project proposal

Financial Statements are relevant and potential factors to change management decisions including manager’s day to day operational decisions. Truthful decision and guidance of management demotes information asymmetry and meliorates the reputation of firm for transparent and credible reporting (Mei, Chan, & McVay, 2009). Auditors articulate a judgment to ensure fairness of financial statements. Acquiring assurance from financial statements users that data are being reported, appropriately deliberated, and evenhandedly presented is important. To increase the dependency of decision makers on pertinent, unbiased and truthful audited financial statements and auditor’s report, auditors have to elevate their skill proficiency. Apart from this, internal control system of company is another factor to affect the quality of Audit reports. However, few regulators from small audit firms deny the statement that size of audit firm affects the audit quality (Husam, Rana, & Abdulhadi, 2013).

Although, wide researches have been conducted, there is no exact definition of Audit Quality available (Dunakhir, 2016). This research aims to determine the factors affecting quality of Audit reports in Australian Banking. The structure of this research assignment is as follows:

This introduction here forming section 1 and followed by problem statement, research objectives, justification of the proposed proposal, and expected outcome that also falls under section 2 and 3 After that section 4 is conceptual framework which is followed by Methodology, section 5 And finally section 6 comprises Organization of the study, Gantt chart and budget required to complete the required proposal.

Quality of Audit can be defined as the concerted probability that an accessible material error can be perceived and then reported by an Auditor (Prawitt, Smith, & Wood, 2008). And that corporate report is one of the vital objectives of corporate reporting that helps users to make decisions. Similarly, auditors play very important role in the encouragement of Public companies and for the development of financial market. In addition to this auditors increase confidence between firm and existing and prospective investors by creating independent opinion to demonstrate true and fair financial picture of the company. So, financial regulators of whole globe always endeavor for the Auditors’ quality reports (Shahzada, Pouwa, Rubbaniy, & El-Temtamy, 2017). As the competition between commercial banks is intense, managers of commercial banks must be concerned to quality reports to improve their performance. Similarly, it leads them to seek for the higher level of audit quality for their performance appraisal. In addition to this, practical concentration on Audit reports may help managers to connect their theoretical ideas with real practice (Al-Khaddash, Al Nawas, & Ramadan, 2013).

Wide research has been conducted but there isn’t exact Audit Quality definition available (Dunakhir, 2016). But, Audit Quality is one of the most influencing factors to determine the performance of firms and impels potentials investors. In an ideal scenario, Quality Audit always restrains the earning image and fairness of firms’ financial activity (Reza & Quraishi, 2015).

Therefore, this research task intents to demonstrate those factors affecting quality of Audit reports. In this research, the targeted area is Australian Banking industry that to check what factors are affecting their Quality Audit Reports.

The Aim of the study is to determine and analyzing the factors affecting Audit Quality reports. Besides this, it will focus on Australian banks for analysis. For this research several journal articles published based on Audit Quality reports will be taken and referred.

Further, it will be concentrated on finding out what exact factors are affecting the Quality of Audit Reports in this sector. Basically, it will try to seek how Internal control, Firm Size and Auditor’s reputation, Auditor’s independence, Auditor Qualifications and proficiency and Industry specialization affect Audit Quality. For this task, Articles and academic research for the past period of ten years will be taken and will assay to detect the answer of the following questions:

1. How Auditor Qualification affects the quality of Audit reports?

2. What is the role of internal control to influence quality of Audit report?

3. How important Auditor’s independency is for quality audit reports?

4. Do firm Size and Auditors’ reputation affect Audit Quality?

5. How industry specialization determines Audit Quality?

These questions aim to answer the research objective that what factors are affecting audit quality and how is their influence is seen in Audit Quality.

After examining the several journal articles, it can be seen that many researchers have contributed their time and proficiency to articulate their finding upon quality audit reports. But, the bankruptcy of Enron and Arthur Andersen, it is being in vogue to comment and making questions to Quality of Audit being prepared by accounting firms. Meanwhile, criticism is made with the reports of big 4 accounting firms- Deloitte, Ernst and Young, PwC and KPMG (Francis, 2010). After this incident, Accounting bodies and policy makers are getting pressure for better corporate management for the implementation and initiation for the practice of better corporate governance practice (Habib & Azim, 2008). So, this project report will try to articulate how given factors are responsible to maintain audit quality in Australian Banks and will adjudicate to supply essential information on research gap.

