The Art of Doing a PhD
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Sabtu, 13 Juni 2009
Kamis, 11 Juni 2009
The Effect of Value Added Auditing to Improve Financial Performance, an Expanding Role of the Registrars
1. INTRODUCTION
1.1. The Demand for Audit Function
It's no exaggeration to say that dramatic changes have occurred recently in business. Enron, WorldCom and a number of other companies have collapsed. The U.S. government has passed laws requiring financial disclosure. And on Aug. 1, 2002, the New York Stock Exchange began requiring all its listed companies to have an internal audit function. Generally, this trend is called value-added auditing. North America's top registrars are also emphasizing value. With today's stock market volatility, investors want higher assurance of company performance. Value-added auditing is so hot that the New York Stock Exchange and the Securities and Exchange Commission now require value-added audits of more than 17,000 listed companies. AOQC Moody International is rapidly moving in this direction.
1.2. Becoming Certified
Becoming certified to an established international standard is one way organizations can prove and publicize their quality control efforts, but the certification process can be long, complicated and expensive. Attaining certification can be an enormous cost to an organization in terms of time spent on preparing for third-party auditing, required reports and related meetings. It's also costly financially. Predictably, organizations want to get the most "bang for their buck." Focusing only on the cost of certification, though, can be a slippery slope. Research proves that certification will help a company maintain and improve its processes and product quality, but the decision to undertake the registration process is a major one that should be carefully considered. Chief among the decisions to be made is how to prepare for the required audits and how to hire a certification body or auditor to guide the company through the process. Choosing based solely on price is a very bad idea. Choosing an inexpensive, commercially driven auditor with little experience in your industry may result in certification, but it almost certainly won't drive the quality and process improvements that the registration is supposed to show. That will cost dearly in the long term. There are also a lot of options: Is it better to hire an independent auditor, or would it be better to retain a certification body that provides one of its own auditors? Does any of this really matter, as long as the certification process is successful? Finally, how much is all this going to cost?
The main research question is whether or not certification body or registrar is effective in driving the Value Added Auditing what factors should be considered to choose certification body or registrar. Are the auditors performing value added service over and above simply auditing, do they have ability to communicate well and partner with the client, do they have consistent interpretation between auditors, etc. Subsidiary research question include whether or not the cost for certification is worth for the result. Does it pay for firm to seek certification or does it contribute to improving financial performance.
2. Literature Review
2.1 Reason for Certification
The reasons for attaining certification are as varied as industry needs. According to a survey conducted by the Independent Association of Accredited Registrars, the main reasons organizations cited for quality management system certification are as follows:
• Customer mandate: 29 percent
• Competitive pressure or advantage: 17 percent
• Continuous improvement based on customer requirements: 16 percent
• Improve quality: 14 percent
Less frequently cited reasons also included "implementation of best practices" (10%) and "corporate mandate" (9%); reduced cost and legal reasons were each cited by 1 percent of respondents. In the IAAR survey, 84 percent of certified companies realized a positive return on their investment (ROI) in certification. Eleven percent of these reported an ROI from their certification of more than 20 percent, 15 percent of organizations had an ROI of 10-20 percent, and 27 percent attained an ROI of 6-10 percent. For 31 percent of respondents, the ROI on certification was 5 percent or less.
Although the bottom line may mean a lot to management, the process improvement that comes with quality certification was also noted by respondents to the IAAR survey. The most frequently named external benefits were "improved perceived quality" (57%), "improved customer satisfaction" (55%), "competitive advantage" (38%), "reduced customer audits" (31%), "increased market share" (11%), and "quicker time to market" (4%). Internal improvements were also cited as benefits of certification, with 73 percent of respondents reporting greater quality awareness and better documentation, 37 percent reporting increased efficiency, 33 percent citing positive cultural change, 12 percent finding improved financial performance and 9 percent reporting improved employee morale.
A comprehensive 2002 study is published by the International Organization for Standardization (Does ISO 9000 Certification Pay? ISO Management Systems July-August 2002) found that improving profit was not the most cited result of certification. Instead, the survey of 7,598 organizations found that internal productivity almost always spikes--and remains improved--when the certification process starts. Firms that don't seek certification, according to the study, saw no such organic process improvement. In other words, the study seems to suggest that if organizations don't make process improvement a priority, business will almost certainly suffer in the long term.
