Audit Assurance and Compliance

This report analyzes the role of auditors in Westpac Group, a leading financial services company, with a focus on audit assurance and compliance. It examines the auditor's independence, non-audit services, remuneration, key audit matters, and the audit committee's composition and responsibilities. The report also discusses the differences in responsibilities between directors, management, and auditors, and explores the effectiveness of material information disclosure. Desklib provides past papers and solved assignments for students.

Audit Assurance and
Compliance

EXECUTIVE SUMMARY
Auditing refers to examination of documents of business entity in unbiased aspect. The
present report is considering Westpac Group for reviewing and analysing role of auditor with
context of its Annual report. It had been concluded in this report that remuneration of auditor is
increasing on annual basis. There audit approach was framed for providing reasonable assurance
that financial report is free from its material misstatement. There are various information which
must be disclosed for effective aspect of its intended users such as representing key management
personnel compensation. Further, it could be summed by observing assurance through
management in fair and true aspect.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Presence of auditor compilation with independence requirements.............................................1
Non audit services.......................................................................................................................1
Brief analysis of Auditor's remuneration....................................................................................2
Summarising key audit matter with its procedure.......................................................................2
Presence of Audit committee with non-executive director.........................................................5
Type of Audit opinion.................................................................................................................6
Difference between directors and management responsibility with auditor responsibility........6
Presence of material subsequent events......................................................................................7
Effectiveness of material information.........................................................................................7
Information which could be disclosed for intended users in effective aspect.............................7
Questions which should be asked to Auditor in its Annual General Meeting............................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Auditing is very important for enhancing the organization in effective aspect. It is
considered as systematic and independent test of its statutory records, vouchers, books and
accounts of business entity for pertaining about financial statements along with non-financial
disclosures in true and fair aspect. The present report had reviewed about all section of Westpac
Group with context of function of auditor with reference to assurance from its financial
statements and environment of control as it comprises in financial services. In this context, it has
been analysed in independence declaration with its compliance and independent report. It had
articulated about its non-audit services which are performed through its auditor. This report is
reflecting about remuneration and % change from its previous year. Further, it had specified
functions, composition and role of its committee of audit. The type of opinion of audit had been
expressed in this report along with difference among responsibility of director, management and
auditor with context to financial report.
MAIN BODY
Presence of auditor compilation with independence requirements
The auditor of Westpac group had been with absence of contraventions of its
independence requirements of Corporation Act 2001 with context of audit (Annual Report of
Westpac Group, 2017). In the same aspect, there were no contraventions of any applicable code
in context of audit in professional conduct.
Non audit services
There could be decision about involving PwC with context of additional assignments to
its statutory duties of audit with experience and expertise with Westpac is termed as very
important. Generally, information of non-audit service amount is directly payable to its auditor
for purpose of providing non audit services in year 2016 and 2017's financial years to its
financial statements. In the same context, non-audit and audit services are given to non-
consolidated entities and trust where Westpac is playing role of responsible entity, manager and
trustee along with pension and superannuation funds. The services of non-audit are reviewed
through Board Audit Committee in such context, which does not impact objectivity and
impartiality of auditor. The nature of non-audit-services are directly based on independence
declaration given by PwC to its Board Audit Committee as it undermines basic principles with
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reference to independence of auditor which comprises auditing and reviewing its operation of
PwC. It acts on advocacy of organization and sharing of economic rewards and risks.
Brief analysis of Auditor's remuneration
Auditor's Remuneration 2015 2016 2017
%
change
2016
%
change
2017
PwC Australia
Total audit fees 20444 21319 21111 4.28% -0.98%
Audit related fees 1060 1611 4006 51.98% 148.67%
Total audit and audit related fees 21504 22930 25117 6.63% 9.54%
Other fees
Total audit and non-audit fees 23522 25947 27073 10.31% 4.34%
The above table replicates remuneration of auditor with classification of four categories.
The total audit fees consist of year end audit with review of half year and comfort letters linked
to capital raising and debt issues (Annual Report of Westpac Group, 2016). From year 2015 to
2016, it is increasing by 4.28% because of increment in fees charged by PwC Australia but it is
decreasing from 2016 to 2017 by 0.98% due to similar reason. The audit related fees includes
consultants related to requirements of accounting standards and reporting, reviews of regulatory
compliance and assurance associated to offerings of debt and capital. From year 2015 to 2017, it
is increasing with major fluctuations as 51.98% in 2016 and 148.67% in 2017. This is considered
as major reason for increment in total audit and audit related fees. Further, there is reflection of
fees of audit and non-audit which considers various services such as controls review, assurance
and compliance advice. From year 2015 to 2016, it rose by huge proportion of 10.31% and 2016
to 2017 it increased by 4.34%.
Summarising key audit matter with its procedure
Audit procedure
 They have included various key controls as governance with continuous assessment
through group which it calibrates impairment models in such aspect provides
appropriateness for credit risk in its loan portfolio.
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 It provides control on its timely identification of deterioration in context of quality of
credit of its individual loan.
 Control had been inherent in system of IT for managing and transferring data.