The resolution of this research will demonstrate how factors affecting audit quality are responsible to change the quality or output of the audit. Companies’ policy and procedure to ensure financial integrity and accounting information are subjected to meet firms’ operational and profitability with transmitting policies of management is known as internal control (University of Washington, 2015). This process is affected by entire body including BOD, management and personnel of the organizations. A body from BOD to ensure appropriate financial reporting and disclosure is conducted inside the firm (Ahmed & Che-Ahmad, 2016). Independent and well structured documented process to gather audit evidence and for its objective assessment the quality of Audit must be ensured for verifying fulfillment of audit criteria. While assuring quality financial reporting and corporate accountability, it also functions as governance mechanism under legal proceeding responsibly (Godwin & Schmulow, 2015). Since Audit committees are designed with the independent directors, those directors can better make enquiry for the depth and breadth inside the internal auditing function (IAF) activities that results improved quality of the organization Audit function. Similarly, Directors of independent nature automatically more objective in evaluating the audit concerns that are later subjected to International Standards for the Professional practice of internal Auditing (ISPPIA) and their concerns with the IAF. Then, it obviously leads to the promotion of higher audit correspondence associated with implication and adoption of standards referencing independent Audit committee. So, it can be said that firms having high quality audit committee will possesses strong internal control that obviously leads to higher quality audit. The point to be noted is that issue of Auditor independence is very crucial to regulators and standard setters (Carson, Fargher, & Zhang, 2016).

Similarly, as compared to small firms, larger Audit firm possesses fewer incentives for compromising their standard to maintain client retention. Also, larger audit firms generally colligate with more accurate information than smaller firms (Alzeban, 20105). As a result they can provide high quality audit. It is anticipated that Big-4 and non-Big-4 audit firms dissent in terms of their audit qualities and implementation capacities. However, the grounds encouraging the deviation in audit qualities between Big-4 and non-Big-4 auditors do not mandatorily connote that, inside the group, quality of audit of different big-4 auditors are same. It means, inside Big-4 auditors, single auditor may possess basically various qualities and enforcement aptitude. Big-4 auditors’ enforcement capabilities and non-Big-4 auditors’ enforcement capabilities also may vary significantly. The bankruptcy of the leading corporate giants such as Enron, HIH, and Tyco at the onset of the current decade and the synchronal financial crisis throughout the world, vibrating the execution of the companies disregarding of their auditors’ quality, motivates public to raise questions about the qualities of the audit firms (Bepari & Mollik, 2015).

Moreover, Independent Audit committee escalates the external auditors’ independence and assures that management does not try to influence activities of Auditors to result their transparency on material statement without any delays. According to Wright and Wright [1997], auditor independence is at the core of the moral soundness of an audit process. If Auditors and clients start negotiate and make issues of financial reporting, asserting the wholeness of the independent audit activities is obligatory to auditors and it is requisite condition to validate standard of the Accounting Profession (ADEYEMI, OKPALA, & DABOR, 2012).

As per DeAngelo[1981], Auditor’s report must be dislodged from material misstatement and it should discover any breaches or error in the statement. This is very important to develop fair Auditing and to acquire Quality Audit. For this purpose, auditors must have management, leadership proficiencies. Similarly, workforce plan, staff management, technical capabilities with required education, working experience, certification of Auditor, social science and scientific investigation expertise, and other distinctive qualification must be possessed by Auditors to enhance quality Audit reports. Besides this, As per DeAngelo “External stakeholders such as investors and regulators use audited financial statement information in their decision making. Because investors are unable to directly observe audit quality and determine whether the reported information is an unbiased indicator of firms' financial performance, auditor reputation serves as an important proxy for the quality and accuracy of client financial statements”.

Also, Auditors who possesses industry ad hoc expertise are finer armored to notice faults or retardations than those auditors without such skills. Carcello and Nagy [2004] came to know that auditors’ industry expertise mitigate financial fraud. Similarly, Solomon et al [1999] propounded that Specialist Auditors possesses more cognition of non-error frequency compared to the non-specialists. All these evidences designate that the quality to sight material misstatement in financial statement is concerned with Auditors’ industry specialization (Husam, Rana, & Abdulhadi, 2013)

While communicating the major improvements in bank auditing in Australia with in a specific time frame, study demonstrates it as a ‘signals of movement’ in the direction of professional dominance which can be identified through several domestic based and time specific literatures. However, some of those improvements were connected with Britain’s circumstances of bank auditing and comparison jurisdictions (Carnegie, 2016).

The above mentioned factors in content section are liable to impact the quality of Audit report in various financial institutions. As per the financial report (2017) of commonwealth bank of Australia, their financial reports that are prepared to disclose the financial picture to the stakeholders and readers for specific financial period are based on Australian Auditing standards, corporate governance, Auditor independence and materiality (Australia, CBA, 2017).

( Internal Control )

( Firm Size )

( Auditor’s Independence ) ( Audit Quality )

( Auditor’s Qualification )

( Industry Specialization )

Figure: 3.1 Conceptual framework

(Extracted from (Husam, Rana, & Abdulhadi, 2013), page: 6)

Audit reports are prepared with implementation of necessary internal control to assure the prepared financial report are providing true and fair view and are liberated from material misstatement either because of error or fraud or not. Similarly, Auditing body, KPMG is independent from ANZ Banking (Reporting body) in accordance with the corporations Act 2001 to maintain Quality Audit report (Australia, ANZ, 2017).

