The Essay Explores Audit Committee's Impact On CSR Disclosure.

You are currently undertaking a student placement at ‘Water Partners’, a top-tier accounting firm, in their Advisory Services area. The Advisory Services area of Water Partners provides services to a diverse range of clients from all sectors of industry, and is comprised of multiple teams, each consisting of four employees. Advisory Services holds weekly meetings, which are attended by colleagues from Advisory Services, the Advisory Services Manager, and the
Advisory Services Partner. One of the tasks required of each team during these weekly meetings is to research a contemporary issue in the field and update the rest of the employees. A separate report written by each of the team members on the results of this research is also submitted to the Advisory Services Manager, which is then available for
future reference.

Each individual team member is required to undertake research beyond the initial reference to address the question posed for your team’s selected topic of investigation and individually submit a complete and thoroughly investigated report which using your own research. Report format: The Individual Report must be in a report format, i.e., the content is split into several logical sections and sub-sections. These sections should include: an executive summary,introduction, main section of the report, conclusion and reference list.

Stakeholder theory: Managerial perspective

Constitution of audit committee is not mandatory for all corporations in Australia. However, it is recommendatory for all entities to constitute audit committees to ensure compliance with the provisions of Corporations Act 2001 and other legislative requirements for corporations established and incorporated in the country. Companies unlike earlier now requires to make disclosures in relation to corporate social responsibilities (CSR) as per the provisions for Corporations Act 2001. The impact of audit committee in CSR disclosure shall be discussed to provide important insight on the topic to the readers in this document.

Stakeholder theory: Managerial perspective: 

Before elaborating on the impact of audit committee in CSR disclosure through stakeholder theory it is only logical to have brief discussion on the stakeholder theory of managerial perspective. Managerial perspective is one of the essential components in stakeholders’ theory. It is about the management of an organization and the view point from the perspective of management (Schwartz, 2017).

Importance of disclosure of corporate social responsibilities: 

Corporations in Australia are obliged to comply with the provisions of Corporations Act 2001. As per the Corporations Act 2001 entities listed in the recognized stock exchange of the country as well as corporations that fulfil certain other conditions must prepare and provide a separate report on matters related to corporate social responsibilities (Dhaliwal et. al. 2014). An entity operating in the society has certain responsibilities towards the society as it is using the resources of the society for its operating purposes.

A corporation has a separate legal entity of its own thus, like any other individual a corporation also has certain responsibilities towards the society that it must fulfil in order to continue its business operations. Corporate social responsibility is as much about complying with legal and statutory requirements as it is about adhering to the social responsibilities (Epstein, 2018).

Audit committee: 

Audit committee is the committee constituted by the listed and entities that fulfil certain required conditions. The audit committee is consisted of independent directors of an entity. The objective of constituting an audit committee by an entity is to provide a supervisory mechanism by an independent audit committee to evaluate whether the entity is complying with the rules and regulations of Corporations Act 2001. Audit committee oversees the regulatory compliance of an entity and make necessary recommendations to the Board of Directors to improve the regulatory compliance requirements (Ioannou and Serafeim, 2017).

The audit committee also independently appraise the financial reporting requirements of the entity to check whether the financial statements have been prepared in accordance with the applicable accounting standards to correctly portray the true and fair picture of an organization. Corporate social responsibilities disclosure requirements include statement by the Board of directors in relation to the preparation of financial statements. The board of directors must state that the financial statements have been prepared in accordance with the mandatory accounting standards to show the true and fair picture of its financial performance and position in these statements (Yakovleva, 2017).    

The audit committee consisted of primarily independent directors must also verify that the internal controls and securities within the organization are proper and effective. These must work effectively throughout the whole period of in order to reduce the risk of fraud and error in preparation of financial statements.

Importance of disclosure of corporate social responsibilities

Corporate social responsibilities report has been made mandatory for certain organizations including listed entities in Australia. The audit committee must independently verify the corporate social responsibilities report of an organization to evaluate the report. The objective of such evaluation of CSR report is to ensure that all aspects of social and corporate responsibilities by an entity have been included in the report. The following are the main points to be covered in CSR report by an entity and the Audit committee is responsible to improve the CSR reporting of an entity (Grayson and Hodges, 2017).

