1. Royal Commission Hearing Affecting Audit Plan
AMP Bank selected in this report is deemed to be a renowned financial institution of Australia that offers a range of residential loans, deposits along with self-mortgaged financial institutions (Carey 2015). Being positioned as largest retail and corporate superannuation service provider it also operates the largest risk business all over the nation. The objective of the report is to analyze the hearing of Royal Commission and its impact on the superannuation, banking and financial services of AMP Bank. Moreover, it will also analyze the major audit risk areas of AMP, its general balance sheet and transaction based objectives along with analyzing the internal control and weaknesses of the company in order to make suitable recommendations.
The hearing from the Royal Commission was based on their investigations on the Australian financial services companies those are involved in misconduct. Such hearing from the Royal Commission has impacted AMP Company’s audit process as the financial institution ignored several warnings indicated by the high risk advisors (Chang 2017). The organization failed to invest in the archaic audit systems along with rewarded planners for sales without stopping to take into account service quality. In such situation the hearing of the Royal Commission is deemed to impact the audit plan of the company in accordance with ASA 315 accounting standard. This standard is deemed to affect the audit pan of AMP Company as it confirms with the Auditing international standards (Galanti 2017). This auditing standard is to be followed on AMP being a financial institution in “Identifying and evaluating the material misstatement risks through attaining understanding on organization and its environment” that is issued by “Auditing Assurance Standards” board.
Compliance of AMP Company with this auditing standard ensures compliance with ISA 315. The audit plan of AMP Company will be altered after the recent hearing of Royal Commission on implementation of ASA 315 in the Australian financial institutions (Gillet-Monjarret and Rivière-Giordano 2017). This auditing standard will apply to the financial report audit of AMP Company in compliance with “Corporations Act 2001”. As per this standard, the company needs to recognize and evaluate the material misstatements risks because of error or fraud through understanding the organization and its surroundings, encompassing the organization’s internal control. This can further facilitate in designing as well as implementing responses related with the material misstatement risks (Gordon, Henry, Jorgensen and Linthicum 2017). The audit plan for the financial institutions must also consider whether the information attained from auditor’s client acceptance is important for recognizing uncertainties related with material misstatements.
Two major audit risks have been identified for AMP Company and it has also been identified that such accounts are being important. Moreover, the potential effect of the audit risk on the organization’s financial statements along with offering details on auditing processes to analyze the account balances affected by such risks (Ismail, Ramli and Darus 2014). One of the audit risks faced by AMP Company is that AMP was found lying to its regulators because of which its chief executive turned out to be the first high profile casualty of the commission. It was also found that the financial advisors of the company failed to comply with the consumers best interests. Consider the same it has been observed that in AMP the major audit risk that took place is “conflict of interest” that is taking place in case banks are offering financial advice to its retail consumers along with selling financial products to them (Persson and Napier 2015).
2. Two Major Audit Risk Areas of AMP
Another major audit risk faced by AMP Company is that there was lack of proper internal control in the bank. As per “Para A50-A73 of ASA 315” it has been observed that the financial institution failed to attain an understanding of internal control associated with audit (Riaz, Ray and Ray 2015). Most of its internal controls related with its audit process were not suitably linked to its financial reporting and all the processes of internal control are observed to be important to the audit process in AMP Company. The financial institution has also violated “Para. A77-A87 of ASA 315” the management with consideration to individuals charged with governance has failed to maintain a culture of ethical behavior and honesty in the audit and financial reporting process (Riaz, Ray and Ray 2015). The Royal commission has revealed that violating this standard, AMP Company was involved in charging advise fees without delivering service and has misled the “Australian Securities and Investments Commissions” through unethically and unlawfully maintaining internal controls.
Two relevant general balances based and two transaction based audit objectives relied on the risk factors identified for AMP Company in previous sections. The balanced related audit objectives offer a suitable framework that can facilitate auditors in gathering enough suitable evidences. Balance based audit objectives are implemented to the account balances (Gillet-Monjarret and Rivière-Giordano 2017). Such objectives are explained below:
- Occurrence or Existence (amounts included exist)- This considers including the accounts receivable from the consumer within the amount receivables trail balance at the time there is no receivables from consumers in case they violate the objectives. This also includes existence deals with potential overstatements in case of AMP Company.
- Completeness (in which the present amounts are included)-This considers failure to encompass the account receivable fro the consumers in the trial balance of account receivables at the time the receivable exists violates such objectives set by AMP Company (Gillet-Monjarret and Rivière-Giordano 2017).