 The process of review and approval for result of model of impairment and various
adjustments and economic overlay is applied.
 Assessment of each sample on individual aspect with its provisions.
 Consideration of the latest development with context of borrower and appropriate basis of
measurement of provision of impairment.
 Estimate of cash flow protection from its impairments borrower.
 Valuation of collateral had been compared which is held to its external evidence and
examined advice of independent expert.
 It had performed analysis on its major assumption and ratios which consist of provision
to loan ratio at geographic and product level.
 For the purpose of gathering sample and assessing provisions in the latest financial
information with reference to borrower on basis of identifying impairment provision.
 It would be considered in substantive procedure as it would be observing that provision
for impairment of charges on loan actually exist or not.
Audit matter: Valuation of Financial instruments at fair value
Financial instruments which are held through group with its fair value comprises
derivative liabilities and assets, securities which are available for sale and trading, different debt
instruments are designated at its fair value. In this context, the financial instruments of group are
valued with application of quoted market (Level 1) or market observable prices (Level 2). The
instruments of hard to value as Level 3 are similar to previous year and is less than instruments
of both level.
Audit procedure
 The valuation of its financial instruments are directly held at fair value as it includes
major key control.
 There are mechanisms of governance and monitors on process of valuation along with
derivative valuation adjustments.
 It controls for ensuring about model of valuation which is validated.
 It controls unit pricing and provides confirmation with its external custodians.
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 The data among valuation model and underlying system is managed and transferred.
 In same context, it controls approval of innovative products.
 It considers sample of financial instruments with collecting pricing for instruments on
individual aspect.
 Significant variations are assessed.
 It also considers fair value of independently modelled instruments.
 It would be classified in test of control as it is looking for evidence of authorisation
(Fitzgerald, Omer and Thompson, 2018).
Audit matter: Operation of IT system and controls
This group is highly dependent on IT system which is complex for recording and
processing of transaction's volume. In this context, access rights for technology are considered as
very important as they are directly intended for ensuring alterations to data and application are
authorised in appropriate format (Annual Report of Westpac Group, 2017). This was considered
as key audit matter because 80% of key controls of finance relies on audit related to system of IT
and automated controls.
Audit Procedure
 Assessment of technology control environment.
 Management was changed in context of developing process and control, authorising and
testing alterations to configuration in systems.
 Security was assessed by accessing control designed to enforce duties segregation by
authorised means.
 It assesses system development for ensuring about accomplishment of requirements of
business.
 IT operations were controlled by managing issues in appropriate aspect.
 There was consideration of report of assurance by auditor of third party for designing
effectiveness of control.
 Internal control design is tested.
 It would be undertaken in test of internal control as it is associated to operations of IT
system and control.
Audit matter: Provisions, customer refunds and contingent liabilities related to
reputational and operational matters
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This group has assessed and measured its potential provisions and customer refunds for
its judgements on basis of information available with context of probability and financial
outcome of future. It might be fully dependent on regulatory and legal processes.
Audit procedure
 It had controlled on monitoring and compiling reports which includes reputational and
operational matters, regulatory actions, litigation and other matters.
 It directly controls on accounting judgements for assessing loss contingencies with
context of accounting impact.
 It controls inherent in system of IT which helps in managing utilised data.
 It would be classified in substantive analytical procedure as it consist of plausible
relationship of financial and non-financial data (Chan and Vasarhelyi, 2018).
Presence of Audit committee with non-executive director
Yes, there is presence of Board audit Committee in Westpac Group. They include non-
executive director whose role and responsibilities are stated below:
Peter Marriott: He is an independent director of Westpac group with more than 30 years
of experience in context of senior management function in industry of finance which
encompasses finance and other major role in auditing. He was performing role of Chief financial
officer before 2012. Currently, he is the Chairman of Board Audit Committee.
Robert Elstone: He performs his role as an independent director as he has experience of
more than 30 years with reference of senior management role in corporate finance, investment
banking, wholesale financial markets and risk management. He is member of every Board Audit,
Risk and compliance committee.
Peter Hawkins: He performs his duties as Independent director of Westpac group with
career in banking and financial services. He is a chairman of committee of board Technology and
member of every board Audit, Nominations and compliance and Risk committee.
Hence, this Board audit committee does not include any charter.
Type of Audit opinion
The auditor had accompanied with financial report of Westpac Banking Corporation with
its major controlled entities in context of Corporations Act 2001. It provided fair and true aspect
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of parent and group's entity along with its financial performance and stability at year end. It had
complied with Corporations regulation Act 2001 and Australian Accounting standards. They
have given opinion by conducting audit of consolidated and parent entity's financial statements
and its notes. Their main basis of opinion was with context of Australian accounting standards
with reference to auditor's responsibilities. There audit approach was framed for providing
reasonable assurance that financial report is free from its material misstatement.
