Advanced Auditing and Assurance: Analysis of AMP Ltd's Financial Performance and Business Risks

This assessment analyzes the financial performance of AMP Ltd, a financial services company in Australia and New Zealand. It identifies business risks and accounts subjected to material misstatement, and considers recent scandals. The assessment is useful for auditing firms and financial analysts.

Running head: ADVANCED AUDITING AND ASSURANCE
Advanced Auditing and Assurance
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussions......................................................................................................................................3
Background and Nature of Operations of AMP Ltd....................................................................3
Laws and Regulations Affecting the Operations of AMP Ltd....................................................4
Analysis of Financial Performance of the Business....................................................................5
Identification of Business Risks..................................................................................................7
Accounts Subjected to Material Misstatement............................................................................8
Analysis of Scandal Related to AMP ltd...................................................................................10
Decision Making........................................................................................................................11
Reference.......................................................................................................................................12

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Executive Summary
The assessment deals with the business of AMP ltd which are engaged in providing financial
services and products to the customers of the business. In order to analyze the financial
performance of the business, the annual reports of the business are considered for the current
year. The assessment also shows identification of different business risks which are associated
with the business and also the accounts which are shown in the annual reports. On the basis of
the risks and the scandal which is associated with the business appropriate decision is to be taken
by the auditor of the business.

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Introduction
The main purpose of this assessment is to analyze the decision of an auditing firm
regarding tendering an agreement to conduct audit for AMP ltd for the year 2017. In order to
effectively analyze the situation in the company, an analysis of the market conditions and as well
as the annual report of the company for the year 2017 is to be done. The assessment will be
considering the operations of the business and also the performance of the business during the
year. The assessment will involve identification of business risks and any possible accounts
which are shown in the annual reports of the company which might under the risk of material
misstatement (Christensen et al. 2016). The assessment will also consider any recent scandal in
which the company was involved in recent times.
Discussions
Background and Nature of Operations of AMP Ltd
AMP Ltd is a company which is engaged in providing financial services to the customers
of the business. The company mainly operates in Australia and New Zealand serving maximum
customers from this area (Annualreports.com. 2018). The company was formed in 1849
as Australian Mutual Provident Society which was a non-profit life insurance company.
The major operations of the business are generally associated with insurance,
superannuation and investments areas. Some of the products which is offered by the company to
its customers are superannuation products, insurance schemes, financial advising, investment
products and as well as banking products which includes loans facilities and provision for
savings account. The company is mainly engaged in providing services which are related to
financial sector to the customers of the business.

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Laws and Regulations Affecting the Operations of AMP Ltd
In a business which engaged in finance related work and providing similar products
regulations and legislations play vital role in overall success of the business. The taxation rules
and the Corporation Act 2001 usually applies on any business but there are certain additional
regulations which are applicable on a finance company (Business.gov.au. 2018). As per the
nature of operations of AMP ltd, the main activities of the company are of financial nature and
therefore there are certain rules which are applicable to the business which are discussed below
in details:
 Competition and Consumer Act 2010: This regulation covers most of the market areas
which includes relationship with suppliers, retails, wholesalers and the final consumers. The
main motive of this legislation is to ensure that the trade and commerce practices which are
applicable in Australia are fair without any anti-competitive practices endorsed by any
company and the interest of the consumers are protected at all cost. The consumer law which
is also covered in this legislation deals with unfair practices towards consumers, misleading
of consumers, product safety and information and any kind of frauds as well (Haltiwanger,
Scarpetta and Schweiger 2014). In the business of AMP ltd, all these provisions are
applicable and should be followed by the management of the company.
 Anti-Money Laundering and Counter-Terrorism Financing Act 2006: This act also applies
to the business of AMP ltd as the act widely covers financial sectors, gambling traders,
bullion dealers. The regulations require businesses not to engage in activities which are anti-
national and unethical in nature. The act requires business to maintain proper records of
accounting and most importantly register and enrol the business under AUSTRAC
(Austrac.gov.au. 2018). The regulations monitor all the activities of different businesses

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which are engaged in financial sector in order to ensure that the businesses are not engaged in
money laundering or terrorism financing activities.
 Superannuation and Social Security Regulations: The management of AMP ltd also needs
to consider superannuation rules which are applicable to the business. The management of
the company also needs to consider the social security of the clients of the business and
ensure that no information of the clients is disclosed to any external parties. In order to
ensure that the data of the clients are kept in tact businesses in financial sectors needs to
establish a system software for effective maintenance and record keeping of key information.
The management of AMP ltd effectively follows the regulations as per the sustainability
report which is shown for the year 2017.
 Environmental Regulations: The management of AMP ltd needs to follow environmental
regulations which are established by the Government of Australia and the regulations which
are in force in Australia. Most of the companies needs to comply with the environmental
regulations such as control over carbon emission, reduction of greenhouse gases, reduction in
waste generation and disposal (Amp.com.au. 2018). Therefore, the management needs to
consider the environmental regulations in day to day management of the business.
Analysis of Financial Performance of the Business
The financial statements are prepared as per the general accepted format which is used by
most of the companies for preparing the financial statements of the business. As the company is
engaged in the business of providing financial products to the clients and therefore the items
which are included in the income statement are different from businesses which are engaged in
manufacturing business (Saeidi et al. 2015). The income statement of the business shows life
insurance contract related revenue which is the primary source of revenue is the fee revenue of