Similarly, As per the independent Auditor’s report to the member of National Australia bank limited provided by Ernst & Young, they are independent of the group in conformance with the Auditor independence requirement of the Corporations Act 2001. Similarly EY has fulfilled their ethical responsibilities as required by code (Annual Financial report, 2017). Also, PricewaterhouseCoopers has performed the audit activity for financial statements within the Westpac 2017 full year financial report and has released a novel audit opinion. In addition to this, regulators such as ASIC, APRA, ACCC, and AUSTRAC are regularly executing reviews regarding investigation for potential misconduct in financial service sector (Full year financial report, 2017).

Hypothesis 1:

H0: Null Hypothesis: Auditor Qualification does not affect the Quality of Audit reports.

H1: Alternative Hypothesis: Auditor Qualification affects the Quality of Audit reports.

Hypothesis 2:

H0: Null Hypothesis: Internal control does not affect the Quality of Audit reports.

H1: Alternative Hypothesis: Internal control affects the Quality of Audit reports.

Hypothesis 3:

H0: Null Hypothesis: Auditor Independence does not affect the Quality of Audit reports.

H1: Alternative Hypothesis: Auditor Independence affects the Quality of Audit reports.

Hypothesis 4:

H0: Null Hypothesis: Industry Specialization does not affect the Quality of Audit reports.

H1: Alternative Hypothesis: Industry Specialization affects the Quality of Audit reports.

Hypothesis 5:

H0: Null Hypothesis: Audit Firm Size does not affect Quality of Audit reports.

H1: Alternative Hypothesis: Audit Firm Size affects Quality of Audit reports.

Under this research purpose, I have conducted only literature review from available journal articles relating to Audit Quality and financial report of different banks in Australia. Most of the research articles are abstracted from Google Scholar, Science direct, SSRN JSTOR, Emerald Journals, CQU library etc. Financial reports are abstracted from respective bank’s official site to clarify conceptual framework.

As the part of qualitative analysis of the selected topic, literature review is chosen here. Literature review is a written document that broadens the previous work as simple review to identify and define the unanswered question obtaining new research. A literature review compounds existing knowledge referring available research issues. This theory compounding issues becomes a basic idea for making logical argumentation and to reach the researcher on a satisfying point as per the issue (Machi & McEvoy, 2009).

Basically, interview/survey is conducted for the purpose of collecting primary source of data. However, interview with the Audit committee members will be conducted for this report to check how several factors are affecting Audit reports in Australian Banks. Those sample questions are given in report Appendix

For the section of sampling design and data analysis, the audit reports of Big-4, Australian banks are analyzed here for this project. Analysis is made to check how several factors such as Auditors Independence, size of the firm etc. are affecting their audit quality. Furthermore, the interview will be taken with the Audit committee members of those banks to ask research question. The interview is conducted with 16 people (10males and 6 females), having 4 members from each bank’s audit committee. The opinion from those Audit committee members will be collected and for further analysis and interpreting interview result for obtaining research objectives NVIVO is used for analysis purpose.

Table 4.1: Respondents in Interview Questionnaire

The research will use both independent and dependent variables. Quality of Audit reports is dependent variable here. Similarly, Audit firm size, Auditor Independence, Auditor qualification, Auditor reputation and Industry Specialization are Independent variables for this research project.

The organization of the study is as follows:

Chapter One consist statement of the problem, research aim/objective and research Question. Statement of problem consist concept of audit quality and how research is concerned with Audit quality.

Chapter Two comprises justification of the project that focuses on how this research topic is conceptualized. Furthermore, it also comprises the expected research result/output section that focuses on how presented factors are responsible to alter the quality of output.

Chapter Three includes a major part of this research project i.e. Conceptual Framework. This section is exemplifying here how those factors are really responding financial reports of some Australian banks to justify the role of presented factors affecting quality of Audit reports.

Chapter Four section comprises the part of methodology used in this project report. It’s also shows project progress Gantt chart and the budget spent to complete this research task.

The following table is prepared to show the timeline illustrating how this research project was

Conducted:

Table 4.2: Project Progress chart

Figure: 4.1 Gantt chart showing Project Progress

The required budget for the proposed research is estimated around $2000 in order for completion. That budget was allocated with in the time fram of ( 28th February 2018-1st June 2018) as given in above Gantt chart.

The budget expenses was made for following reasons:

For the Literature review, I have travelle many times to collect journal articles,books and preiodicals information from home to University Library that accumulates around $800 of travelling cost. Similarly, research of Books, journals, hard copy print for outlining ideas an d online/internet cost is $600.

