AMP: Audit and Business Risks

This report highlights the audit and business risks of AMP Ltd, a financial services company. It discusses the company's operations, legislations influencing the company, prime business risks, accounts exposed to material risk of misstatement, and weaknesses of internal control.

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Advance audit and assurance
services

AMP
Executive summary
A company’s effectiveness must be determined by the audit firm prior to obtaining the
auditing job because it can assist them in achieving better outcomes. In relation to this, both
the external and internal scenarios of the company must be critically analysed so that auditing
process can be well achieved. This report assists in highlighting such scenario for AMP Ltd
so that its external and internal environment can be studied thoroughly. The company’s
introduction has been discussed in the starting segment and thereafter, its primary activities
have been discussed for better understanding. Thereafter, the legislations influencing the
company has also been discussed through this report. In addition, the accounts vulnerable to
material risks are also discussed together with the company’s internal control issues.
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Contents
Introduction...........................................................................................................................................3
Segments wherein the company has undertaken its affairs..................................................................4
Four crucial legislations that has influenced the company....................................................................5
Prime business risks that has influenced the company’s audit processes.............................................6
Accounts that are exposed to material risk of misstatement................................................................8
Weaknesses of internal control that has been reflected by the royal commission...............................9
Conclusion in relation to undertaking the process of audit.................................................................11
References...........................................................................................................................................12
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Introduction
AMP Ltd has been in the business of offering financial services like life insurance,
management of capital, management of wealth, etc. In addition to this, since the company has
been negligent in maintaining the effectiveness of its internal control measures, it has been
tackling various types of legal issues. Besides, the frauds and errors on the part of executives
of the company has deteriorated its goodwill and reputation. Further, this report has
highlighted the audit and business risks of the company and offers a suggestion to the team of
audit whether to undertake the audit process or whether not to undertake the same.
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Segments wherein the company has undertaken its
affairs
The company’s operations are significantly from New Zealand and Australia and it is in the
business of offering financial services that comprises of various products and services:
a. Banking- The company is involved in the provision of financial aid to the customers
for investment and residential motives. Further, the company has also offered
financial aid to its advice businesses.
b. Management of wealth- AMP is also engaged in the provision of superannuation
strategies for retirement benefits that comprises of self-managed plan of
superannuation as well. It has also facilitated in the provision of solutions related to
investment and retirement income for the general people. Besides, it has also assisted
many people in managing their additional resources that can pave a path for provision
of future benefits (Moroney & Trotman, 2016).
c. Management of capital- AMP has also offered services of capital management to all
customers that includes multi-asset resources, equity management, etc. In addition, it
is also engaged in the management of infrastructure assets and real estate that
comprises of trains, pipelines, shopping centres, etc.
d. Life Insurance services- The company has also offered solutions based on life
insurance to the customers that includes solutions related to incapability insurance.
Nevertheless, various other insurance services are also provided by the company to its
customers.
e. Others- AMP also offers other type of services like financial assistance to the
customers. It has also managed the closed policies of customers related to
superannuation funds and insurance policies.
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Four crucial legislations that has influenced the
company
The company has been functioning in various jurisdictions and functions throughout the
world. Every jurisdiction has framed its own legislative and statutory necessities. Apart from
various financially associated legislation aspects, others rules implemented by the company
consists of the following:
a. Confidentiality and privacy maintenance
AMP has framed various rules and regulations for sustaining the information privacy of
people including suppliers, colleagues, consumers, etc. This also includes associated parties
and assures that ample confidentiality has been accounted by the company in relation to all
transactions. Nevertheless, when there is misutilization of sensitive information, there are
strict rules to mitigate the same. These comprise of non-sharing of all access cards and
passwords with users who are not authorised, non-disclosure of all confidential data in the
prevalence of written permission from the company, keeping all stakeholders’ data
confidential and safeguarded, ensuring awareness betwixt the colleagues and employees in
relation to policies of privacy undertaken by the company, etc.
b. Performing with proper integrity and ethics
AMP has been very effective in compliance with its rules and regulations in addition to the
adherence with code of conduct. The reason behind this can be attributed to the fact that it has
relied on the customers’ trust that can be attained if it has performed honestly, ethically, and
with due integrity. Besides, these statutory rules and regulations are applicable to all the
stakeholders like finance providers, auditors, related parties, customers, etc. For instance,
there is no hiding of commissions and errors (Mock et. al, 2013). Further, if any individual is
recognized that is caught doing any concealment, there must be no boundary to safeguard
him based on the company’s rules and regulations.
1. Assuring effective utilization of company’s resources and in the business objectives
only. In relation to this, there must be proper records and approval of the incurred
expenses.
2. Not to make misleading and false depictions to the company’s customers and perform
with dignity and ethics.
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3. To offer effective suggestions to customers while offering them with various products
and services of the company. Furthermore, the advices must be based upon the
priorities of the consumers (Livne, 2015).
