What is an Effective Audit, and How Can You Tell?

The Combined Code requires that audit committees conduct an annual evaluation of the effectiveness of the audit process. In order for this to be done properly, committees need to determine what they mean by effectiveness, and to implement appropriate procedures for the evaluation. Audit effectiveness means different things to different people. Formal definitions revolve around the quality, competence, procedures and independence of the audit firm. In practice, the effective audit is less easy to identify than the ineffective audit. However, the latter may only come to light if problems surface at some future time. If there are no underlying problems, the fact that an audit was ineffective may not be apparent. The output of an audit is in the form of a series of reports and presentations. To some extent, the effectiveness of the audit is judged on these, and on the level of service given by the audit firm. The outcome of an effective audit includes financial statements that present a true and fair view, and advice on how the company's processes may be improved. An effective audit is completed to schedule, and with minimal disruption to the company. Prerequisites for an effective audit are an effective audit firm and team. The firm needs sound procedures; the team needs an understanding of the company and industry, together with judgement, objectivity and independence of mind. Some audit committees use checklists as a means to evaluate the effectiveness of their audits. Others choose to do the evaluation in a less formal way, by means of a discussion. In either case, the input of management is essential to the process, as the audit committee members are at a remove from the detail of the audit process. Increased regulation over the past few years has led to pressure on auditors. There is some fear that too much time is being spent on boilerplate and audit checklists, in order to meet review requirements. Audit working papers have improved, but not necessarily audit effectiveness. There is a commercial requirement for auditors to keep fees down, by working more efficiently. However, this must not lead to the audits being less effective

Star Formation and Gas Dynamics in Galactic Disks: Physical Processes and Numerical Models

Star formation depends on the available gaseous "fuel" as well as galactic environment, with higher specific star formation rates where gas is predominantly molecular and where stellar (and dark matter) densities are higher. The partition of gas into different thermal components must itself depend on the star formation rate, since a steady state distribution requires a balance between heating (largely from stellar UV for the atomic component) and cooling. In this presentation, I discuss a simple thermal and dynamical equilibrium model for the star formation rate in disk galaxies, where the basic inputs are the total surface density of gas and the volume density of stars and dark matter, averaged over ~kpc scales. Galactic environment is important because the vertical gravity of the stars and dark matter compress gas toward the midplane, helping to establish the pressure, and hence the cooling rate. In equilibrium, the star formation rate must evolve until the gas heating rate is high enough to balance this cooling rate and maintain the pressure imposed by the local gravitational field. In addition to discussing the formulation of this equilibrium model, I review the current status of numerical simulations of multiphase disks, focusing on measurements of quantities that characterize the mean properties of the diffuse ISM. Based on simulations, turbulence levels in the diffuse ISM appear relatively insensitive to local disk conditions and energetic driving rates, consistent with observations. It remains to be determined, both from observations and simulations, how mass exchange processes control the ratio of cold-to-warm gas in the atomic ISM.Comment: 8 pages, 1 figure; to appear in "IAU Symposium 270: Computational Star formation", Eds. J. Alves, B. Elmegreen, J. Girart, V. Trimbl

The relationship between non-audit service fees and audit fees in the banking sector in Malaysia

The issue of audit fees and non-audit fees charged by the audit firms has been discussed regularly in accounting and auditing literature. Recently, due to the corporate scandals in United States, the issue is discussed together with a host of revelations about audit failures that led to the companies’ demise. The auditing profession is being badly blamed and some suggest that this could be due to the audit firm’s reliance more on non-audit services rather than the audit itself. Therefore, this study attempts to probe the situation in Malaysia using the banking sector as the subject of interest. Specifically, it tries to examine the impact of non-audit services conducted by audit firms to these banks on audit fees. The results showed that the variable of non-audit fees is statistically significant in determining audit fees as predicted. Further sensitivity analysis showed that the results are robust to different measurements and company size

On the structure of the turbulent interstellar atomic hydrogen. I- Physical characteristics

{We study in some details the statistical properties of the turbulent 2-phase interstellar atomic gas.{We present high resolution bidimensional numerical simulations of the interstellar atomic hydrogen which describe it over 3 to 4 orders of magnitude in spatial scales.}{The simulations produce naturally small scale structures having either large or small column density. It is tempting to propose that the former are connected to the tiny small scale structures observed in the ISM. We compute the mass spectrum of CNM structures and find that ${\cal N}(M) dM \propto M ^{-1.7} dM$, which is remarkably similar to the mass spectrum inferred for the CO clumps. We propose a theoretical explanation based on a formalism inspired from the Press & Schecter (1974) approach and used the fact that the turbulence within WNM is subsonic. This theory predicts ${\cal N}(M) \propto M ^{-5/3}$ in 2D and ${\cal N}(M) \propto M ^{-16/9}$ in 3D. We compute the velocity and the density power-spectra and conclude that, although the latter is rather flat, as observed in supersonic isothermal simulations, the former follows the Kolmogorov prediction and is dominated by its solenoidal component. This is due to the bistable nature of the flow which produces large density fluctuations even when the rms Mach number (of WNM) is not large. We also find that, whereas the energy at large scales is mainly in the WNM, at smaller scales, it is dominated by the kinetic energy of the CNM fragments.}Comment: Accepted for publication in A&