The social initiatives taken by the company: 

A company has a separate legal identity as per the provision of corporate veil of Corporations Act 2001.  It has certain responsibilities towards the society. Taking social initiatives as per the Corporate Social Rules of the act is mandatory by entities of certain type. The audit committee must assess and where necessary guide an organization to help it discharge its responsibilities towards the society in this regard (Appuhami and Tashakor, 2017).

Minimum amount of profit must be used for corporate social responsibility purposes: 

A listed company and level I enterprises are required to spend a minimum amount of profit in certain initiatives which have been specified as CSR activities. The list include use of fund to improve the quality of air and environment, initiatives to uplift the poor, initiatives to improve the quality of education, provide funds for the education of socially backward and poor people, expenditure to improve the quality of life in rural area, and other such expenditures which are meant for social development without any direct benefit to the business of the company. Audit committee will look into the initiatives taken by the entity in this regard and recommend the Board of the company about the ways to expend such minimum funds to comply with the requirements of CSR (Chan, Watson and Woodliff, 2014).

Improving the quality of internal audit: 

The audit committee should cooperate with internal auditors to improve the quality of internal audit of the company. The improvement in quality of internal audit of the company would improve the internal control and securities within an entity. This on the other hand would improve the ability of the company to comply with the corporate social responsibility requirements and the disclosures in CSR report about these initiatives (Elsayih, Tang and Lan, 2018).

Cooperate with external auditors to improve the quality statutory audit: 

Audit committee cooperates with external auditors by providing them with important information about internal controls and securities along with different elements in financial statements to improve the quality of statutory audit. The improvement in quality of statutory audit would improve the ability of the auditor to express appropriate opinion on the financial statements of the company. The disclosures made in relation to corporate social responsibilities shall also be independently verified by the external auditor to provide a correct opinion on the disclosures made by the company (Law Chapple, Chen and Zhang, 2017).

Recommendations and suggestions by the audit committee: 

The audit committee consisted of independent directors have the responsibility to make necessary recommendations to the board of directors an organization to improve different aspects of operations of the organization. Thus, the audit committee has the power to make all necessary recommendations to the directors of the company to improve the CSR disclosures made in the report of Board of Directors of the company (Ali, Frynas and Mahmood, 2017). In addition the audit committee will recommend different steps to be taken by the company to comply with the requirements of CSR as per the Corporations Act 2001. Thus, the audit committee would improve the ability of an organization to comply with the requirements of corporate social responsibilities (Cohen and Simnett, 2014).

Conclusion: 

It is safe to say that though audit committee is not an independent body of an entity and constituted by the board of directors of the entity it has significant impact on the ability of an entity’s compliance with CSR requirements. An entity with audit committee is better positioned to comply with different requirements of CSR disclosures as compared to an entity which does not have an audit committee.

References: 

Ali, W., Frynas, J.G. and Mahmood, Z., 2017. Determinants of corporate social responsibility (CSR) disclosure in developed and developing countries: a literature review. Corporate Social Responsibility and Environmental Management, 24(4), pp.273-294.

Appuhami, R. and Tashakor, S., 2017. The Impact of Audit Committee Characteristics on CSR Disclosure: An Analysis of Australian Firms. Australian Accounting Review, 27(4), pp.400-420. Available at: https://onlinelibrary.wiley.com/doi/abs/10.1111/auar.12170 [Accessed on 4 November 2018]

Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR disclosures. Journal of Business Ethics, 125(1), pp.59-73. Available at: https://link.springer.com/article/10.1007/s10551-013-1887-8 [Accessed on 4 November 2018]

Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), pp.59-74.

Dhaliwal, D., Li, O.Z., Tsang, A. and Yang, Y.G., 2014. Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33(4), pp.328-355.

Elsayih, J., Tang, Q. and Lan, Y.C., 2018. Corporate governance and carbon transparency: Australian experience. Accounting Research Journal, 31(3), pp.405-422.

Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Grayson, D. and Hodges, A., 2017. Corporate social opportunity!: Seven steps to make corporate social responsibility work for your business. Routledge.

Ioannou, I. and Serafeim, G., 2017. The consequences of mandatory corporate sustainability reporting.

Law Chapple, L., Chen, Z. and Zhang, Y., 2017. Sustainability Committee Effectiveness and CSR Assurance.

Schwartz, M.S., 2017. Corporate social responsibility. Routledge.

Yakovleva, N., 2017. Corporate social responsibility in the mining industries. Routledge.