According to the study, non certified organizations experience a substantial loss of productivity and sales compared to certified firms, a gap that widens to 9.9 percentage points three years after certification. The study authors summarize that certified firms avoid the steady erosion of their quality and internal processes that non certified organizations almost always suffer from.
"It seems as if ISO 9001 certification is more often a necessary condition to maintain current performance, rather than a sure-fire way to improve performance," write the study authors. "Our results suggest that failing to seek ISO 9001 certification contributes to gradually worsening performance. This leads us to a seemingly contradictory conclusion: The decision to seek ISO 9001 certification did lead to substantial performance improvement, but it is difficult to justify in advance using a traditional cost-benefit analysis, implying that it has to be based, to some extent, on faith."
Table 1. Top Ten Countries for ISO 9001 Certification
1
China
143,823
2
Italy
98,028
3
Japan
53,771
4
Spain
47,445
5
United Kingdom
44,270
6
Germany
39,816
7
India
24,640
8
France
24,441
10
Australia
16,922
Source: The ISO Survey of Certification 2005
2.2 Types of Certification Body
Nigel Croft, convener of ISO/TC 176 (which oversees the ISO 9000 series of standards and is currently revising ISO 9001 and ISO 9004) went so far as to separate certification bodies into the "good guys" and the "bad guys." "The bad guys are almost completely commercially driven, and only concerned with increasing their market share," Croft says. "The good guys, the ones we need to promote and encourage, consider the needs of their client, as well as the client's customer. They protect the consumer's interest by ensuring that their clients produce well-made products. There are a lot of minimalist organizations out there [that don't care if] bad certification organizations give them certifications that don't mean anything. We need to get angry and get those bad guys out of the business because they are doing us all a disservice."
Finding the balance between these characteristics--detail-oriented and careful without being too tough--can be challenging. Although delivering high-quality, careful audits with attention to detail is supremely important to maintaining a good reputation as an effective quality auditor, very few auditors want the reputation of being nitpicky documentation commandos who make the auditing process a lot more stressful than it needs to be. On the flip side, being too lax with clients--which may result in almost certain certification, with few if any non conformances--isn't any good either. Leaning too far this way could lead into the "bad guy" territory Croft warns against.
The cost of the audit is usually determined by the number of days an auditor or audit team spends on-site. Therefore, the only negotiable part of a rate quote is the auditor's day rate. This fee generally includes the auditor's per diem expenses (for lodging, if necessary, and for meals), and can vary widely. An auditor who has to travel out of town for an on-site audit will naturally cost more, as the client will be responsible for his or her lodging. Auditors with experience in a client's specific industry will also cost more, because their feedback is considered more valuable.
A decade ago, there were approximately 10 certification bodies operating in North America; now, there are almost 100. Worldwide, reports the ANSI-ASQ National Accreditation Board (ANAB), there are more than 750 certification bodies operating. As the market has become more crowded, more auditors and registrars are willing to negotiate on their day rates. This can be good and bad, and clients should be vigilant when selecting an auditor.
2.3 Value Added Auditing
Why should quality auditors pay attention to value-added auditing? We're now officially in a recession, and senior managers don't want surprises. They and their boards of directors are thinking, "Do we have sufficient information and assurance of operational effectiveness internally, as well as with our supply partners, to make robust decisions?"
Internal auditing departments are responsible for conducting value-added audits. Because of recent legislation concerning corporate governance, these reports often go directly to the board of directors' audit committee and indirectly to the chief financial officer. Steve Jameson, the Institute of Internal Auditors' director of technical services, recently had this to say about the new regulations coming out of Congress, the SEC and the NYSE: "Requiring public reporting on internal controls is the grand prize that the internal audit profession has sought for years. The U.S. Congress has now mandated that requirement. The IIA standards and the IIA's value-added mindset for the profession support and promote internal auditors as the key organizational resource for providing assurance about internal controls to the [board of director's] audit committees and management."
Many people think that internal auditing focuses primarily on financial audits. The Institute of Internal Auditors developed a definition of auditing that introduces various elements of value-added auditing: "Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
We can infer a number of value-added auditing "best practices" from that definition. Value-added audits aim to:
Provide independent and/or objective operational analysis
Examine every function, process and activity of an organizational and external value chain
Help an organization achieve its business strategies and objectives
Follow a systematic and disciplined approach in its assessment
Evaluate and improve the effectiveness of risk management, control and governance processes
3. RESEARCH OBJECTIVES
The main research questions are:
· Whether or not Value Added Auditing contributes most to improve financial and operation performance compare to simply compliance auditing and company without certification.
