governance process. This is possibly the first paper to examine the relationship between audit committee quality and internal audit, on the existence and driver of informal interactions. Policy makers should recognize that in addition to formal mechanisms, informal processes, such as communication outside of formal pre-scheduled meetings, play a significant role in corporate governance.

The Corporate Governance Effects of Audit Committee

This chapter provides a synthesis and evaluation of empirical research on the governance effects associated with audit committees. Given recent policy recommendations in several countries aimed at strengthening these committees, it is important to establish what research evidence demonstrates about their existing governance contribution. A framework for analyzing the impact of audit committees is described, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance. It is also shown that most of the existing research has focused on factors associated with audit committee existence, characteristics, and measures of activity and there is very little evidence on the processes associated with the operation of audit committees and the manner in which they influence organizational behavior. It is clear that there is no automatic relationship between the adoption of audit committee structures or characteristics and the achievement of particular governance effects, and caution may be needed over expectations that greater codification around factors such as audit committee members’ independence and expertise as the means of ‘‘correcting’’ past weaknesses in the arrangements for audit committees. The most fundamental question concerning what difference audit committees make in practice continues to be an important area for research development. For future research we suggest: (1) greater consideration of the organizational and institutional contexts in which audit committees operate; (2) explicit theorization of the processes associated with audit committee operation; (3) complementing extant research methods with field studies; and (4) investigation of unintended as well as expected consequences of audit committees.

Are Australia’s universities in deficit? A tale of generic managers, audit culture, and casualisation

Managerial changes to Australian universities have had considerable impact on employees. In this paper we consider some of these changes and apply a theory known as the democratic deficit to them. This theory was developed from the democratic critique of managerialism, as it has been applied in the public sector in countries with Westminster-type political systems. This deficit covers the weakening of accountability through politicisation, the denial of public values through the use of private sector performance practices, and the hollowing out of the state through the contracting out and privatisation of public goods and services, and the redefinition of citizens as customers and clients. We suggest that the increased power of managers, expansion of the audit culture, and the extensive use of contract employment seem to be weakening the democratic culture and role of universities in part by replacing accountability as responsibility with accountability as responsiveness.

Social Audit Regulation: Development, Challenges and Opportunities

This book takes the concept of social audit and lifts it beyond the role of functioning largely as a management tool. The book proposes a system in which social audit is regulated so as to provide a mechanism for effectively promoting corporate accountability in society. Taking this as its theme, this book provides both a conceptual explanation of the developmental perspectives of social audit regulation and empirical evidence of the impact of social audit practice from different parts of the world. It is the first book to explore the issues and challenges related to the development of effective social audit regulation.

Social audit: A mess or means in CSR assessment?

Social Audits play an important role in the measurement and analysis of a company's social performance. They provide corporations with a tool to plan and manage their social responsibility activities. Similarly, they provide stakeholders with a tool which they could use when monitoring, assessing and analysing concrete and accurate company data. Whilst the topic of social audits has been raised and discussed by a number of scholars, industry representatives and government institutions over the years, such contributions have mostly revolved around the general notion and importance of social audit, rather than addressing the most effective ways to achieve a widespread and reliable adoption of the practice through the implementation of specific legal regulation and other methods. This matter is of significant importance as corporations can exert a considerable amount control over the entire social audit process, allowing them to disclose only information deemed beneficial to their own corporate image instead of releasing all relevant social and environmental data. In order to achieve a truly transparent system promoting corporate accountability, there is an obvious need for social audits to be regulated. One of the purposes of this book is to provide an overview of the development of social audit practices and regulation. It also sets out to explore the issues and challenges which have arisen relating to this matter around the world.

‘True Blood’ the critical care story: An audit of blood sampling practice across three adult, paediatric and neonatal intensive care settings

Background Anaemia is common in critically ill patients, and has a significant negative impact on patients' recovery. Blood conservation strategies have been developed to reduce the incidence of iatrogenic anaemic caused by sampling for diagnostic testing. Objectives Describe practice and local guidelines in adult, paediatric and neonatal Australian intensive care units (ICUs) regarding blood sampling and conservation strategies. Methods Cross-sectional descriptive study, conducted July 2013 over one week in single adult, paediatric and neonatal ICUs in Brisbane. Data were collected on diagnostic blood samples obtained during the study period, including demographic and acuity data of patients. Institutional blood conservation practice and guidelines were compared against seven evidence-based recommendations. Results A total of 940 blood sampling episodes from 96 patients were examined across three sites. Arterial blood gas was the predominant reason for blood sampling in each unit, accounting for 82% of adult, 80% of paediatric and 47% of neonatal samples taken (p <. 0.001). Adult patients had significantly more median [IQR] samples per day in comparison to paediatrics and neonates (adults 5.0 [2.4]; paediatrics 2.3 [2.9]; neonatal 0.7 [2.7]), which significantly increased median [IQR] blood sampling costs per day (adults AUD$101.11 [54.71]; paediatrics AUD$41.55 [56.74]; neonatal AUD$8.13 [14.95]; p <. 0.001). The total volume of samples per day (median [IQR]) was also highest in adults (adults 22.3. mL [16.8]; paediatrics 5.0. mL [1.0]; neonates 0.16. mL [0.4]). There was little information about blood conservation strategies in the local clinical practice guidelines, with the adult and neonatal sites including none of the seven recommendations. Conclusions There was significant variation in blood sampling practice and conservation strategies between critical care settings. This has implications not only for anaemia but also infection control and healthcare costs.

