Business Capstone Audit Committee

Question: Discuss about the Business Capstone Audit Committee. Answer: Introduction: The prime purpose of this research study is to scrutinize whether inclusion of diversity in the audit committee has affected the performance level or not. Many studies have mentioned the fact that inclusion of female members on the audit committee can increase the effectiveness of the corporate governance by their ethical and conservative qualities (Liao, Luo and Tang 2015). In fact, inclusion of female members in the audit committee delivers a constructive message to all the capital market participants. Now, financial performance has major impact on the health of the organization that can eventually hamper its survival pattern. For that reason, different organizations focus on initiating different strategies so that it can able to fulfil all the needs of the stakeholders in an appropriate way. In this research study, the prime focus will on the evaluation regarding the kind of impact that diversity can have on the performance level of the audit committee. Furthermore, the research s tudy will also focus on the impact of having female CEO in the effectiveness of the operational process of an organization. For that reason, the research study will focus on conducting in-depth analysis through the formation of effective hypothesis so that it can fulfil all the research objectives in an appropriate manner. The prime aim of the research study is to evaluate the significance of including diversity in the auditing committee or corporate governance on the performance level of the organization. Motivation of the research project: Audit committee always has played a critical part in handling any challenges associated with the corporate governance. In fact, senior management or board of directors rely heavily on the performance level of audit committee for the fulfilment of the organizational responsibilities in an appropriate manner (Nekhili and Gatfaoui 2013). For that reason, maintaining the performance level of audit committee is necessary for handling any corporate governance issue. Now, the research study will try to evaluate the kind of impact that inclusion of diversity can have on the effectiveness of the performance level of the audit committee. Thus, the research is primarily focused towards the effective future implications of the audit committee so that organizations can able to fulfil their responsibilities in an appropriate manner. Research objective: The objectives of the research study are as follows: To evaluate the impact of gender diversity on the effectiveness of the audit committee To describe the impact of including female employees on the quality of the audit reports To highlight the role of diversity within the audit committee in big multinational organizations To evaluate the impact of late payment or reduction of audit fees on the diversified audit committee Content of the research: In this research study, the prime focus has been provided on the audit committee and its associated challenges that can create major impact on the overall business processes. Now, audit committee plays a critical role in every big multinational organization, where they primarily focus on management activities and internal functions of the organization. Thus, the effectiveness of the audit committee depends on successful policies and practices that are developed on fulfilling accounting, operational and regulatory compliances of any major business entity in an appropriate manner (Gul, Hutchinson and Lai 2013). The significance of the research topic is that it is focusing on the evaluation of the impact that inclusion of female corporate executives have on the audit committee. The content of this research study has also focused on highlighting positive and negative aspects of including female representation on audit committee or corporate governance. Thus, the research study is primari ly focused towards identifying the best possible way to handle challenges associated with diversified audit committee and low payment related issues in an appropriate way. H0: Gender diversity does creates impact on the effectiveness level of the audit committee H1: Gender diversity does not creates impact on the effectiveness level of the audit committee As per the article by Abbott, Parker and Presley (2012) corporate governance based on the audit has superior impact on the determinants of the audit fees and audit delays as it highlights on the characteristics, board diligence and expertise. Many studies have highlighted the fact that inclusion of gender diversity has created positive impact on the effectiveness of the audit quality (Cumming, Leung and Rui 2015). It has been assessed that inclusion of gender diversity often allows auditing team to handle any type of sensitive issues in an appropriate manner. Now, the prime objective of forming the auditing committee is to enhance auditing quality so that board of directors does not have to face huge amount challenges in handling internal business environment. However, Fauzi and Locke (2012) have mentioned that the effectiveness of the auditing committee depends on the factors like size, freedom and frequency of the meetings. For that reason, it has become necessary for all the major organizations to focus on providing proper level of freedom to the auditing committee. Now, inclusion of diversified auditing committee will provide