· Are these improvements a direct causal effect of Value Added Auditing?
· Whether or not registrar or certification body is effective in driving the Value Added Auditing.
Figure 1. Relations between cost and value received by the clients
Figure 2. Relations between registrar and improvement in financials KPI
Subsidiary research question includes
· What factors should be considered to choose certification body or registrar. Is the value added auditing the most important criteria that the clients search for registrar.
· Which certification body gives the most value added auditing?
· Whether or not the cost for certification is worth for the result, or does it contribute to improving financial and operation performance.
Figure 3. Categories and Factors influencing decision making to choose registrar
4. RESEARCH STRATEGY
Both quantitative and qualitative methodology will be used in this research.
4.1 Quantitative method
Quantitative method is used to know how many clients registered in certification body, what industry sectors are they come from. Prime sources of information needed to be able to collect data on all ISO 9000 certifications awarded in the UK until 2009. These data will tell the name and location of the site receiving certification, the date of certification, and other information not critical for our study.
To answer first question of research objectives, how clients rate registrar and which registrar certification body gives the most value added auditing, a survey instrument will be developed and faxed to clients. Pre survey interviews will be conducted to 100 randomly selected ISO 9000 registered company, to determine quality dimension and questions to be listed in the form. Data for the study will be collected by means of an analytic questionnaire survey given to the 5000 ISO 9000 registered clients in data base for which it has fax numbered.
These questions cover seven categories: (rating scale ranging from ‘low’ (1) to ‘high’ (5)
· Customer Loyalty, or whether the customer would recommend the registrar to others or purchase its services again;
· Communication, that is, how easy was it to contact the auditor/registrar;
· Value-Added, or added service beyond simply auditing;
· Administration, or audit scheduling and certificate issuance;
· Interpersonal Relationships, or how auditors/registrars deal with clients; and
· Consistent Interpretation.
· Price for certification and surveillance
The questionnaire pack included a cover letter explaining the objectives of the study, the questionnaire, a reply-paid self-addressed envelope, and a letter of support encouraging cooperation in the research from accreditation body.
To examine the effect of ISO 9000 certification on performance, data will be collected from the database of financial information on all publicly traded firms, from 1998 to 2008. Data from database should be ascertained whether it had ever received ISO 9000 certification, and when. This matching proved to be anything but straightforward. To analyze the financial (ROA, EBITDA, COGS, Profitability) and operational performance (inventory turn over, on time delivery) study compares performance of a group of firms that have undergone their first ISO 9000 certification with particular certification body with the performance of a comparable group of firms that did not undergo that event.
By choosing a control group of firms based on having comparable characteristics before receiving ISO 9000 certification, an event study will allow to test whether firms that receive ISO 9000 certification from particular certification body practicing value added auditing and achieve higher performance compare to other certification body that only doing simply compliance auditing and otherwise comparable firms that did not receive any certification.
4.2 Qualitative method
Qualitative method will be used to understand why and how registrar uses Value Added Auditing. Qualitative method which is a kind of communication between the researcher and the respondent (Andersson, 1994) use to investigates how an individual or a group understands a situation by investigating them (Lundahl & Skärvad, 1999). This means that an investigation that will go more in depth than an quantitative method would do i.e. we want to find out why and how This means that an investigation that will go more in depth than an quantitative method would do i.e. we want to find out why and how the registrar practicing value added auditing. First it deals with some theories which is normative and suggests how auditing should be practiced. Later this study describes how some registrars really work with value added auditing. Therefore, this study also can be seen as an explorative study since it aims to explore how registrar work with value added auditing.
Research focused on the four industrial sectors with the largest number of ISO 9000 certificates: SIC codes 28 (chemicals and allied products), 35 (industrial and commercial machinery and computer equipment) and 36 (electronics and other electrical equipment and components), and health care service industries. The registrar that will survey in the research are top five registrar in the countries in term of numbers of customers and certificate that they issued.
