Role of Audit And Assurance in organisation

Answer :

Introduction to Auditing

Audit committee is made for the development of the organisation. It is made because the entity needs a true and fair report of its compliances and this can be done by using the elements of the corporate governance report. If the transparent view or report is made by the entity then it will be able to have the more effective relations with its stakeholders (Messier, 2016). So it can be said that the audit committee is having very vital role in making the true and fair report of the organisation. Next Plc is a retail company and is operating its activities in the filed of the clothing and footwear. Along with this it is providing the services in the filed of home appliances. In this report the role of the audit committee and its compliances are described. The purpose of the report is to find out and address the provisions related with the audit commit.


Composition of Audit Committe

Audit committee is made for the good governance of the company and its functional activities. There are some norms made by the corporate laws of the UK so that the functions can be operated in the most effective way. It should consist three independent non executive directors or two from the outside of the company. There is a chairman of the audit committee should be an independent director. Apart from this he can be an additional member of the committee provided the  should not chair the committee at the time of the appointment (Tepalagul and Lin, 2015). Along with this the board members of the organisation should ensure that all the members of the audit committee should be financial literate. They should have the professional qualification of the relevant filed. If the company or the members of the audit committee are not fulfilling this criteria then they will be held liable for the penal provisions. The expert of the committee members must be retired fiancée director from the another company or a partner from an accountancy firm.

Appointment, reappointment and removal of the Auditors

Appointment of the audit committee is made on the recommendation of the nomination committee. The appointment of the members of the audit committee should be of three years. Thus it can be said that the auditors must be appointed at the recommendation of the board of the directors. In the annual report of the company appointment of the auditor is included. Resignation of the auditors must be approved by the board of the directors in the meeting of the board. The reappointment of the auditors can be done after expiry of the auditor's work duration (Miko and Kamardin,  2015).

Remuneration of the Auditors

Audit committees have wide ranging, time consuming and they have to work for the development of the business. Their role is to have a true and fair view about the company and its proceedings. The level of the remuneration which is to be paid to the auditors should not exceed the fees paid to the other board members. Along with this the remuneration of the chairman is much higher than the other members as he pays more time and efforts to the functioning of the business (Rupšys and Stačiokas,  2015).

Engaging of the Auditors for the Provisions of non audit services

The audit firm is made so that a true and fair view report of the company and its matters. They are trained to understand the various external elements of the business and provide their view point about it.  If the auditors are doing non audit services then these can be included in below mentioned categories:

A service which require some legislation and contracts undertaken by the auditors of the business. These can be:

  • Prudential Regulatory Authority.
  • Legal and statutory requirements on the matters such as issue of shares for non cash consideration and expenditure for grant application purpose (Lenz and Hahn, 2015).
  • And the requirements related with the contracts such as lenders and vendors on net asset.
  • Services that are most effective for the benefit of the business and these can be:
  • The matters can be related with the financial records and it is not described under law for the auditors to do these activities of functions.
  • Tax compliances, these are the issues which can be related with the taxation policy of the entity.
  • To make some reports which are required on a urgent basis (Lord,  2016).

There are some another most important functions which can be related with the trade activities these can be:

  • Management consultancy
  • Tax Advice
  • Human Resource Consultancy

Thus, in above mentioned way some functions of the auditors related with the non audit services are described.

Auditors Interdependence and objectivity

The auditor is liable to conduct the research in such manner that it could not have any adverse impact on the business and its activities. He should be an independent officer so that all the tasks can be done in the most effective way. A true and fair report of the functioning of the company should be presented by the auditor. So it is required to take care of all the essential elements related with the business (Dobija, 2015). He should not be related with anyone as his work should be transparent and independent. To determine the independence of the auditor some points must be ensured. Such as there must not be any relationship in the company and the auditors. The audit committee should consider whether there is any relationship with or service provider by an auditor:

  • Creates a mutual or any conflict interest with the client of the company.
  • Places the audit work in his own work.
  • Places them in a position of being an advocate for the audit client.
  • The member must not be employed with the company.
  • He should not have been in any professional post of the company in last three years of the appointment.
  • He should not be related with any of the employees of the company.