that much of freedom so that they can perform they are responsibilities in an appropriate manner. For that reason, inclusion of diversified corporate executives will help the auditing committee to work more freely, which will help to enhance the performance level in an effective way. As per the article by Johnson, Schnatterly and Hill (2012) composition, responsibilities and power would have to be utilized by audit committee to execute responsibilities related to corporate governance in an appropriate manner. It has been assessed that inclusion of diversify corporate executives will help to identify any need of new compliances for the fulfilment of organizational responsibilities in an appropriate way. Furthermore, maintenance of diversity within the committee will allow understanding perspectives of the female employees working in different organization, which will eventually allow board of directors to initiate proper regulations or policies within the organizational structure (Rhode and Packel 2014). Moreover, inclusion of diversity allows business entities to maintain several government initiated policies in an appropriate way. Thus, it actually will allow business entities to remain much more ethical regarding the challenges associated with the international business (Wachudi and Mboya 2012). Inclusion of gender diversity in auditing committee helps to achieve richer information environment and higher earnings quality that only male members cannot able to create in an effective way. It has been assessed that inclusion of gender diversity that improves information environment through the intensive oversight compared to their male counterparts. For that reason, it can be mentioned that inclusion of gender diversity in the auditing committee helps to enhance the effectiveness of the performance level of the auditing committee. H0: Inclusion female corporate executives does creates adverse impact on the quality of the audit reports H1: Inclusion female corporate executives does not creates positive impact on the quality of the audit reports As per the article by Doldor et al. (2012) superior quality audit is describe to enhance reporting quality in diverse contexts. It has been assessed that board of directors can effectively demand and influence the auditors draw superior effort to protect reputation capital, promote shareholder interest and avoid legal liabilities in an appropriate way. Inclusion of female employees can help auditing committee to reassure minority shareholders and enhance the reporting quality, which will help to enhance the quality of the audit reports. Furthermore, inclusion of female corporate executives can enhance the reporting quality of a politically connected business entities and thereby protect the investors in an effective way. As per the article by Dunn (2012) gender diversified boards are more likely to utilize external auditing as the prime mechanism to enhance quality of the auditing report. Studies in Psychology, Sociology and Finance exhibits the fact that boards with female directors discuss unpalatable and more difficult issues compared boards with all-male in an effective way. As per the article by Qi and Tian (2012), inclusion of female corporate executives often allows to bring perspective to the different board meetings that are completely different from those with only male directors. However, inclusion of more perspectives demands more credibility and objectivity in the supporting information. Thus, higher quality auditors render dissemination and generation of trustable information through its certification and verification process. Furthermore, inclusion of gender diversified committee enhance the information environment and earnings quality in an appropriate way. As highlighted by Adesua Lincoln and Adedoyin (2012) gender diverse committee are more likely to achieve those outcomes by incentivizing specialist auditors and engaging them to exert superior effort in an effective way. Particularly, gender diverse board of directors enhances audit quality by engaging with the external auditors so that all the challenges associated with the compliance pol icies in an appropriate manner. From the past few years record, it is evident that audit committee with female directors often demand higher quality audit that require more effort from the auditors. Thus, it indicates the fact that inclusion of female director increases the quality required in the audit report so that internal environment can be handled in an appropriate way. On the other hand, Abdullah (2014) have highlighted the fact that inclusion of female director on the audit committee also help to handle any internal issues in an effective way. However, it has been estimated that diversify boards increases the audit fees by up to 5%, which can create challenges for the prime business organizations to fulfil all the requirements of the operational process (Chapple, Kent and Routledge 2012). H0: Diversified audit committee does play significant role in big multinational organizations H1: Diversified audit committee does not play significant role in big multinational organizations As per the article by Hafsi and Turgut (2013) significance of including women in the corporate board of directors is still not been evaluated in an appropriate manner. In fact, the scarcity of female working as directors is a well-established fact. Survey reports have highlighted the fact that