5. ANTICIPATED RESULT AND DATA ANALISYS
5.1 Anticipated Result
The results in financial performance for each of the three industries will be shown for certified and non-certified firms in financial performance from t-2 years to t+3 years. The graph also will be shown to compare financial performance of company certified with registrar that practicing value added auditing and company certified with registrar who only provide simply compliance auditing and company who doesn’t registered for any certificate. Who give the most influence in clients bottom line result?
Correlation between value added auditing received by the clients and its financial performance will be measured. Company registered with the value added auditing certification body is predicted to increase significantly in financial performance.
Each quality dimension asked in the questionnaire will also be measured using correlation analysis. The highest correlations are expected between customer loyalty and value added auditing. The result to rating and benchmark registrar will be shown in the graph. Who is the top rank registrar perceived by the clients and what criteria they have been valued?
It is also expected that firms will experience significantly better performance after deciding to seek their first ISO 9000 certification than a control group of firms with similar performance prior to that decision, and even more better if they certified with value added auditing certification body. Changes are expected directly or indirectly, led to relative improvements in financial measurement: ROA, both through superior cost control and higher sales.
5.2 Data Analysis
To analyze the data collected from two independent samples: Value Added Auditing and Compliance Auditing and its impact to Improvement in Financial performance; z test will be used to test the hypothesis for the following purpose
· To know that registrar will give improvement in financial indicator compare to those who doesn’t go for any certificate, and
· To know that value added auditing give better improvement in financial indicators compare to compliance auditing.
To know whether there is a significant variance between improvements in financial performance over time in value added auditing and compliance auditing, the F test will be used.
The satisfaction data from questionnaire that received from 4 groups of customers will be counted for its average, and to check the differences between average score for each registrar, ANOVA is run on all the construct variables measured in the questionnaire.
Reliability and validity checks for the two composite variable measures employed in the study, that is, Value Added Auditing and Financial Performance, are performed through correlation and regression coefficients, and goodness-of-fit statistics.
6. PROGRAM SCHEDULLE AND BUDGET
6.1 Program Schedule
In duration, the research project will be conducted within 3 years (from 1 September 2009 to 30 November 2012). Research will take place in UK / Australia
No
Activity
Year
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
H1 2012
1
Search for Related Literature and selection of the topic
2
Definition of the Problem and Objectives
3
Selection of Methodology
4
Check the availability and accessibility of resources
5
Write the draft of the proposal
6
Prepare tools, and interview schedule
7
Select the study sample
8
Conduct research proper
9
Administer research tools
10
Do the assessment techniques
11
Gather and analyze results
12
Interpret findings
13
Preparation of the final report
14
Formulation of conclusions and recommendations
15
Editing and Final Formatting
6.2 Budget
The research will be fully funded by scholarship of UK/ Australian government. However if the funds have not been acquired the money will be self payment. Total budget is 10,000 US$. The budget will include (US$):
costs for printing questionnaires 1, 000
mailing questionnaires 1, 000
costs for follow-ups or return (mailing, telephoning, envelopes) 1, 000
cost for interviewing (traveling within UK/Australia) 5, 000
cost for printing documents 2, 000
7. References and Bibliography
(1) John H. Johnson Value Added Auditing, First presented at the 1995 ASQ National Audit Conference, Baltimore
(2) Greg Hutchins, Value Added Auditing, Your Best Assessment Tools, Quality Digest Magazine, page 16- 17, October 2002
(3) Patricia D. Carden, Ph.D.; Lawrence S. Aft; and Dirk Dusharme, Rating the Registrar, Quality Digest Magazine, page 23-24, July 2001
(4) Laura Smith, The Hidden Cost of Cheap Certification, Quality Digest Magazine, page 19-20, May 2007
(5) Charles J Corbett, Maria J Montes, David A Kirsch, Maria Jose Alvarez-GIL, Does ISO 9000 certification pay ? Special Report ISO Management System, page 31-40, August 2002
(6) Dr Roy Rimington, Value Added Auditing Techniques – Putting the icing on the cake, Public Service Centre for Organizational Excellence, 2004
(7) Charles A Mills, A Management Evaluation Tools, Mc Graw Hill, 1989
(8) Scott Parsowith, Fundamental of Quality Auditing, ASQC, 1995
(9) Dennis R Arter, Quality Audits for Improved Performance, ASQC, 2003
(10) Sid Kemp, Quality Management Demystified, McGraw-Hill Professional Publishing, December 2005
1.1. The Demand for Audit Function
It's no exaggeration to say that dramatic changes have occurred recently in business. Enron, WorldCom and a number of other companies have collapsed. The U.S. government has passed laws requiring financial disclosure. And on Aug. 1, 2002, the New York Stock Exchange began requiring all its listed companies to have an internal audit function. Generally, this trend is called value-added auditing. North America's top registrars are also emphasizing value. With today's stock market volatility, investors want higher assurance of company performance. Value-added auditing is so hot that the New York Stock Exchange and the Securities and Exchange Commission now require value-added audits of more than 17,000 listed companies. AOQC Moody International is rapidly moving in this direction.