4. The company ensures that any unethical affairs like bribery, malpractice, etc must be
immediately reported whether it is related to the company or not.
c. Affairs of corporate governance
AMP has primarily concentrated upon practices and affairs associated to corporate
governance that also comprises of the following segments:
i. Corporate sustainability
ii. Diversity and inclusion
iii. Governance of life board
iv. ESG reporting
v. Risk cultures
vi. Customer advocate
d. Establishment of a safer and effective working environment for the company’s
employees
AMP has encouraged a safer and healthier working scenario for all the employees so that
they can operate or function with maximum concentration and effectiveness. Further, the
company’s people also must follow all rules and regulations based on which there must be no
unethical practices like harassment, discrimination, etc betwixt the employees and all workers
as well (Goodstein, 2011). With these practices in control, the company has been able to
ensure a healthier and safer working environment for all the people associated to it, thereby
enabling in fuller satisfaction of customers on a whole.
Prime business risks that has influenced the company’s
audit processes
The material business risks that can have an influence on the company’s audit procedures are
as follows:
a. Threats associated to cyber security
This is one important area of concern for the company because such risk can result in loss of
customer information or leakage of confidential and sensitive data from their servers. This
means that the company is being vulnerable to cyber threats or hacks from undesired hackers.
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Nevertheless, prevalence of such risk can downgrade the company’s reputation in the entire
industry and it may result in its disintegration process as well (Nicolaescu, 2013). Therefore,
AMP must use the best available technologies from the market so that it can mitigate such
risk and secure the confidential information of all parties, thereby sustaining its goodwill on a
whole.
b. Employees, business, and conduct of business partners
AMP has always been facing this risk since its incorporation and this is because the
employees or business partners may fail to function as per the requirements of the company
on a whole, thereby resulting into various complications. Besides, if this happens, the same
may result in failure to address the requirements of all regulators, customers, and other
associated parties (Ghandhar & Tsahuridu, 2013). Hence, this is a major risk that the
practices of business on the part of the company are not being accounted based on the
company’s guidelines, thereby resulting in hampering the goodwill.
c. Organizational variations
In relation to any company, it must be noted that addressing the requirements of employees is
a major concern to thrive in such competitive and complicated environment. Moreover,
employees play a key role in balancing the management and customers collectively so that
business objectives can be easily attained. Further, they are aware of all strategies and
policies of the company and therefore, they must be effectively managed through the
provision of proper remuneration so that financial and social requirements are considered.
Besides, whenever there is any termination or exit of an important employee of the company,
it facilitates in creation of a loophole at the level of organization (Geoffrey, Joleen, & David,
2016) In addition, this also results in a risk that the strategies and measures of the company
have been leaked or shared with rival companies that can spoil all key policies and
approaches.
d. Customer and competitive environment
One prime risk that makes the business of AMP vulnerable in nature is that the entire base of
customers is immensely diversified in nature and therefore, catering to their needs and
requirements are exposed to various risk factors such as income, age, working overview,
preferences, etc. This sheds light on the fact that addressing the requirements of one customer
may not cater to the requirements of another customer as well. For instance, any businessman
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may like to contribute or invest all his finds in any business but a serviceman may not opt for
the same and instead, intend to believe on savings. This is the major issue that the company
has been facing. In addition to this, it must also be taken into consideration that every
company has been innovating in some or the other way and thereafter, introducing new
polices and plans for the clients. Therefore, the company has also been encountering intense
competition from its rivals so that maximum clients can be attracted and retained through the
offering of attractive offers. Another major issue is the financial planning variations in
relation to the requirements of customers and their preferences. For instance, in the
prevalence of a medical emergency, any client of the company may withdraw all the funds,
thereby resulting into a major financial burden on the company on a whole.
Accounts that are exposed to material risk of
misstatement
Because of the company’s business risks, there are possibilities that material misstatements
can incur in relation to its financials. Such material misstatements primarily happen because
of frauds or errors that can be undertaken by any single person or group of persons whether
collectively or individually (Rezaee & Kedia, 2012). There are some illustrations that can be
considered in relation to understanding what can be materially misstated based on the
business risks already prevalent in the company:
a. Costs of sales promotion
In relation to the company, there is a major feasibility that all the costs associated to
promotion of sales are depicted at a higher value by the team of sales promotion. Besides, in
the prevalence of immense competition from the rivals of the company, the managers and
market are burdened with the risk of fulfilling all the desired targets and objectives in due
course of time. Hence, this requirement of fulfilling the targets may force the managers to
adopt window dressing as a tool in relation to such costs so that the costs of sales promotion
can be concealed by them in the primary expenses, and their actual need and use cannot be
ascertained as well. This sheds light on the fact that the company may be forced to spend
extra costs on the required expenses that were not even supposed to be incurred in the first
place (Shah, 2013). Besides, if there were no determined targets to be attained, such a
negligence cannot incur. Nevertheless, the managers often attempt to mix their personal costs
in the company’s costs under the head of sales promotion. For instance, food expenses can
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also be submerged in the primary costs and therefore, can be failed to be noted by the
auditors.