female employees occupy around 17% of the total board seats (Butler 2012). As a result, females often get very little opportunity to create major impact on the policies and procedures of the multinational organizations. However, several organizations are trying to include diversity in the corporate governance or auditing team so that they can able to initiate effective compliance policies and procedures in an appropriate way. For that reason, Larkin, Bernardi and Bosco (2012) have highlighted that if females are provided with more opportunities in the corporate governance position, they can handle the challenges in a much more effective way. Moreover, women are completely different in terms of leadership style and attitude towards risks and ethics. As a result, it provides big multinational organizations new perspective to handle the challenges associated with compliances in an appropriate manner. On the other hand, Buniamin et al. (2012) have highlighted the fact that women are much more risk averse compared to any men in taking major financial decisions. For that reason, it can be expected that inclusion of female directors in the audit committee to take practical decisions in an effective way. As a result, multinational organizations do not have to face any major internal challenges to conduct their business in the global market. However, Schwartz-Ziv (2013) have argued that effectiveness of the financial performance depends on the operations and policies in monetary terms. Therefore, minimizing challenges associated with the internal process does not establish the fact that inclusion of gender diversity can actually help to enhance the performance level in an appropriate manner. Still, if challenges associated with the compliances and policies can be minimized, it will definitely help multinational organizations to handle challenges in an appropriate way (Upadhyay and Zeng 2014). Now, as the inclusion of gender diversity increase the required auditing fees of the organizations, it also can actually create few challenges to conduct all the business activities effectively. H0: Late payment or reduction of audit fees does affects the performance level on the diversified audit committee H1: Late payment or reduction of audit fees does not affect the performance level on the diversified audit committee As per the article by Kaczmarek, Kimino and Pye (2012), audit fees can be explained through the governance mechanism, although it might not able to provide any conclusion that kind of impact audit fees can have on the performance level of the diversified audit committee. Different factors can actually create major impact on the overall performance level of the diversified audit committee. For instance, the demand impact that eventually leads to positive relationship between audit costs and governance. On the other hand, the risk affect exhibits an inverse relationship because organizations with proper governance will have superior quality of monitoring mechanisms. As per the article by Thiruvadi (2012), efficient financial system positively encourages organizations to cover all aspect of the internal factor in an effective manner. For that reason, it has become necessary for the prime organizations to handle cost associated with audit in an appropriate way. As per the article by Ntim (2015), unpaid audit fees can affect independence perspective of the auditors that can eventually affect the overall performance level. Now, audit fee represents the total amount of fee covered for the auditors. Now, the amount of audit fee depends on several factors including complexity of the auditing process and size of the client. Therefore, it is expected that process that is more complex will eventually results into higher audit fees. Furthermore, risk is another prime factor that also can have major impact on the auditing fees. As mentioned earlier, utilization of gender diversity in the auditing committee increases the fees level in a major way. For that reason, several organizations have tried to reduce the amount of fees that have to be paid to the auditors so that all the responsibilities of the internal process can be completed in an appropriate way. Now, Mahadeo, Soobaroyen and Hanuman (2012) have highlighted that effective and proper payment o f audit fees is necessary to evaluate all the factors associated with policies and compliances in an appropriate way. Otherwise, auditors might not provide desired amount of effort for evaluating different factors associated with the auditing process in an appropriate way. Thus, it has highlighted the fact that organizations need to provide effective level of audit fees to the diversified committee in order to ensure all aspect of auditing covered in an effective manner. Literature gap: The above discussion has highlighted the fact that inclusion of gender diversity in audit committee or corporate governance team can help to handle several challenges in an appropriate manner. The study has also highlighted the fact that inclusion of gender diversity in the auditing committee can actually help to develop compliance policies in an appropriate way. However, inclusion of female directors is still an extremely new concept. For that reason, not much study has been developed on estimating the kind of impact that diversified team can have on the overall performance level of the audit committee. 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