1.2. Becoming Certified
Becoming certified to an established international standard is one way organizations can prove and publicize their quality control efforts, but the certification process can be long, complicated and expensive. Attaining certification can be an enormous cost to an organization in terms of time spent on preparing for third-party auditing, required reports and related meetings. It's also costly financially. Predictably, organizations want to get the most "bang for their buck." Focusing only on the cost of certification, though, can be a slippery slope. Research proves that certification will help a company maintain and improve its processes and product quality, but the decision to undertake the registration process is a major one that should be carefully considered. Chief among the decisions to be made is how to prepare for the required audits and how to hire a certification body or auditor to guide the company through the process. Choosing based solely on price is a very bad idea. Choosing an inexpensive, commercially driven auditor with little experience in your industry may result in certification, but it almost certainly won't drive the quality and process improvements that the registration is supposed to show. That will cost dearly in the long term. There are also a lot of options: Is it better to hire an independent auditor, or would it be better to retain a certification body that provides one of its own auditors? Does any of this really matter, as long as the certification process is successful? Finally, how much is all this going to cost?
The main research question is whether or not certification body or registrar is effective in driving the Value Added Auditing what factors should be considered to choose certification body or registrar. Are the auditors performing value added service over and above simply auditing, do they have ability to communicate well and partner with the client, do they have consistent interpretation between auditors, etc. Subsidiary research question include whether or not the cost for certification is worth for the result. Does it pay for firm to seek certification or does it contribute to improving financial performance.
2. Literature Review
2.1 Reason for Certification
The reasons for attaining certification are as varied as industry needs. According to a survey conducted by the Independent Association of Accredited Registrars, the main reasons organizations cited for quality management system certification are as follows:
• Customer mandate: 29 percent
• Competitive pressure or advantage: 17 percent
• Continuous improvement based on customer requirements: 16 percent
• Improve quality: 14 percent
Less frequently cited reasons also included "implementation of best practices" (10%) and "corporate mandate" (9%); reduced cost and legal reasons were each cited by 1 percent of respondents. In the IAAR survey, 84 percent of certified companies realized a positive return on their investment (ROI) in certification. Eleven percent of these reported an ROI from their certification of more than 20 percent, 15 percent of organizations had an ROI of 10-20 percent, and 27 percent attained an ROI of 6-10 percent. For 31 percent of respondents, the ROI on certification was 5 percent or less.
Although the bottom line may mean a lot to management, the process improvement that comes with quality certification was also noted by respondents to the IAAR survey. The most frequently named external benefits were "improved perceived quality" (57%), "improved customer satisfaction" (55%), "competitive advantage" (38%), "reduced customer audits" (31%), "increased market share" (11%), and "quicker time to market" (4%). Internal improvements were also cited as benefits of certification, with 73 percent of respondents reporting greater quality awareness and better documentation, 37 percent reporting increased efficiency, 33 percent citing positive cultural change, 12 percent finding improved financial performance and 9 percent reporting improved employee morale.
A comprehensive 2002 study is published by the International Organization for Standardization (Does ISO 9000 Certification Pay? ISO Management Systems July-August 2002) found that improving profit was not the most cited result of certification. Instead, the survey of 7,598 organizations found that internal productivity almost always spikes--and remains improved--when the certification process starts. Firms that don't seek certification, according to the study, saw no such organic process improvement. In other words, the study seems to suggest that if organizations don't make process improvement a priority, business will almost certainly suffer in the long term.