To maintain Accessibility of charts and Tables and other expanses costs around $600.

The summary of those expenditure is:

References (2015). Retrieved 2018, from University of Washington: https://finance.uw.edu/fr/internal-controls ADEYEMI, S. B., OKPALA, O., & DABOR, E. L. (2012). Factors Affecting Audit Quality in Nigeria. International Journal of Business and Social Science , 3. Ahmed, M. I., & Che-Ahmad, A. (2016). Effects of Board Size, Board Committees Characteristics and Audit Quality on Audit Report Lags. eISSN , 10 (15), 2-6. Al-Khaddash, H., Al Nawas, R., & Ramadan, A. (2013). Factors affecting the quality of Auditing: The Case of Jordanian Commercial Banks. International Journal of Business and Social Science , 4. Alzeban, A. (20105). Influence of audit committees on internal audit conformance with internal audit Standards. Managerial Auditing Journal , 30 (6/7), 2-7. (2017). Annual Financial report. National Australia Bank Limited. Australia, ANZ. (2017). ANNUAL REPORT. Australia and New Zealand Banking Group Limited. Australia, CBA. (2017). Annual Report 2017. Commonwealth Bank of Australia. Bepari, M. K., & Mollik, A. T. (2015). Effect of audit quality and accounting and finance backgrounds of audit committee members on firms’ compliance with IFRS for goodwill impairment testing. Journal of Applied Accounting Research , 16 (2), 2-8. Carnegie, G. D. (2016). The accounting professional project and bank failures: The case of the early 1890 Australian Banking crisis. Journal of Management History , 22 (4), 4-8. Carson, E., Fargher, N., & Zhang, Y. (2014). Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research. Australian Accounting Review , 4 (2), 3-9. Carson, E., Fargher, N., & Zhang, Y. (2015). Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research. Australian Accountoing Review , 4 (2), 3-6. Carson, E., Fargher, N., & Zhang, Y. (2016). Trends in Auditor Reporting in Australia: A Synthesis and Opportunities for Research. Australian Accounting Review , 26, 2-5. Dunakhir, S. (2016). FACTORS ASSOCIATED WITH AUDIT QUALITY: EVIDENCE FROM AN EMERGING MARKET. Second Asia Pacific Conference on Advanced Research , 1. Francis, J. R. (2010). What do we know about audit quality? The British Accounting review , 1-3. (2017). Full year financial report. Sydney: Westpac Group. Godwin, A. J., & Schmulow, A. D. (2015). The Financial Sector Regulation Bill in South Africa: Lessons from Australia. CIFR- Research Working Paper Series , 52 (18), 3. Habib, A., & Azim, I. (2008). Corporate governance and the value-relevance of accounting information: Evidence from Australia. Accounting Research Journal , 21, 1-5. Husam, A.-K., Al Nawas, R., & Ramadan, A. (2013). Factors affecting the quality of Auditing: The Case of Jordanian Commercial Banks. International Journal of Business and Social Science , 4, 2-5. Husam, A.-K., Rana, A. N., & Abdulhadi, R. (2013). Factors affecting the quality of Auditing: The Case of Jordanian Commercial Banks. International Journal of Business and Social Science , 4, 2-6. Machi, L. A., & McEvoy, B. T. (2009). The Literature Review. 4, 2-5. Mei, F., Chan, L., & McVay, S. (2009). Internalcontrolandmanagementguidance. JournalofAccountingandEconomics , 5 (3), 2-5. Prawitt, D. F., Smith, J. L., & Wood, D. A. (2008). Audit effort and earnings management. ScienceDirect: Journal of Accounting and Economics , 45 (7), 2. Reza, N., & Quraishi, M. K. (2015). QUALITY OF BANK AUDIT IN BANGLADESH AND RELATIONSHIP BETWEEN AUDIT QUALITY AND SHARE PRICE. ELK ASIA PACIFIC JOURNAL OF FINANCE AND RISK MANAGEMENT , 6 (2), 2-3. Shahzada, K., Pouwa, T., Rubbaniy, G., & El-Temtamy, D. O. (2017). Audit quality during the global financial crisis: The investors’. ELSEVIER:Research in International Business and Finance , 1, 1-3.

Appendix 1:

Research Questions

Please provide your opinion to the following questions:

1) How internal control of firm affects the Quality of Audit reports?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

2) Does size of Audit firm affects Audit Quality?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

3) Does Auditor Qualification affect Quality of Audit reports?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

4) Does Auditor independence affect Audit Quality?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

5) Does Auditor reputation affect Audit Quality?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

6) Does Industry Specialization of Auditor affect Audit Quality?

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

Appendix 2:

Table showing Link for Secondary Data:

This table shows link of the annual reports of 4 banks. Annual reports in the research are used to demonstrate factors mentioned for Audit process.

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