The logics of good teaching in an audit culture: A Deleuzian analysis

This article examines the attempted reform of education within an emerging audit culture in Australia that has led to the implementation of a high-stakes testing regime known as NAPLAN. NAPLAN represents a machine of auditing, which creates and accounts for data that are used to measure, amongst other things, good teaching. In particular, we address the logics of a policy intervention that aims to improve the quality of education through returning ‘good teaching’. Using Deleuze’s concepts of series, events, copies and simulacra, we suggest that an attempt to return past commonsense logics of ‘good teaching’ as a result of NAPLAN is not possible. In an audit culture as exemplified by NAPLAN, ‘good teaching’ is being reconceptualized through those practices and becomes unrecognizable. Whilst policy claims to improved equity and quality are admirable, this article suggests that the simulacral change to logics of good teaching may actualize something very different.

Students' low financial literacy makes understanding fees, loans, debt difficult

Financial literacy in Australia is low, particularly so in those under 25 years of age. What might be surprising is that it is low even among university students.

From ‘free’ to fee: Acceptability of airline ancillary fees and the effects on customer behavior

Businesses in various consumer service industries have begun to unbundle their service offerings by introducing numerous fees for products and services that were previously provided as “free.” Anecdotal evidence in the media indicates that these fees cause widespread public displeasure, frustration, and outrage. This paper develops a framework of fee acceptability, negative emotions, and dysfunctional customer behavior, which is tested using data from the airline industry. Findings identify the strongest effects on betrayal in the case of baggage fees, followed by charges for comfort. Also, betrayal has a direct effect on complaining, whereas anger mediates the relationship between betrayal and negative word of mouth.

Practice patterns of radiation therapy technology in Australia: Results of a national audit

This article presents the results of a single-day census of radiation therapy (RT) treatment and technology use in Australia. The primary aim of the study was to ascertain patterns of RT practice and technology in use across Australia. These data were primarily collated to inform curriculum development of academic programs, thereby ensuring that training is matched to workforce patterns of practice. Methods: The study design was a census method with all 59 RT centres in Australia being invited to provide quantitative summary data relating to patient case mix and technology use on a randomly selected but common date. Anonymous and demographic-free data were analysed using descriptive statistics. Results: Overall data were provided across all six Australian States by 29 centres of a possible 59, yielding a response rate of 49% and representing a total of 2743 patients. Findings from this study indicate the increasing use of emerging intensity-modulated radiotherapy (IMRT), image fusion and image-guided radiation therapy (IGRT) technology in Australian RT planning and delivery phases. IMRT in particular was used for 37% of patients, indicating a high uptake of the technology in Australia when compared to other published data. The results also highlight the resource-intensive nature of benign tumour radiotherapy. Conclusions: In the absence of routine national data collection, the single-day census method offers a relatively convenient means of measuring and tracking RT resource utilisation. Wider use of this tool has the potential to not only track trends in technology implementation but also inform evidence-based guidelines for referral and resource planning.

Estimating the potential impact of entry fees for marine parks on dive tourism in South East Asia

Marine reserves are increasingly being established as a mechanism to protect marine biodiversity and sensitive habitats. As well as providing conservation benefits, marine reserves provide benefits to recreational scuba divers who dive within the reserve, as well as to recreational and commercial fishers outside the reserve through spill-over effects. To ensure benefits are being realised, management of marine reserves requires ongoing monitoring and surveillance. These are not costless, and many marine reserve managers impose an entry fee. In some countries, dive tourism is major income source to coastal industries, and a concern is that high entry fees may dissuade divers. In this paper, the price elasticity of demand for dive tourism in three countries in South East Asia – Indonesia, Thailand and Malaysia – is estimated using a travel-cost model. From the model, the total non-market use value associated with diving in the area is estimated to be in the order of US$4.5 billion a year. The price elasticity of demand in the region is highly inelastic, such that increasing the cost of diving through a management levy would have little impact on total diver numbers.

A clinical audit to compare peritonitis rates between peritoneal dialysis delivery systems

Peritonitis is a major problem for patients with end-stage kidney disease undergoing peritoneal dialysis (PD). It is the main cause of failure of PD. Two different PD delivery systems are used across Australia although there is inconsistent evidence comparing the systems. The aim of this retrospective audit is to compare the rates and risk of peritonitis in a cohort of incident patients using two PD delivery systems. All consecutive patients starting PD between 1 August 2010 and 31 March 2012 were included and followed until 30 June 2013. Data relating to accepted risk factors for peritonitis were collected and analysed. There were 50 patients (26 men; 24 women) aged between 30 and 87 years. There were 29 episodes of peritonitis in 17 patients. Rates of peritonitis were 1 episode per 69.19 patient-months compared with 1 episode per 18.67 patient-months. Mean times to first episode of peritonitis were 13.11 months compared to 7.13 months. The relative risk of PD-related peritonitis was twice as high (RR = 2.04, 95% CI = 0.85 to 4.94) for patients using the one system (44.4%) compared to a second system (21.7%). Since this is not a randomised trial no firm conclusions can be drawn. Centres should also monitor peritonitis rates for each system.