According to the study, non certified organizations experience a substantial loss of productivity and sales compared to certified firms, a gap that widens to 9.9 percentage points three years after certification. The study authors summarize that certified firms avoid the steady erosion of their quality and internal processes that non certified organizations almost always suffer from.
"It seems as if ISO 9001 certification is more often a necessary condition to maintain current performance, rather than a sure-fire way to improve performance," write the study authors. "Our results suggest that failing to seek ISO 9001 certification contributes to gradually worsening performance. This leads us to a seemingly contradictory conclusion: The decision to seek ISO 9001 certification did lead to substantial performance improvement, but it is difficult to justify in advance using a traditional cost-benefit analysis, implying that it has to be based, to some extent, on faith."
Table 1. Top Ten Countries for ISO 9001 Certification
1
China
143,823
2
Italy
98,028
3
Japan
53,771
4
Spain
47,445
5
United Kingdom
44,270
6
Germany
39,816
7
India
24,640
8
France
24,441
10
Australia
16,922
Source: The ISO Survey of Certification 2005
2.2 Types of Certification Body
Nigel Croft, convener of ISO/TC 176 (which oversees the ISO 9000 series of standards and is currently revising ISO 9001 and ISO 9004) went so far as to separate certification bodies into the "good guys" and the "bad guys." "The bad guys are almost completely commercially driven, and only concerned with increasing their market share," Croft says. "The good guys, the ones we need to promote and encourage, consider the needs of their client, as well as the client's customer. They protect the consumer's interest by ensuring that their clients produce well-made products. There are a lot of minimalist organizations out there [that don't care if] bad certification organizations give them certifications that don't mean anything. We need to get angry and get those bad guys out of the business because they are doing us all a disservice."
Finding the balance between these characteristics--detail-oriented and careful without being too tough--can be challenging. Although delivering high-quality, careful audits with attention to detail is supremely important to maintaining a good reputation as an effective quality auditor, very few auditors want the reputation of being nitpicky documentation commandos who make the auditing process a lot more stressful than it needs to be. On the flip side, being too lax with clients--which may result in almost certain certification, with few if any non conformances--isn't any good either. Leaning too far this way could lead into the "bad guy" territory Croft warns against.
The cost of the audit is usually determined by the number of days an auditor or audit team spends on-site. Therefore, the only negotiable part of a rate quote is the auditor's day rate. This fee generally includes the auditor's per diem expenses (for lodging, if necessary, and for meals), and can vary widely. An auditor who has to travel out of town for an on-site audit will naturally cost more, as the client will be responsible for his or her lodging. Auditors with experience in a client's specific industry will also cost more, because their feedback is considered more valuable.
A decade ago, there were approximately 10 certification bodies operating in North America; now, there are almost 100. Worldwide, reports the ANSI-ASQ National Accreditation Board (ANAB), there are more than 750 certification bodies operating. As the market has become more crowded, more auditors and registrars are willing to negotiate on their day rates. This can be good and bad, and clients should be vigilant when selecting an auditor.
2.3 Value Added Auditing
Why should quality auditors pay attention to value-added auditing? We're now officially in a recession, and senior managers don't want surprises. They and their boards of directors are thinking, "Do we have sufficient information and assurance of operational effectiveness internally, as well as with our supply partners, to make robust decisions?"
Internal auditing departments are responsible for conducting value-added audits. Because of recent legislation concerning corporate governance, these reports often go directly to the board of directors' audit committee and indirectly to the chief financial officer. Steve Jameson, the Institute of Internal Auditors' director of technical services, recently had this to say about the new regulations coming out of Congress, the SEC and the NYSE: "Requiring public reporting on internal controls is the grand prize that the internal audit profession has sought for years. The U.S. Congress has now mandated that requirement. The IIA standards and the IIA's value-added mindset for the profession support and promote internal auditors as the key organizational resource for providing assurance about internal controls to the [board of director's] audit committees and management."
Many people think that internal auditing focuses primarily on financial audits. The Institute of Internal Auditors developed a definition of auditing that introduces various elements of value-added auditing: "Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."
We can infer a number of value-added auditing "best practices" from that definition. Value-added audits aim to:
Provide independent and/or objective operational analysis
Examine every function, process and activity of an organizational and external value chain
Help an organization achieve its business strategies and objectives
Follow a systematic and disciplined approach in its assessment
Evaluate and improve the effectiveness of risk management, control and governance processes
3. RESEARCH OBJECTIVES
The main research questions are:
· Whether or not Value Added Auditing contributes most to improve financial and operation performance compare to simply compliance auditing and company without certification.
