Final Business Proposal Discussion Paper

Executive Summary

The financial investment company faces a low audit quality concern that is associated with higher audit risk and inappropriate audit opinion. The problem is linked with unfavorable outcomes to include sanctions, awarded damages, and negative publicity. The low quality audits have negative implications for customer investments through causing low audit reliability that reduces desirability to invest as well as lowering the company’s valuation. The company previously applied two solutions. Firstly, making internal and external audits mandatory improved audit quality by 92.5%. Secondly, getting auditors to explain the audit requirements improved audit quality by 86.6%. The two previous solutions did not achieve the desired objective. Three solutions have been proposed to improve audit quality. Firstly, discussion on audit progress between clients and auditors that is expected to improve audit quality by 91% with a score of 28. Secondly, sharing confidential sensitive information with auditors that is expected to improve audit quality by 70.1% and has a score of 22. Thirdly, contracting ethical external auditors who understand confidential agreements is expected to improve audit quality by 85.1% and has a score of 26. Of the three solutions, discussion on audit progress between clients and auditors has been identified as the best solution since it is expected to improve audit quality by the largest margin and has the highest score. Implementing the proposed will require the involvement of stakeholders who include the company owners, employees, company management, customers, government agencies, investors, and communities. Implementing the solution will apply a change management plan that creates employee buy-in, uses resources, and addresses resistance. The solution will be applied using an audit performance contracting methodology that engages a single audit firm to provide all auditing services. The success of the implemented solution will be evaluated established performance evaluation tools used by the company to include changes in audit evaluation, organization value and intention to invest.

Final Business Proposal

Purpose Statement

Low audit quality is an issue of concern in the financial investment company because it is associated with higher audit risk and inappropriate audit opinion. Low audit quality has been linked with three unfavorable outcomes for the company. Firstly, possibility of sanctions from regulatory bodies such as the Securities Exchange Commission that would link quality with fraud. Secondly, there is a possibility of damages being awarded against the company for breaching its duty to the investing public. Thirdly, negative publicity as investors become less trusting of the company for presenting false or incomplete financial information (Hay et al., 2014). This paper proposes a strategy for improving audit quality at the financial investment company.

Problem Statement

Although capital markets rely on the value of trust with the expectation that published financial statements are to be trusted when making investment decisions, there are instances when these financial statements fall short of expectations, especially when the audits are of low quality (Ojo & Van Akkeren, 2017). This is the case in the present situation in which the company has reported low audit quality as a concern. A root cause analysis of the problem reveals that auditors intentionally presented fraudulent audit figures. Analyzing the reason as to why the auditors presented fraudulent audit figures reveals that they sought to manipulate the company stock. Analyzing why they sought to manipulate the company stocks reveals that they sought to make profits from insider trading. A review of why the auditors were able to manipulate stock reveals that the company did not have an internal-external audit verification system (Okes, 2019).

Low audit quality is an issue of concern in the financial investment company because it is associated with higher audit risk and inappropriate audit opinion. Audit quality shortfalls has implications for the organization through affecting investments. In this case, low quality audits are indicated by low audit reliability with higher figures being matched by greater desirability for investment interests. For that matter, a business organization would always seek to improve its audit reliability as an indication that it has higher audit quality that would then be matched by greater desirability to invest (see Figure 1; Ibrahim & Badawy, 2018).  Final Business Proposal Discussion Paper

Figure 1. Effect on audit reliability on desirability to invest and organization evaluation

Data and Research Findings

The problem of low audit quality has had a profound effect on the company, particularly on investment inflow. In this case, low quality audits are indicated by low audit reliability with higher figures being matched by greater desirability for investment interests. For that matter, a business organization would always seek to improve its audit reliability as an indication that it has higher audit quality that would then be matched by greater desirability to invest (see Figure 1; Ibrahim & Badawy, 2018).

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The company understands that the existing problem is a concern that must be addressed with immediacy. Towards this end, the company had previously applied two solutions with less than favorable results. The first solution was making internal and external audits mandatory. This solution had some positive effects in improving the audit quality by 92.5%, but there were concerns about external auditors accessing confidential information. The second solution was getting auditors to explain their audit requirements. This solution had some positive effect in improving the audit quality by 86.6%, but presented a concern with regards to understanding what they really require (Marques, Santos & Inacio, 2019). In this respect, the company previously applied two solutions that partially improved the audit quality but there is a need for more to be done.