General transaction based audit objectives of AMP Company are deemed to be the same like the management assertions that is explained within the problem and facilitate the auditor in deciding the audit evidences that is important in satisfying management based assertions (Gillet-Monjarret and Rivière-Giordano 2017). The classification, accuracy, timing along with summering and posting are considered to be the subset of allocation and valuation assertion. Certain transaction based audit objectives of AMP Company are also determined by its auditors for every general transaction based audit objectives. Transactions near the date of balance sheet needs to be recorded in the proper period. That facilitates in determining whether the transactions are recorded within the suitable period (Chang 2017). The realizable value is also among the objective of AMP Company based on which assets must be included at the amounts anticipated to be realized that encompass doubtful debts provision along with write-down obsolesce inventory.
From gathering the findings of Royal Commission, the internal control weaknesses have been revealed in the internal control system of AMP Company that can facilitate in controlling and recommendations on dealing with such control based issues (Riaz Ray 2015). The weaknesses in the internal control took place in the company as the Chairman and Reporting authority within the organization were involved in unethical act and has also admitted to mislead the ASIC. The recent hearings of Royal commission also revealed that AMP’s share price has been savaged that caused damage to its reputation and internal control process. Based on the weaknesses found in the internal control it has been observed that it is not operating effectively in regard to risks faced in maintaining internal control (Sanderson 2014).
3. General Balance Sheet and Transaction Based Audit Objectives
Based on the loopholes of internal control of AMP Company, it is recommended to the company that its auditors must obtain an understudying of the absence of document risk evaluation process and observe whether it is suitable in circumstances or determining whether it indicates a considerable internal control deficiency (Turlington 2016). It is also recommended that the auditor must attain an understanding on important activities that is employed by the company in supervising internal control associated with financial reporting along with the ones those control activities associated with audit. AMP must also consider “paragraphs A110-A121 of ASA 315” in monitoring its internal control process through analyzing material misstatement risks along with its designing in timing, nature and extent of further audit processes (Werner 2016).
Conclusion:
The objective of the report was to analyze the major audit risk areas of AMP, its general balance sheet and transaction based objectives along with analyzing the internal control and weaknesses of the company in order to make suitable recommendations. It was analyzed from the report that the hearing from the Royal Commission was based on their investigations on the Australian financial services companies those are involved in misconduct. The organization failed to invest in the archaic audit systems along with rewarded planners for sales without stopping to take into account service quality. It was also gathered that One of the audit risks faced by AMP Company is that AMP was found lying to its regulators because of which its chief executive turned out to be the first high profile casualty of the commission. Based on the loopholes of internal control of AMP Company, it is recommended to the company that its auditors must obtain an understudying of the absence of document risk evaluation process and observe whether it is suitable in circumstances or determining whether it indicates a considerable internal control deficiency.
References:
Carey, P.J., 2015. External accountants’ business advice and SME performance. Pacific Accounting Review, 27(2), pp.166-188.
Chang, K.H.V., 2017. Internal audit quality and its association with financial distress: An Australian context (Doctoral dissertation, Curtin University).
Galanti, J.J., 2017. Business Valuation. Litigation Services Handbook: The Role of the Financial Expert, pp.1-38.
Gillet-Monjarret, C. and Rivière-Giordano, G., 2017. Sustainability Assurance: a Literature Review. Comptabilité-Contrôle-Audit, 23(2), pp.11-62.
Gordon, E.A., Henry, E., Jorgensen, B.N. and Linthicum, C.L., 2017. Flexibility in cash-flow classification under IFRS: determinants and consequences. Review of Accounting Studies, 22(2), pp.839-872.
Ismail, M.S., Ramli, A. and Darus, F., 2014. Environmental management accounting practices and Islamic corporate social responsibility compliance: evidence from ISO14001 companies. Procedia-Social and Behavioral Sciences, 145, pp.343-351.
Persson, M.E. and Napier, C.J., 2015. RJ Chambers and the AICPA’s Postulates and Principles Controversy: A Case of Vicarious Action. Accounting Historians Journal, 42(2), pp.103-134.
Riaz, Z., Ray, S. and Ray, P., 2015. The Synergistic Effect of State Regulation and Self-Regulation on Disclosure Level of Director and Executive Remuneration in Australia. Administration & Society, 47(6), pp.623-655.
Riaz, Z., Ray, S. 2015. Collibration as an alternative regulatory mechanism to govern the disclosure of director and executive remuneration in Australia. International Journal of Corporate Governance, 6(2-4), pp.241-274.
Sanderson, J., 2014. Audit issues. SMSF Guide: Current Issues and Strategies for the Self-Managed Superannuation Funds Adviser, p.377.
Turlington, J.J., 2016. US GAAP vs. IFRS: A Comparative Study Regarding How Differences in Accounting Standards Can Affect Understanding of Company Financial Performance (thesis).
Werner, M., 2016, January. Process Model Representation Layers for Financial Audits. In System Sciences (HICSS), 2016 49th Hawaii International Conference on (pp. 5338-5347). IEEE.
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