Internal audit department characteristics/activities and audit fees: Some evidence from Hong Kong firms

This study provides preliminary support for the notion that internal audit function assists in reducing external audit effort and fees. Data on internal audit characteristics and activities are obtained from survey respondents of Hong Kong companies and audit fee model data are acquired from their annual reports. The results of this study suggest that the external auditor of firms in Hong Kong rely on the internal audit function and subsequently charge a lower fee. Lower external audit fees are associated with a larger internal audit department and certain activities carried out by the internal audit. Specifically, lower external audit fees are associated with more internal audit effort spent on activities relating to financial statements, systems development and maintenance, operating efficiency and effectiveness, fraud investigations and unlimited access to internal auditors’ working papers. The results of this study suggest that the contribution of the internal audit may substitute for some substantive external auditing processes and lower monitoring costs

The Effect of Company Size, Solvency and Audit Committee on Delay Audit

Delay in financial reporting, a company complaint. Because the investor no longer believes. Therefore, audit delay needs to be addressed. This study aims to analyze and describe audit delay factors. The research method used is quantitative with secondary data. The populations in this study were all manufacturing companies listed on the Indonesia Stock Exchange. The sample technique used is purposive with the criteria specified are companies those publish audited financial statements for four consecutive years and use the rupiah currency, so the total number of samples in this study is 100 data. Independent variables in this study are company size, solvability and audit committee, variables dependent in this study is audit delay. The data analysis technique used is multiple linear regressions. The results of the analysis show that the solvability variable has a significant effect on audit delay. While the variable size of the company and the audit committee does not have a significant effect on audit dela

Further Education Funding Council : circular : 99/43 : audit of 1998-99 final funding unit claim and of the 1998-99 individualised student record data

"Guidance to heads of institutions and audit committee chairs receiving Council funds in 1998-99 and to external auditors undertaking audits of 1998-99 final funding unit claims and student number returns. Includes guidance on in-year audit checks for 1999-2000. Audit reports requested by 4 February 2000" -- front cover

Philanthropy under the Microscope: A Cost-Benefit Analysis of Small Nonprofits Conducting Financial Statement Audits

External audits are conducted by Certified Public Accountants (CPAs) and ensure the reliability of financial reporting and internal controls of a given organization. Publicly traded corporations are required by the Securities and Exchange Commission (SEC) to conduct a yearly external audit. In addition, some large or government funded not-for-profits must produce audited financial statements upon request. If an organization is not required to conduct an audit, it may still choose to undergo an independent audit. Among those that may voluntarily conduct an audit are small nonprofit organizations. Due to the unique characteristics of small nonprofits, some elements of an external audit may not be feasible; however, there are still advantages provided by this independent evaluation. The decision to conduct or not conduct a voluntary external audit requires the analysis of the engagement’s costs and benefits. The intent of this paper is to present a cost-benefit analysis related to the observable costs, expenses and advantages of conducting an audit within a nonprofit organization

And then there were four: a study of UK market concentration - causes, consequences and the scope for market adjustment

While concentration measures are a good indicator of market structure, the link with competitiveness is more complex than often assumed. In particular, the modern theory of industrial organisation makes no clear statement regarding the impact of concentration on competition - the focus of this paper is concentration and no inferences are made about competitive aspects of the market. The extent and nature of concentration within the UK listed company audit market as at April, 2002 and, pro forma, after the collapse of Andersen is documented and analysed in detail (by firm, market segment and industry sector). The largest four firms held 90 per cent of the market (based on audit fees) in 2002, rising to 96 per cent with the demise of Andersen. A single firm, Pricewaterhouse-Coopers, held 70 per cent or more of the share of six out of 38 industry sectors, with a share of 50 per cent up to 70 per cent in a further seven sectors. The provision of non-audit services (NAS) by incumbent auditors is also considered. As at April 2002, the average ratio of non-audit fees (paid to auditor) to audit fees was 208 per cent, and exceeded 300 per cent in seven sectors. It is likely, however, that disposals by firms of their management consultancy and outsource firms, combined with the impact of the Smith Report on audit committees will serve to reduce these ratios. Another finding is that audit firms with expertise in a particular sector appeared to earn significantly higher nonaudit fees from their audit clients in that sector. The paper thus provides a solid empirical basis for debate. The subsequent discussion considers the implications for companies and audit firms of the high level of concentration in the current regulatory climate, where no direct regulatory intervention is planned