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the business and also life insurance contract revenue which is generated by business. The
revenue which is generated by the business for the year from life insurance contract is shown to
be $ 2,997 million which has increased significantly from previous year estimate which is shown
to be $ 2,883 million. The fees which is generated by business from providing different services
of to clients and the same figure is shown to have increased significantly in comparison to
previous year analysis. The interest and dividend revenue which the business generated from the
use financial assets of the business has also increased during the year and the figure is shown to
be $ 11,074 million for the year. This shows that the scale of operations of the business has
increased significantly in comparison to previous year analysis (Acharya and Mora 2015). The
profits which is generated by the business during the year is shown to be $ 873 million for the
current and the same was $ 192 million for 2016 which shows that the business has undergone
tremendous improvements in terms of profit generating capacity of the business. The earning per
share of the business is also shown to have undergone tremendous improvements which is due to
increase in the profits of the business and also the revenue of the business.
The total assets of the business have also improved significantly during the year and the
same is shown to be $ 148,085 million which shows that the business has increased the amounts
of assets of the business which is always a positive sign. The liabilities of the business for the
year 2017 is shown to be $ 140,802 million which is lower than the assets figure of the business
which is a positive sign. The business has significant amount for borrowing for the business in
2017 and the figures for equity of the business has reduced as per previous year analysis. The
total equity figure which is shown in the annual report of the business shows in reduction in the
equity capital of the business (Edgley, Jones and Atkins 2015). The cash flow position of the
business as shown in the cash flow statement of the business shows that cash flow from

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operating activities of the business is shown to be negative. The cash from investing activities of
the business is shown also to be negative which is due to investments in financial assets of the
business. The cash from financing activities of the business is shown to be $ 2,771 million which
has significantly increased in comparison to previous year. The cash and cash equivalent of the
business has decreased in comparison to previous year as shown in the cash flow statement of the
business.
Identification of Business Risks
Business Risks refers to the risks which businesses faces while operating in business
environment which can reduce the revenue generating capabilities of the business (Knechel and
Salterio 2016). The business risks of AMP ltd which can be identified from the financial
statements of the business are listed below:
 Increase in Expenses and Liabilities: The income statement of the business which is shown
in 2017 annual report shows that the expenses and liabilities of the business has significantly
increased during the year. The changes in policyholder’s liabilities in relation to life
insurance contracts and investments contracts is shown to be $ 1069 million and $ 7,158
million as shown in the income statement of the business (Sadgrove 2016). This expenses
effectively impacts the profitability of the business and therefore the increasing expenses of
the business poses a serious threat to the profits generating ability of the business.
 Liquidity position: The liquidity position of the business is shown by the cash flow statement
of the business (Chagwiza 2014). The cash from operation of the business and cash from
investing activities is shown to be in negative for the year 2017. The negative cash flow from
operating and investing activities suggest that the liquidity position of the business is

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unfavourable which suggest that there are operational risks and if the cash flows are not
improved there might be financial crisis for the business.
 Investments in Financial Assets: The management of AMP ltd has also significantly
invested in financial assets of the business. The investments which is shown in the balance
sheet of the company is of significant amount and therefore there is always a risk of presence
of material misstatement in the same (Adeusi et al. 2015). The investments of the business
have increased significantly during the year in comparison to previous year which needs to
be verified as the same affects the whole of balance sheet and cause a major material
misstatement.
 External Risks: The management of the company faces serious risks from the external
environment which is related to the scandal which was caused by the business during the
year. The scandal has affected the reputation and integrity of the business and therefore it is
very much likely that this can affect the profit generating ability of the business. The decline
in the image of the business will affect the valuation of the shares of the business and
therefore the management needs to consider such risks.
Accounts Subjected to Material Misstatement
The risks which are associated with the business are analysed with the help of financial
statement of the business. The accounts which are identified to be materially misstated
considering the financial statements of AMP ltd are shown below:
 Revenue from Fees and Life Insurance Contract: The income statement of the business
shows that the primary source of revenue for the business is from fees and revenue which is
generated from life insurance contracts. The figure of revenue is shown to have significantly
improved in comparison to previous years. The fees which is collected by the business for