Proposed Solution

Given the present situation, three solutions have been proposed to improve the audit quality. The first proposed solution is holding discussions between clients and auditors on audit progress to facilitate efforts to understand the information being presented, expectations and concerns even before the final audit is offered. This solution is expected to improve audit quality by 91%. The second proposed solution is sharing confidential sensitive information with auditors to ensure that they present an accurate analysis of the company’s financial health. This solution is expected to improve audit quality by 70%. The third proposed solution is contracting ethical auditors who understand confidentiality agreements and can ensure that confidential information shared in the audit preparation is not disclosed to unauthorized persons. This solution is expected to improve audit quality by 85.1% (see Figure 2; McCarthy, Shelmon & Mattie, 2012).

Figure 2. Effect of proposed solutions on audit quality

Additional review of the three proposed solutions reveals that with a solution score of 28, discussion on audit progress between clients and auditors can help in understanding the information being presented, expectations and concerns even before the final audit is offered appears to be the most appropriate solution.  The second ranked solution has a score of 26 and is identified as contracting ethical auditors who understand confidentiality agreements can ensure that confidential information shared in the audit preparation is not disclosed to unauthorized persons. The third ranked solution has a score of 22 and is identified as sharing confidential sensitive information with auditors can help in ensuring that they present an accurate analysis of the organization’s financial health (see Table 1). Of the three proposed solutions, discussion on audit progress between clients and auditors is identified as the best solution since it has the highest perceived positive effect when compared to the other two proposed solutions. As such, the solution to be applied in addressing the audit quality problem is making it a policy to hold discussions on audit progress between clients and auditors help with understanding the information being presented, expectations and concerns even before the final audit is offered.

Stakeholder Analysis and Benefits

A review of the issue of concern reveals that the financial investment company faces audit quality issues. As such, there is a need to develop and apply strategies to improve the quality of its end. Towards this end, a stakeholder analysis was conducted to identify the individuals and groups affects by efforts to address the audit quality issue. As a result, nine stakeholders were identified. The first stakeholder is the company owners whose role is to track the business analytics and metrics, and work with the company’s management to identify and resolve issues. They offer positive support and have a positive influence. They are expected to support the change as it improves audit efforts, but would be concerned about associated costs. Their involvement is motivated by the need to with regulations to continue doing business and earning profits. The second stakeholder is employees who are a vital aspect of the company’s development through functioning within the reasonable terms of their employment contract, serving faithfully, cooperating with the management, accounting for company property, indemnifying the company, and performing their duties with proper diligence and care. They offer positive support and have no influence. They are expected to have a neutral reaction to the change, but would raise concerns about effect on their work. They are motivated by the opportunity to work and continue earning. The third stakeholder is company management who have a leadership role in terms of overseeing workers within the organization, and overseeing the company through contributing to moral, organization and profits. They offer positive support and have positive influence. They are expected to support the change as it improves their management performance, but would present concerns about effect on the bottom line. They are motivated by the opportunity to improve management performance (Bourne, 2016; Eskerod & Jepsen, 2013).

The fourth stakeholder is customers whose role is presenting needs and desires that are satisfied to generate income for the company. The offer positive support and have positive influence. They are expected to support the change since it offers them a clearer picture of the company’s performance, but would raise concerns about how it affects their business interests. They are motivated by expectation to receiving value for their money. The fifth stakeholder is creditors who provide monetary loan, services and goods to the company as a debtor with the promise of future payment. They have a positive influence on the change. They would not support the change as it changes the financial summary of the company, and would raise concerns about how the change affects the company’s financial health. They are motivated by continued financial health of the organization that guarantees them earnings. The sixth stakeholder is government agencies whose role is to regulate business activities through giving permission to form and operation, creating and enforcing contracts, taxation, and protecting customers, investors, employees and environment. They have a positive influence and offer positive support. They would support the change as it enables them to protect other stakeholders and ensures compliance with regulations/legislation. They are motivated by a need to protecting other stakeholders. The seventh stakeholder is investors whose role is to commit capital in the company with the expectation of receiving financial returns at a future data. They have a positive influence on the change. They would be concerned about implications for their investments and whether they would receive financial benefits. They are motivation is financial returns on their investment. The eighth stakeholder is communities whose role is to facilitate smooth execution of company activities, eliminate barriers to selection, source of insight, and offer lasting permission to interact. They offer neutral support and have neutral influence. They would have no reaction to the change as it does not directly affect them. They are motivated by support for their culture and way of life. The final stakeholder is suppliers. They provide high quality services and products at a good price for use or resale by the company. They have neutral influence on the change. They would have no reaction to the change as it does not directly affect them. They are motivated by continued business opportunities (Bourne, 2016; Eskerod & Jepsen, 2013).