· Are these improvements a direct causal effect of Value Added Auditing?
· Whether or not registrar or certification body is effective in driving the Value Added Auditing.
Figure 1. Relations between cost and value received by the clients
Figure 2. Relations between registrar and improvement in financials KPI
Subsidiary research question includes
· What factors should be considered to choose certification body or registrar. Is the value added auditing the most important criteria that the clients search for registrar.
· Which certification body gives the most value added auditing?
· Whether or not the cost for certification is worth for the result, or does it contribute to improving financial and operation performance.
Figure 3. Categories and Factors influencing decision making to choose registrar
4. RESEARCH STRATEGY
Both quantitative and qualitative methodology will be used in this research.
4.1 Quantitative method
Quantitative method is used to know how many clients registered in certification body, what industry sectors are they come from. Prime sources of information needed to be able to collect data on all ISO 9000 certifications awarded in the UK until 2009. These data will tell the name and location of the site receiving certification, the date of certification, and other information not critical for our study.
To answer first question of research objectives, how clients rate registrar and which registrar certification body gives the most value added auditing, a survey instrument will be developed and faxed to clients. Pre survey interviews will be conducted to 100 randomly selected ISO 9000 registered company, to determine quality dimension and questions to be listed in the form. Data for the study will be collected by means of an analytic questionnaire survey given to the 5000 ISO 9000 registered clients in data base for which it has fax numbered.
These questions cover seven categories: (rating scale ranging from ‘low’ (1) to ‘high’ (5)
· Customer Loyalty, or whether the customer would recommend the registrar to others or purchase its services again;
· Communication, that is, how easy was it to contact the auditor/registrar;
· Value-Added, or added service beyond simply auditing;
· Administration, or audit scheduling and certificate issuance;
· Interpersonal Relationships, or how auditors/registrars deal with clients; and
· Consistent Interpretation.
· Price for certification and surveillance
The questionnaire pack included a cover letter explaining the objectives of the study, the questionnaire, a reply-paid self-addressed envelope, and a letter of support encouraging cooperation in the research from accreditation body.
To examine the effect of ISO 9000 certification on performance, data will be collected from the database of financial information on all publicly traded firms, from 1998 to 2008. Data from database should be ascertained whether it had ever received ISO 9000 certification, and when. This matching proved to be anything but straightforward. To analyze the financial (ROA, EBITDA, COGS, Profitability) and operational performance (inventory turn over, on time delivery) study compares performance of a group of firms that have undergone their first ISO 9000 certification with particular certification body with the performance of a comparable group of firms that did not undergo that event.
By choosing a control group of firms based on having comparable characteristics before receiving ISO 9000 certification, an event study will allow to test whether firms that receive ISO 9000 certification from particular certification body practicing value added auditing and achieve higher performance compare to other certification body that only doing simply compliance auditing and otherwise comparable firms that did not receive any certification.
4.2 Qualitative method
Qualitative method will be used to understand why and how registrar uses Value Added Auditing. Qualitative method which is a kind of communication between the researcher and the respondent (Andersson, 1994) use to investigates how an individual or a group understands a situation by investigating them (Lundahl & Skärvad, 1999). This means that an investigation that will go more in depth than an quantitative method would do i.e. we want to find out why and how This means that an investigation that will go more in depth than an quantitative method would do i.e. we want to find out why and how the registrar practicing value added auditing. First it deals with some theories which is normative and suggests how auditing should be practiced. Later this study describes how some registrars really work with value added auditing. Therefore, this study also can be seen as an explorative study since it aims to explore how registrar work with value added auditing.
Research focused on the four industrial sectors with the largest number of ISO 9000 certificates: SIC codes 28 (chemicals and allied products), 35 (industrial and commercial machinery and computer equipment) and 36 (electronics and other electrical equipment and components), and health care service industries. The registrar that will survey in the research are top five registrar in the countries in term of numbers of customers and certificate that they issued.
