Качество аудита, комитеты совета директоров и результативность деятельности: исследование российских публичных компаний

Nowadays for many companies all over the world it became obligatory to audit the company’s financial statements. For example, in Russia according to the section 5 of the Federal law No307-ФЗ from 30.12.2008 “On audit activities” there is a list of parameters when the audit is mandatory. One of the conditions is that the company is public. As this research is aimed only at the analysis of Russian public companies, we assume that all of them are obliged to pass an audit verification. Moreover, companies (especially public) have strict requirements on the corporate governance system and board structure. However, it is not quite clear whether audit and exact board characteristics are beneficial to the companies or they are just an additional expense item.
To answer this question the author is supposed to study how audit may be organized in the companies (both internal and external), which characteristics of the board are supposed to be effective by the Code of corporate governance, which factors may influence the audit quality, and finally how audit quality and corporate governance relate to the company’s performance. In Russia there are few studies that analyze both the factors influencing the audit quality and at the same time its effect on the performance of the analyzed entity.
As it was mentioned earlier the research will include the analysis of both internal and external audits that companies are involved in and some characteristics of the board (such as independence, organization of special board committees). External audit includes (according to Federal law No307- ФЗ) independent verification of the accounting (financial) statements of the audited entity in order to express an opinion on the reliability of such statements. This one is mandatory for the companies from the sample. By internal audit in this study, we will mean the existence and work of audit committee in the company. Audit committee is formed from the members of the board of directors of the company, mostly includes independent directors and is responsible for the control over the financial statements, oversight of the accounting principles and internal control processes, control over the selection and work of external auditors, and receipt of audit results both internal and external. This one may be voluntary (but for some companies, for example first- and second-level companies at MOEX it is also obligatory).
Moreover, in 2014 Central Bank of Russia introduced Corporate Governance Code that recommends organizing different committees in Russian companies, including audit committee, remuneration committee, and strategy one. The main problem is that after the recommendations Russian public entities started to hastily form revision commissions and audit committees, however, generally they are still formal. Recommendations for other committees are met even more seldom. It
6
is made not to improve company’s efficiency, but to increase the attractiveness for investors because of the common opinion that the existence of such committees raises the transparency of the financial statements of the company and reduces the opportunity of earnings manipulations in the company.
It is obvious that effective audit (here and further we consider both internal and external audits) and corporate governance system should help the companies to timely notice all the wrongdoings and quickly respond to them in order to solve the problems before they are out of the control. Moreover, it must be mentioned that audit quality is assumed to have a considerable impact on the reliability of the financial statements and confidence of their users. However, to conduct a quality audit it is important to understand which factors in the company affect it and, hence, need to be improved. In order to understand this, the author is going to carry out a literature overview and reveal the parameters the improvement of which leads to better audit quality. Moreover, it will be interesting to understand whether there is any relationship between the audit quality and some characteristics of the board and board committees. Thereafter the company performance will also be analyzed to find out which aspects have relationship with the good or, on the contrary, poor audit quality and chosen board characteristics (based on the recommendations of the Code).
The goal of this research is to investigate the relationship between audit quality, board structure and the performance of the Russian public companies.
During the research we would like to address the following questions:
1. What does corporate governance system consist of? We would try to identify the main constituents
of the corporate governance system in Russia and board characteristics for the future research.
2. What does corporate audit consist of? Here it is assumed to analyze the main part of mandatory external audit and study the practice of organizing audit committees in Russia with understanding
of their roles and functions.
3. Which factors affect the audit quality? Answering this question will help to find out which
parameters should be improved in the company in order to raise the audit quality.
4. What is the relationship between audit quality and corporate governance system? This research question will help us to understand whether there is any relation between internal and external
systems.
5. How audit quality itself relates to the company’s performance? We suppose that good audit quality
should lead to higher firm value, cheaper cost of debt and some other benefits. To understand this some literature will be analyzed and research is assumed to be done on the sample of Russian public companies.
To reach this aim and answer the questions in will be necessary to meet the following objectives:
1. Conduct the literature review to ger understanding of the main components of the research: board of directors, board committees, audit and audit quality.
2. Analyze existing researches on the topic of study.
3. Formulate the hypotheses on the relationships between audit quality, board committees and
company’s performance.
4. Conduct the empirical study to check the hypotheses on Russian public companies.
5. Formulate the conclusions and give recommendations to the management and investors based on
the results of the research.
It is expected that the results of this research will give more complete overview of the audit
system and board structure in Russia and provide managers with recommendations on how to organize it in their companies. Is it better to apply for mandatory audit to companies from Big4? Is it necessary to organize audit, remuneration, strategy committees? If yes, should the directors there be independent? Will good audit quality have any relation to the company’s performance? How to improve audit quality? All these and some other questions are expected to be answered in this Master Thesis.
The research will start with the analysis of the structure of corporate governance system in Russia. After that the descriptive analysis of different methods of auditing the company will be presented to get a clear picture of the analyzed topic. In this part we will try to show the main aspects of the internal corporate audit system (audit committee) and external audit. Moreover, we will try to understand the factors that mostly influence the audit quality in the companies. For this goal it will be mainly used literature review.
Finally, the main part of the research will be dedicated to explanatory study, because the focus of this work is on the establishing and explaining the relationships between the board structure, audit quality and company performance. Here the regression modeling will be used. Also, it will be important to generate conclusions with managerial implications so that this research is useful for future decision making about the company’s audit and board structure.
For preparation of this Master Thesis the following information is needed. Firstly, previous studies on the related topics to specify the methodology, variables, models of the research and to formulate the hypotheses. This information can be obtained from the articles, books and documents prepared by such organizations as IAASB. Secondly, it is important to gather quantitative data. At
8

this part such sources as Thomson Reuters can be used. However, it is still important to check the data gathered, even though these sources are considered to be reliable. For that it may be necessary to check financial statements of the companies in the sample. Finally, to obtain data on audit and board characteristics it is also necessary to have access to annual reports of the firms and their audit reports.
It can be preliminarily said what results are expected after conducting the research. We assume to confirm all the hypotheses of the research, so that stakeholders of the company may use information on the board structure and audit quality to get better company results. Moreover, it is expected to define the factors that may affect the audit quality of the company, to compare internal and external audit, and to provide the management with recommendations on how to organize audit and corporate governance systems.
During the work on the Master Thesis some challenges are expected to be faced. One of the most considerable problems that may occur is difficulties with data gathering. Firstly, annual reports of the companies may not be available for the whole period of the research. Secondly, they may not contain complete information. Finally, some information may not be available in open sources. These problems may be solved by deleting the companies from the sample or by their replacement.