Change Management Plan

There are four strategies that will be applied to create employee buy-in. The first strategy is implementing incentives. This is based on the assumption that employees are, at least, partially driven by self-interest. Incentives are anticipated to encourage the employees to accept and engage the change. The second strategy is to redefine organizational cultural value. This strategy is based on the assumption that the employees are social beings who seek to ‘get along’ and ‘fit in’ with the cultural value and norms. Establishing the change as an organizational culture would cause the personnel to support the change as they seek to fit in. The third strategy is to exercise authority through demanding that personnel accept the change. This is a coercive strategy that would unfortunately breed some opposition and resentment. The final strategy is to recruit champions of change. Recruiting frontline workers as champions of the change would help by ensuring that they target their peers by convincing them that the change is beneficial. This helps with speeding up buy-in, lowering resistance, and serving as a mechanism for disseminating information and collecting feedback (Voehl & Harrington, 2016).

Three resources will be needed to implement the solution. The first resource is skills with a focus on ensuring that workers develop the necessary skills to for the change. Without training, worker would lack the skills to successfully navigate the change. Also, they would be more resistant to the change, thus increasing their work anxiety. The second resource is finances to higher the technical expertise to manage the change. The third resource is developing an action plan that translates the vision into specific objectives and goals while assigning desired outcomes, responsibilities and milestones to the change process (Finch, 2012).

There are three methods for addressing resistance. The first method is engaging employees to understand their concerns and alleviate them in a timely manner. The second method is communication through ensuring that the change details are availed early and details are explicitly provided to avoid confusion. The third method is to implement the change in several stages so that the change does not come as a shock (Finch, 2012).

Implementation Methods

The solution to be applied is discussing audit progress between auditors and the company to help in understanding the information being presented, expectations and concerns even before the final audit is offered. The solution is expected to have a positive effect at 91% and solution score of 28, the highest figures when compared to the two other proposed solutions. The solution will be applied using an audit performance contracting methodology that engages a single audit firm to provide all auditing services. This methodology makes use of competitive bidding to identify a competent audit company that is then contracted to provide professional audit services. The use of competitive bidding will include cost and time considerations with a focus on selecting an audit firm that has a good reputation for quality and charges low service costs. The expectation is that regularly scheduled discussions will be held to honestly discuss the audit progress while addressing any questions and concerns. The audit company will deliver a performance guarantee on the audit quality and take responsibility for the end results. The contractual agreement will be based on output-driven results agreed upon. The performance guarantees in the contract will be based on a penalty and bonus scheme (Keith et al., 2016).

This implementation method (outsourcing audit services to a competent audit company through competitive bidding) presents two advantages. Firstly, the contract outsources the technical risks of preparing a high quality audit, something that the company finds difficult to do as evidenced by the prevailing problem. This means that the financial investment company does not take on the performance risks of the audit. Secondly, this is a financially predictable method since it is based on the time and costs identified in the contract (Keith et al., 2016).