5. ANTICIPATED RESULT AND DATA ANALISYS
5.1 Anticipated Result
The results in financial performance for each of the three industries will be shown for certified and non-certified firms in financial performance from t-2 years to t+3 years. The graph also will be shown to compare financial performance of company certified with registrar that practicing value added auditing and company certified with registrar who only provide simply compliance auditing and company who doesn’t registered for any certificate. Who give the most influence in clients bottom line result?
Correlation between value added auditing received by the clients and its financial performance will be measured. Company registered with the value added auditing certification body is predicted to increase significantly in financial performance.
Each quality dimension asked in the questionnaire will also be measured using correlation analysis. The highest correlations are expected between customer loyalty and value added auditing. The result to rating and benchmark registrar will be shown in the graph. Who is the top rank registrar perceived by the clients and what criteria they have been valued?
It is also expected that firms will experience significantly better performance after deciding to seek their first ISO 9000 certification than a control group of firms with similar performance prior to that decision, and even more better if they certified with value added auditing certification body. Changes are expected directly or indirectly, led to relative improvements in financial measurement: ROA, both through superior cost control and higher sales.
5.2 Data Analysis
To analyze the data collected from two independent samples: Value Added Auditing and Compliance Auditing and its impact to Improvement in Financial performance; z test will be used to test the hypothesis for the following purpose
· To know that registrar will give improvement in financial indicator compare to those who doesn’t go for any certificate, and
· To know that value added auditing give better improvement in financial indicators compare to compliance auditing.
To know whether there is a significant variance between improvements in financial performance over time in value added auditing and compliance auditing, the F test will be used.
The satisfaction data from questionnaire that received from 4 groups of customers will be counted for its average, and to check the differences between average score for each registrar, ANOVA is run on all the construct variables measured in the questionnaire.
Reliability and validity checks for the two composite variable measures employed in the study, that is, Value Added Auditing and Financial Performance, are performed through correlation and regression coefficients, and goodness-of-fit statistics.
6. PROGRAM SCHEDULLE AND BUDGET
6.1 Program Schedule
In duration, the research project will be conducted within 3 years (from 1 September 2009 to 30 November 2012). Research will take place in UK / Australia
No
Activity
Year
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
H1 2012
1
Search for Related Literature and selection of the topic
2
Definition of the Problem and Objectives
3
Selection of Methodology
4
Check the availability and accessibility of resources
5
Write the draft of the proposal
6
Prepare tools, and interview schedule
7
Select the study sample
8
Conduct research proper
9
Administer research tools
10
Do the assessment techniques
11
Gather and analyze results
12
Interpret findings
13
Preparation of the final report
14
Formulation of conclusions and recommendations
15
Editing and Final Formatting
6.2 Budget
The research will be fully funded by scholarship of UK/ Australian government. However if the funds have not been acquired the money will be self payment. Total budget is 10,000 US$. The budget will include (US$):
costs for printing questionnaires 1, 000
mailing questionnaires 1, 000
costs for follow-ups or return (mailing, telephoning, envelopes) 1, 000
cost for interviewing (traveling within UK/Australia) 5, 000
cost for printing documents 2, 000
7. References and Bibliography
(1) John H. Johnson Value Added Auditing, First presented at the 1995 ASQ National Audit Conference, Baltimore
(2) Greg Hutchins, Value Added Auditing, Your Best Assessment Tools, Quality Digest Magazine, page 16- 17, October 2002
(3) Patricia D. Carden, Ph.D.; Lawrence S. Aft; and Dirk Dusharme, Rating the Registrar, Quality Digest Magazine, page 23-24, July 2001
(4) Laura Smith, The Hidden Cost of Cheap Certification, Quality Digest Magazine, page 19-20, May 2007
(5) Charles J Corbett, Maria J Montes, David A Kirsch, Maria Jose Alvarez-GIL, Does ISO 9000 certification pay ? Special Report ISO Management System, page 31-40, August 2002
(6) Dr Roy Rimington, Value Added Auditing Techniques – Putting the icing on the cake, Public Service Centre for Organizational Excellence, 2004
(7) Charles A Mills, A Management Evaluation Tools, Mc Graw Hill, 1989
(8) Scott Parsowith, Fundamental of Quality Auditing, ASQC, 1995
(9) Dennis R Arter, Quality Audits for Improved Performance, ASQC, 2003
(10) Sid Kemp, Quality Management Demystified, McGraw-Hill Professional Publishing, December 2005
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