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services provided can be easily be cooked up in order to show favourable annual reports of
the business (Ruhnke and Schmidt 2014). The revenues of the business directly impact the
profits of the business and also the presentability of the income statement. There is a high
chance for misstatement in sales balances which are shown by the company in the annual
report of the business.
 Investments in Financial Assets and Investment Properties: The investments which is made
by the business is shown in the balance sheet of the company and the same is shown to be
significant amount. There is a chance of material misstatement in the valuation of
investments of the which affects the financial statements due to the significant amount which
is shown in the balance sheet of the business (Czerney, Schmidt and Thompson 2014). The
auditor of the company needs to consider the appropriateness of the balance before
proceeding towards other items which are shown in the balance sheet of the company.
 Interest Bearing Liabilities: The balance sheet of AMP ltd appropriately shows the
borrowings of the business during the year. The borrowings of the business is shown to be $
21,009 million in 2017 which is significantly higher than previous year estimate which
suggest that the business has taken additional loan during the year. The auditor needs to
ensure that the balance which is shown in the books of account of the business are showing
true and fair view or not (Brasel et al. 2016). The figure not only affects the balance sheet of
the company but also the income statement as the interest which are associated with such
borrowings are also shown in the annual reports of the business.
 Deferred Tax Assets and Liabilities: The deferred tax assets and liabilities of the business
are shown in the balance sheet of the business and the same represent accrual or prepayment
of taxes. In most of the circumstances, deferred tax assets and liabilities of the business are

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not properly shown and the nature of the account is also complex and therefore are
considered to be material in nature and therefore should be considered by the auditor of the
business. The auditor of the company needs to check the appropriateness of the balances and
also check past records whether the deferred tax assets and liabilities of a business are
effectively carried forward for the business.
Analysis of Scandal Related to AMP ltd
AMP ltd is engaged in providing financial services to the clients and also financial
adviser to the customers. In recent time, Royal Commission has highlighted issues which was
associated with the business of AMP ltd. Royal Commission is an association which is
established for the purpose of identifying whether any company which is engaged in banking
sector are complying with the ethical norms of the business and no business is engaged in any
kind of misconduct.
As per the scandal, the royal commission highlighted the fact that the top-level
management of the business has been systematically misleading the regulators of the business.
The management of the company has been charging fees from the customers of the business
without providing any services in return to the customers (Hutchens 2018). This has been carried
out by the executives of the business between 2015 to 2017. It is also estimated by the Royal
Commission that the management of has covered up its track for systematically and it is
estimated that it has around 20 times. The royal commission took a serious step by removing the
higher executives of the business who were involved or hand prior knowledge. In addition to
this, it is also expected that the business will be attracting certain legal charges and also
providing strict regulations on the business of AMP ltd.

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Therefore, considering the discussion of the case which is associated with the business of
AMP ltd, the auditor should not accept the audit proposal as the financial statements are likely to
anticipate regarding the earnings of the business. The scandal will also be affecting the
reputation of the business and there is high chance that the valuation of the shares of the business
might have considerably fallen. The auditor therefore should not accept the audit engagement as
the risks and possibility of materiality misstatements are also high.
Decision Making
The above case deals with the business of AMP ltd and also considers the financial
statement of the company for the purpose of analyzing the financial performance of the business
during the year. The audit risks which are identified are related to liquidity, reputations,
Reduction of costs of the business. The auditor needs to consider the market conditions of AMP
ltd and also the scandal which is associated with the business in the decision-making process.
The discussion above shows that the auditor should not accept the audit engagement as the
company is already highlighted to have committed an unethical practice in business and this can
harm the image and integrity of the auditor. In addition to this, the analysis of financial
statements reveals that there are certain areas where there is a risk of material business is present.

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Reference
Acharya, V.V. and Mora, N., 2015. A crisis of banks as liquidity providers. The journal of
Finance, 70(1), pp.1-43.
Adeusi, S.O., Akeke, N.I., Adebisi, O.S. and Oladunjoye, O., 2014. Risk management and
financial performance of banks in Nigeria. Risk Management, 6(31).
Amp.com.au. 2018. [online] Available at:
https://www.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017_towards_sustainability_report.pdf [Accessed 15 Sep. 2018].
Annualreports.com. 2018. [online] Available at:
http://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017.pdf
[Accessed 15 Sep. 2018].
Austrac.gov.au. 2018. AML/CTF Act | Australian Transaction Reports and Analysis Centre
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[Accessed 15 Sep. 2018].
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Accounting Review, 91(5), pp.1345-1362.

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Business.gov.au. 2018. Legal essentials for business. [online] Available at:
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