Evaluating Success

The organization already has well established tools for assessing the performance of the change/solution. In fact, these tools are the metrics that identified the problem and its solution and would be presented as the performance improvement metric. They include changes in audit evaluation, organization value and intention to invest as the organizational performance and outcomes that the change intended to achieve for the organization. These measures would determine if the implemented change has successfully achieved its objectives (Voehl & Harrington, 2016). In addition to the organizational performance, change management performance would also be evaluation. This make use of evaluation tools that include expenditure within the budget, implementation on time (adherence to timeline), speed of execution, return on investment, and adherence to the change plan (Voehl & Harrington, 2016). Other than the identified tools, individual employee performance would be measured as they are affected by the change. The evaluation tools used include satisfaction surveys, readiness assessment, observation, awareness and understanding of the change, requests for support, error and compliance logs, feedback, engagement measures, proficiency measures, and adherence and compliance reports, utilization reports, and adoption metrics (Voehl & Harrington, 2016). Besides the mentioned tools, the change management activities among personnel will be evaluated through communication effectiveness and deliveries, training attendance and participation numbers, training tests and effectiveness measures, and tracking if the change is conducted according to plan. Also, individual personnel will be evaluated for their success in making the transition through measuring individual progress at the practical level, and measuring cumulative progress to include proficiency, utilization and speed of adoption (Finch, 2012). In this respect, the solution would be evaluated from the three perspectives of organizational performance, change management performance and individual performance.

Conclusion/Call to Action

Low audit quality remains a serious concern for the company despite efforts to address the concern. The very nature of the company relies on trust from high quality audits to increase customer investments. Let’s face it – the company is likely to continue losing customer investments if improvements are not made. However, the proposed solution addresses this concern with anticipated significant increases in customer investments. Given this awareness, it is prudent for the company stakeholders to support efforts to improve the audit quality by applying the proposed solution as presented.

Final Business Proposal

The purpose of this assignment is to finalize an internal business proposal that outlines how you will implement the solution to the problem you have identified in your organization.

Throughout the course, you have completed most of the necessary research and assignments needed to generate the final business proposal. Refer back to the “Business Proposal Project Summary” document in the Topic Materials as needed. The key pieces you will focus on creating are the Executive Summary and the Conclusion/Call to Action.

Using feedback from the assignments in Topics 5-7, create your final business proposal document. It should include each of the pieces listed below.

1. Executive Summary(250 words) provides a short summary of the entire proposal so key stakeholders can see an overview of the proposal and understand it without reading the entire document.
2. Purpose Statement(100-250 words) provides clear statement of why the business proposal is being made.
3. Problem Statement(revised as needed from Topic 1 assignment feedback) including specific data (statistics and numbers) related to how the problem impacts the business. This part of the proposal should include the graph/chart/data you collected in Part 1 of the Topic 2 assignment.
4. Data and Research Findings(250-500 words) should include a summary of what you learned from conducting research related to what has already been done to address the organizational problem. This part of the proposal should include the graph/chart/data you collected in Part 2 of the Topic 2 assignment.
5. Proposed Solution(250-500 words) should include a summary of the top three problem solutions you considered to address the problem. In addition to including the graph/chart/data you collected in Part 3 of the Topic 2 assignment, this section should provide a succinct discussion of the pros and cons of implementing each of the top three solutions being considered to address the problem.
6. Stakeholder Analysis and Benefits(500 words, revised as needed from Topic 3 assignment feedback) summarizes all data and information related to the key stakeholders affected by the proposed problem solution along with a summary of benefits to be gained by stakeholders if the problem solution is implemented.
7. Change Management Plan(250-500 words) clearly articulates specific methods and strategies to be utilized to manage organizational changes associated with the selected solution implementation.
8. Implementation Methods(250-500 words) summarize specific strategies that will used to implement the problem solution, including time and costs associated with implementation of the solution.
9. Evaluating Success(250 words) summarize specific measures you will use to evaluate the success of the problem solution.
10. Conclusion/Call to Action(100 words) provides specific steps you would like key stakeholders and sponsors to take in the implementation of the proposed solution.

It is important to include specific data throughout the business proposal. Include statistics that support the problem statement; can be used to establish and track goals; relate to specifics of implementation, timing, and cost; and illustrate stakeholder benefits. Keep in mind that the proposal is an internal document that will be read by stakeholders within the organization where the problem exists. Focus on this audience as you write. Within the Word document, include subsection titles to organize content according to the categories listed above to provide easy reference points for the reader.

Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.  Final Business Proposal Discussion Paper