Difference between directors and management responsibility with auditor responsibility
Responsibilities of Auditor: The auditor has responsibility for planning and performing
audit to gain reasonable assurance about financial statements that whether they are free by
material misstatements or impacted through fraud or error. The audit evidence's nature and
features of fraud creates ability in auditor to get reasonable but not absolute and detection of
material misstatements. Auditors assist management for preparation of financial statements. It
also included its opinion and reasonable assurance is referred as high level but it does not
provide guarantee with context of Australian Accounting standards which would identify
existence of material misstatement.
Responsibilities of Management: The summary of financial is always represented in
annual financial statement which reflects management's responsibility of appropriate
representation and forming financial statements. It states particular division of duties which are
engaged by publication of financial statements. The preparation of financial statement is highly
relied with management and computation of its useful life of property, equipment and plant
which is considered for calculating depreciation.
Responsibilities of Directors: The financial reporting and internal control is termed as
major responsibility of directors to fulfil in appropriate aspect. The board audit committee
comprises solely directors but with absence of employees of organization because they are
appointed on yearly basis by board of directors. In this context, there is regular meeting of
financial management of business entity, board audit committee and independent auditor of
shareholders for conducting discussion on audit remuneration, internal control, audit matters,
problems of financial reporting and audit scope. Their main objective is to form financial report
which provides fair and true aspect with context of Australian Accounting Standards and
Corporation Act 2001. While preparing financial report, directors are highly responsible for
examining capability of group for continuation of going concern, as applicable, disclosure and
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matters of going concern of accounting aspect unless group had been liquidated or to cease its
operations. There is absence of realistic alternative as well.
Presence of material subsequent events
There was presence of subsequent events in Westpac group as on 3rd November 2017
with agreement with Northill Capital related to sale of Interest in Hastings management Pty Ltd.
It directly subjects for confirmatory for regulatory approvals and due diligence. It was not
considered in financial statements as there is requirement of approval with context of its
regulatory.
Effectiveness of material information
Westpac's audit had applicable overall materiality of group of $531 million which reflects
approx. 5% of profit before tax. There threshold was applied with considerations which are
together and qualitative as well for identifying nature and scope of audit. In the same context,
extent and timing of its procedure of audit for evaluating impact of misstatements as whole
financial report. They have selected profit before tax as it is considered as financial statement
metric. It is reflected as benchmark which is not in favour of group's performance which is
measured on common aspect. Further, they have optimised 5% threshold on basis of its
professional judgement by considering range within commonly accepted thresholds.
Information which could be disclosed for intended users in effective aspect
There should be appropriate disclosure with context of key management personnel
compensation with transactions which are directly associated to related party. The significant
uncertainty could be managed as going concern. There should be presentation of relevant
accounting policies which are potential for business entity. In the similar aspect, materiality
transaction or balance must be affected by policy factors which includes organization's operation
and nature must be applicable. The application of policy should be concise and clear. Hence, it
should articulate key estimate and judgement for efficient disclosure.
Questions which should be asked to Auditor in its Annual General Meeting
 Did scope of audit changed from its last financial year and if so, in which areas and
reason?
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 Mention some issues of high audit risk according to you and specify planned audit
approach with context of these issues?
 Will you collaborate with its internal auditors for purpose of better understanding of
operating and risk environment?
 Is accounting policies of organization are aggressive or conservative by comparing it
from industry peers?
CONCLUSION
From the above study, it had been concluded that auditing plays very vital role for
improving communication among investors and auditors. It had been shown in report that
Westpac Group is complied with independence requirements and provided various non-audit
services. It had been articulated from above report that remuneration of auditor is increasing
from past three years as in year 2016 it rose by 10.31% and in 2017 by 4.34% because of huge
variation in audit related fees. There are various information which must be disclosed for
effective aspect of its intended users such as representing key management personnel
compensation. It had also represented its material subsequent events with assessment of
effectiveness of material information. In last part, it had recommended questions which must be
asked to auditors in Annual general meeting. Further, it could be summed by observing
assurance through management in fair and true aspect.
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REFERENCES
Books and Journals
Chan, D. Y. and Vasarhelyi, M .A., 2018. Innovation and practice of continuous auditing.
In Continuous Auditing: Theory and Application (pp. 271-283). Emerald Publishing
Limited.
Fitzgerald, B. C., Omer, T. C. and Thompson, A. M., 2018. Audit Partner Tenure and Internal
Control Reporting Quality: US Evidence from the Not‐For‐Profit Sector. Contemporary
Accounting Research. 35(1). pp.334-364.
Wahdan, M. A., 2018. Impact of a Practical Flowcharts Approach on Educating the Control Risk
Assessment. Accounting and Finance Research. 7(2). p.1.
Online
Annual Report of Westpac Group. 2016. [Online]. Available through:
<https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2016_Westpac_Annual_Report.pdf>.
Annual Report of Westpac Group. 2017. [Online]. Available through:
<https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Annual_Report.pdf>.
Audit Quality with role of directors and audit committees. 2017. [Online]. Available through:
<https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/auditors/audit-
quality-the-role-of-directors-and-audit-committees/>.
Financial and accounting duties and responsibilities of directors. 2018. [Online]. Available
through: <https://www.icaew.com/membership/regulations-standards-and-
guidance/membership/financial-and-accounting-duties-of-directors>.
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