Audit, Corporate Governance and Ethics

Individual Assignment (3000 words)

Topic: Restoring Trust in Audit, Corporate Governance and Ethics

Background:

Corporate failure, as stated by the Institute of Chartered Accountants in England and Wales (ICAEW, 2021) is caused by the action, or inaction, of company directors, not auditors. Invariably this is not deliberate sabotage, but directors, usually executive directors given their role in actively managing the company, failing to respond adequately to the needs of customers or taking excessive financial risk, both factors that should be properly controlled against and visible in corporate reporting when they occur. Failure is also caused or exacerbated by fraud (ICAEW, 2021).

Following a series of large corporate failures (e.g., BHS in 2016, Carillion in 2018, British Steel in 2019, Thomas Cook in 2019 and Wirecard in 2020), which led to job losses and uncertainty among businesses and local communities over the last few years, the Government set out plans to further strengthen the UK’s audit and corporate governance framework and empower shareholders.

The plans as set out by the Government were based on the recommendations of three independent reviews: Sir John Kingman’s Independent review of the Financial Reporting Council (FRC) (2018), the Competition and Market Authority’s statutory audit market study (2019), and Sir Donald Brydon’s independent review of the quality and effectiveness of audit (2019). Furthermore, in March 2021, the Department for Business, Energy and Industrial Strategy’s (BEIS) issued a White Paper titled ‘Restoring trust in audit and corporate governance’. This document sets out proposals on strengthening the UK’s corporate governance framework and the way companies are audited. The document further states that the Government recognises that ‘corporate failure can happen, but it should rarely be a surprise’ (Department for Business, Energy and Industrial Strategy, 2021). Hence, fair, balanced and reliable corporate reporting helps highlight risk and acts as an early warning system.

Moreover, Audit has a vital role to play. Auditors cannot prevent corporate failure but must help ensure financial statements can be trusted. In sum, a strong core audit is key. Thus overall, it is right to prioritise steps designed to ensure executive director accountability for robust controls, and help to guard against fraud (Department for Business, Energy and Industrial Strategy, 2021; ICAEW, 2021).

Instructions:

The UK government has published a roadmap for a package of reforms to improve audit, corporate reporting and corporate governance systems. Hence following this:

• You are required to critically evaluate relevant academic literature and discuss how trust can be restored in audit and corporate governance systems. You must also consider the role of professional ethics in restoring trust to a public limited company’s stakeholders.

Guidance Notes:

 Your answer should display a good understanding of corporate governance, audit AND ethics in relation to the issues highlighted from recent corporate failures and scandals.

 Your essay must demonstrate a good awareness of appropriate academic literature and theories by including a critical evaluation of and an extensive literature review of the issues discussed.

 Your essay must include literature on corporate governance, audit AND ethics on topics such as:
o The role of corporate governance codes and the effectiveness of the comply or explain approach.
o Accountability and transparency
o Board committees
o Board diversity and board effectiveness
o Auditor independence
o Proposals for change in the Brydon and Kingman reports and current government proposals, for example joint audits / managed shared audit, new audit profession, separation of audit and consulting
o The audit expectation gap
o The extended audit report
o Evaluating and Making Decisions in Business Ethics
o Models of ethical decision making and the role of individual and situational influences

 Your essay should delve into the literature on corporate governance, audit, and ethics, offering a comprehensive discussion of the identified topics. Given the restricted word limit, you should not try to cover all the topics highlighted above; instead, prioritise providing a thorough exploration of the topics you choose to discuss. Your essay must ensure you cover at least one topic on each of the module’s core areas (corporate governance, audit and ethics).
Your essay should also include:

• An appropriate title
• An abstract (maximum 300 words) and a set of related keywords.
• An introduction outlining the importance of the topic as a contemporary issue affecting both theory and practice.
• A coherent and sectionalized structure covering different aspects related to audit, corporate governance and ethics and any associated sub-themes.
• A summary/conclusion section including linkages between business practice and academic theory.
• A reference list using the APA referencing convention.

References:

Brydon, D. (2019). Report of The Independent Review Into The Quality and Effectiveness Of Audit. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1079594/restoring-trust-in-audit-and-corporate-governance-govt-response.pdf
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/852960/brydon-review-final-report.pdf
CMA. (2019). Statutory Audit Services Market Study. Retrieved from https://assets.publishing.service.gov.uk/media/5d03667d40f0b609ad3158c3/audit_final_report_02.pdf

Department for Business, Energy and Industrial Strategy. (2021). Restoring Trust in Audit and Corporate Governance. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1079594/restoring-trust-in-audit-and-corporate-governance-govt-response.pdf

ICAEW. (2021). Restoring Trust in Audit and Corporate Governance. Retrieved from https://www.icaew.com/-/media/corporate/files/technical/icaew-representations/2021/icaew-rep-6321-restoring-trust-in-audit-and-corporate-governance.ashx

Kingman, J. (2018). Independent Review of the Financial Reporting Council. Retrieved from https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/767387/frc-independent-review-final-report.pdf