b. Cash balance and accounts receivable
Since there is a material business risk of organizational variations in relation to employees’
turnover, there are feasibilities that the cash accounts and section of accounts receivable can
be easily misstated. The reason behind this can be attributed to the fact that when an
employee takes an exit from the company, it can be possible that they have already
committed unethical means in the company’s accounts including mishandling, non-recording
of petty expenses, etc (Arens, Best, Shailer & Loebbecker, 2013). Therefore, when it comes
to finalization of books of accounts of the company, it can be very complicated or
troublesome to determine these errors or frauds when the rate of employees’ turnover is
extremely immense.
c. Accounts of creditors
Since the company has a weaker IT implementation within its framework, there are chances
of compromise of all financial information associated with offers, discounts, rates, and
schemes offered to the company by their creditors. Besides, the same may be acceptable or
accessible by the superior authorities only. Moreover, the company may also lose negotiable
deals and bulk discounts owing to such leak of sensitive information. Nevertheless, since the
company has been prone to risk of cyber issues, creditors’ information possibilities are
always there (Subramanyam & Wild, 2014). Therefore, there is a feasibility of material
misstatements in the creditors’ closing account balances and it is the need of the hour that the
company takes corrective actions or remedial measures to get rid of the same.
d. Revenue or receipts
When there is an intense market competition, there are feasibilities that the employees’
specially the company’s sales staff may be engaged in the utilization of unjust measures to
enhance sales. This may be done as the target of sales are interconnected with the company’s
incentives and bonuses. There is a feasibility that the figure of sales is depicted at
exaggerated amounts by the department of accounts in assistance of the management of sales
team (Wood, 2011). Therefore, there are feasibilities that the figure of sales might be
materially misstated and that can prove to be very damaging for the company as its reputation
and goodwill will be tampered on a whole.
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Weaknesses of internal control that has been reflected
by the royal commission
The Royal Commission has exerted various allegations upon the company owing to its
inappropriateness in the field of superannuation, banking, and segment of financial services.
Further, there has been various allegations that AMP Ltd has charged from their consumers
for all services that have not been offered to them. Besides, the additional costs charged was
because of administrative flaws. However, the same was not refunded to the respective
clients even after such flaws had been discovered.
In relation to this, it can be observed that the outcome of such internal control ineffectiveness
on the part of the company had played a key role in the devastating value of fraud, thereby
serving as a negative indicator for future effectiveness. The major outcome because of such
weaker internal control measures on the company’s part is that the company had to encounter
serious and major repercussions that has degraded its goodwill on a whole. In addition to this,
it can also be seen that the influence of all such errors, frauds, and transactions can be easily
experienced or witnessed in the auditing processes of the company in the present year as well
(Wright & Charles, 2012). The major reason behind this can be attributed to the fact that the
auditor is under an obligation to judge every aspect and the transaction on a whole, and that
too from the viewpoint of such errors or frauds committed by the company in the previous
tenures.
Nevertheless, in viewpoint of these issues, it can be seen that there can be serious possibilities
of material risk of misstatements that can spoil the goodwill and reputation of the company as
a whole. Further, such fraudulent affairs undertaken by the company until now are also a
major reason behind the prevalence of such material risk of misstatements. Overall, the
company has been attempting to solve this matter and as a result, it has been compensating all
the consumers because such fraud has come into the eyes of all people (Zhang, Zhou & Zhou,
2007). In addition, many customers of the company have sued it for such unethical practices
and therefore, compensation processes have been undertaken so that the loss borne by these
customers can be addressed. In relation to this, it can be viewed that the company had
undertaken unethical practices to enhance its image and reputation in the industry and
compensating for the same can be a major step to cover such negligence but the reputation
and goodwill cannot be enhanced even though such step has been taken. Moreover, based on
the report of Royal Commission, it can still be observed that there are various risks of errors
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and misstatements in the financials of the company that is altogether a negative indicator for
future effectiveness.
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Conclusion in relation to undertaking the process of
audit
From the previously mentioned analysis, it can be observed that there are various material
risks and business risks present in the framework that has endangered it for the future.
Besides, based on such audit risks, it has become very problematic and complicated for the
company to undertake the processes of audit for overall effectiveness. Moreover, based on
the report of the Royal Commission, seeking such material misstatements has become very
complicated and since, these risks are prevalent in the revenue and other company accounts,
finding the same is not at all easy for the auditors. The major reason behind this can be
attributed to the fact that until a consumer does not file any legal claim or suit against the
company, auditors cannot be capable of finding the contingencies that are associated to the
reversals to be facilitated from the already recorded income in the financials. Therefore, it is
very problematic to conclude on these hidden issues in the audit report. Further, if the auditor
can pursue an effective and appropriate audit team and resources, it is recommended that they
undertake such audit process. In contrast to this, if there are severe issues and defects in the
audit report, it can play a key role in hampering the situation for the auditors and AMP Ltd on
a whole. Nevertheless, since the audit report is a crucial feedback about the company’s
financial performance, these recommendations must be duly considered. Overall, if the
auditors have proper and ample ways to undertake the audit procedure and with effective due
diligence procedures, then it is recommended to conduct the company’s audit.
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