1.1 Purpose of the study
The purpose of this report outlines the importance and objectives of auditing in companies by involving both the internal and external auditorsâ and also the importance of presenting revised audit reports to the audit committee to avoid collapsing of organizations ensuring independence among every member of stuff in any corporate. As brought out in court decisions and legislation for company audits and investigating the debates concerning auditing independence and limitations of auditing liabilities (Holstrom & Kaplan 2011).
1.2 Issues to be discussed
The Report focuses mainly on the collapse of Onetel Communication Company and its lessons due to poor governance and lac of responsibilities for each member of staff from the board of directors to the auditing committee. It outlines the consequences of directors and executives when they disagree on doing their duties and responsibilities and also to act independently, to give full disclosure both internally, and decision making, to take personal responsibility for the standard of corporate decisions, and to act independently. (Bhagat & Bolton 2008).â
2.1 The role of audit committee
Audit committees are increasingly common in the private and public sector they are a key component in an organizational corporate governance and should not be sidelined when the agendas of a company are been presented. They also share roles alongside the board of governors and directors in a company. In this case, the audit committee of Onetel communications did not have its outlines responsibilities this is because the board would act on its behalf controlling what the auditors should outline in their reports hence this solely contributed to the collapse of the company.
In the event of Onetel outlined in provisional liquidation the board of directors would attend meetings regardless of whether they were appointed in it hence this lead to the ineffectiveness of the audit committee losing its subjectivity and not ensuring proper functionality in the company. Because it acted as an extension of the board and could not exercise their powers. The company had four directors and was from the senior management. The attendance of the directors undermined the roles of the audit committee preventing it from acting independently (New South Wales Supreme Court 2009) .Thus, the audit committee must be nominally independent, active, and have a written charter that is followed and play an active role in considering the accounts and the manner in which current and future activities will be accounted (Tregidga & Milne 2006).
In every organization, everyone should know where he or she stands and what activities he or she is supposed to undertake. They should also be aware of what their superiors are objected to and when they should make decisions considering the entire members of staff and the responsibility they have on the direction of the company. This is to enforce limits on authority ensuring good ethical practices in the company to avoid collapsing the result for lack of these factors was entry into a new misunderstanding among the members of the company. (Mirshekary, Yaftian & Cross 2005).
2.2 Role of internal and external auditing
External auditors act hard and play an important role in ensuring the financial reporting of a specific company especially if the company fulfills the requirements of the public and is a signifance in the national economy. Mak, Deo & Cooper 2005 argue that, a well-conducted audit should enable users of the financial reports of a company to rely upon the accounts with confidence. Therefore, it has not proved that if a company is pronounced insolvent, that it is the mistake of the external auditors because even the internal auditors have their independence that is well stated.
The requirement of internal audit is to outline an objective assessment of a companyâs performance and the effectiveness of its internal control. A well-planned and revised internal audit function can assist a company avoid unreasonable risks. The situation of Onetel communications, internal audit reports received by management was not presented accordingly to the audit committee or the full board (Clarke & Dean 2007).
Instead, the board failed to ensure that the proposals made to bring about change were effective because it is only a summary that were presented to the audit committee that did not follow the details of what the management had prepared. An instance is when the board of directors instructed the secretary to remove an agenda from the outlined agendas of the audit committee and hence scrapped off from the report. According to this report, the board did not actively follow to ensure that the recommendations from the internal auditorâs report were implemented hence creating a major reason to the collapse.
The required objective in this case is that the internal and external auditors should submit their reports to the audit committee directly and not via the board of directors, so that the management do not have an opportunity to delay the reports but submit them to the relevant authorities.
2.3 Corporate Governance and resolving conflict of interest
To find out the role of Onetel communications corporate governance until the time of its collapse, one needs to define corporate governance and the ways of resolving the conflict of interest. Shleifer and Vishnu (2007: 737) define corporate governance as âchannel in which suppliers of finance to Corporations are sure of getting a return on their investment to the specific companyâ. Effective corporate Governance requires an environment where âauthority is exercised with absolute probityâ (Clark and Dean 2007: 64). It requires directors, executive and non-executive, to ask Awkward questions and for the board chair to ensure a proper flow of information to the Directors (Clarke and Dean 2007).
According to OâShea (2005), good governance has six universally accepted practices,
Implicitly or explicitly: (1) a balance of executive and non-executive directors; (2) a clear
Division of responsibilities between the board chair and the chief executive officer; (3)
The provision of timely and quality information to the board; (4) formal and transparent procedures for the appointment of new directors; (5) balanced and understandable financial reporting; and (6) maintenance of a sound internal control system. His observations are similar with the recommendations of good governance by the ASX Corporate Governance Council (CGC). According to ASX CGC (2003), good corporate governance requires (1)timely and planned procedure picture of all the company related material events; (2) balancing between board experience and respective skills; (3) responsible decision-making by Senior managers together with the board of directors; (4) company reporting and integrity; (5) establishing clear roles of management and the board; ; (6) realizing and sampling shareholder rights; (7) managing risk through internal control; (8) integral mechanisms to motivate board and management hard work; (9) ensuring management fairness and equality; and (10) identifying the interestâs of the stakeholders. Thus if this protocals of good governance are applied to Onetel communications, itâs observed that many of its practices did not associate with good governance. Its poor governance that contributed entirely to the collapse of Onetel communications given the reason that its board of directors was not consistence in its roles and responsibilities. Kedia and Philippon (2006), state that during periods of suspicious accounting practice, firms make excessive investments and hire excessive number of employees to pool with high-quality firms. â
This is study on Australian Onetel Communication Company that collapsed in 2001. The company had corporates with the Optus mobile phone service that at that time was its re-seller in 1995. Therefore, what it paid to Optusâ and what it charged its customers determined its profit. Onetel used the strategy of offering cheap calling rates and selling out profitable international calling rates to attract its prospective customers. The audits Report offers many lessons for those who are involved in the running of companies and their audit bodies a well as their advisers. One of the procedures will be to adopt the strategy that was pointed out by Justice Owen that is also adopted by the government. Itâs evident that the audit committee in Onetel communication was of law quality and lacked proper supervision and organization hence it was of law quality audits Carey and Simnett (2006).â
Bhagat, S & Bolton, B 2008, ‘Corporate Governance and Firm Performance’, Journal of Corporate Finance, vol 14, no. 3, pp. 257-273.
Clarke, F & Dean, G 2007, Indecent Disclosure: Gilding the Corporate Lily., Cambridge university press, Cambridge.
Holstrom, B & Kaplan, S 2011, ‘Corporate governance and merger activity in the United States: Making sense of the 1980s and 1990sâ’, The Journal of Economic Perspectives, vol 15, no. 12, pp. 121-124.
Mak, T, Deo, H & Cooper, K 2005, ‘Australiaâs Major Corporate Collapse: Health May the Force Be with You’, Journal of American, vol 6, no. 2, pp. 104-112.
Mirshekary, S, Yaftian, A & Cross, D 2005, ‘Australian Corporate Collapse: The Case of HIH Insurance’, Journal of Financial Services Marketing, vol 9, no. 3, pp. 249-258.
New South Wales Supreme Court 2009, , Australian Securities and Investment Commission v. Rich, New South Wales Supreme Court (NSWSC).
Tregidga, H & Milne, M 2006, ‘From Sustainable Management to Sustainable Development: A Longitudinal Analysis of a Leading New Zealand Environmental Reporter’, Business Strategy and the Environment, vol 15, no. 4, pp. 219-241.
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