So it can be said that the auditor should be independence and he should not have any relation with the any of the member of the company. By this he will be able to address the issues of the company in most effective way (Alzeban and Sawan, 2015).


It is very important for a listed company to manage all the essential requirements for the business. The entity must insert in its annual reports and Directors reports the compliances and their effectiveness (Sultana and Mitchell Van der Zahn, 2015). In below mentioned way the compliances related with the audit committee are described in the context of the NEXT PLC are described as under:

NEXT is a listed entity at London Stock exchange, as per the latest data of the company there is a Audit committee in the organisation and there are four members in the committee.

Composition : The chairman of the committee is Steve Barber and he is independent non executive Director. As the compliance is fulfilled here, the chairman of the audit committee must be independent. He has experience of thirty years, and was a fiancée director of Mirror Group. So the fulfilment of the compliances of the eligibility of the chairman of the audit committee is done. Caroline Goodall, Francis Salway and Damme Dianne Thompson are the another major members of the audit committee of the NEXT. They are financially literate and having professional expertise. Thus, the composition of the audit committee is done in the most effective way (Kerber and, 2015).

Remuneration: as per the annual reports the remuneration of the chairman and non executive director is increased by 2% in February 2016, in line with the wider company award. The chairman will be paid the fees of £267,955. The basic fee of the non executive director is £55,168 with a further £11,033 (2015 /16: £10,817) paid to the chairman of the Audit and Remuneration committees respectively so the remuneration compliance of the company is fulfilled.

Interdependence Of The Auditors: As per the given information the members of the audit committee are independent as they are not having any relation with the company and not related with the any employee of the organisation. So it can be said that the members of the audit committee are working in a independent way and are providing a true and fair report of the company (Samaha, Khlifand Hussainey, 2015).

Non Audit Services: The Audit committee's approval is required in advance for the provision of the non audit services if the fee exceeds £100,000 for an individual assignment. The fees for non audit services is £50,000 and it is paid for the competitive tender and decisions which are to be taken for the cost effectiveness and legislation matters. So the auditors are performing their workings as per the compliances of the non audit services. The external auditor of the group is prohibited if they are creating any issue or the provisions are out of the compliances of objectivity or interdependence which are to be followed (Kang, Trotman and Trotman,  2015).


In the above mentioned report role of the audit committee is described. For every listed company it is very important to have the audit committee it is liable for providing a true and fair report of the company. So the compliances of the Audit committee must be fulfilled. Thus it can be concluded that the role of the audit committee is very high in managing and operating the best practices of the entity.


  • Alzeban, A and Sawan, N., 2015. The impact of audit committee characteristics on the implementation of internal audit recommendations. Journal of International Accounting, Auditing and Taxation. 24. pp.61-71.
  • Dobija, D., 2015. Exploring audit committee practices: oversight of financial reporting and external auditors in Poland. Journal of Management & Governance. 19(1). pp.113-143.
  • Kang, Y.J., Trotman, A.J and Trotman, K.T., 2015. The effect of an Audit Judgment Rule on audit committee members’ professional skepticism: The case of accounting estimates. Accounting, Organizations and Society. 46. pp.59-76.
  • Kerber, K.J and, 2015. Counting every stillbirth and neonatal death through mortality audit to improve quality of care for every pregnant woman and her baby. BMC pregnancy and childbirth. 15(2). p.1.
  • Lenz, R and Hahn, U., 2015. A synthesis of empirical internal audit effectiveness literature pointing to new research opportunities. Managerial Auditing Journal. 30(1). pp.5-33.
  • Lord, C., 2016. A democratic audit of the European Union. Springer.
  • Messier Jr, W., 2016. Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education.
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