Assurance, Audit and Compliance - Assignment

Running head: AUDIT, ASSSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student
Name of the University
Author Note

1AUDIT, ASSURANCE AND COMPLIANCE
Executive Summary
The purpose of this study is to review the auditors report of an ASX listed company. The
company chosen for this study is Commonwealth Bank. It aims to analyse the declaration of
auditors and assert the opinion provided by the auditor in the auditors report. It reviews the
various auditing and non auditing services provided by the client. This study also analyses the
role and functions of the audit committee of the company in question and the members
thereof. It analyses whether the auditor has complied all the requirements and proper
legislations in formulating an opinion on the financial statements and the key audit matters of
the company. It also aims to make an analysis of the auditors remuneration and the
percentage changes compared to the last year.it also aims to summarise the material
subsequent events and makes an assessment of the effectiveness of the financial statements
provided by the auditor.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
About Commonwealth Bank..................................................................................................4
Auditor’s Independence Declaration......................................................................................4
Independent auditor’s report..................................................................................................4
Non Audit Services performed by the auditor.......................................................................4
Auditor’s remuneration..........................................................................................................5
Role, composition and functions of the Audit committee......................................................6
Independent Auditor’s report to the shareholders..................................................................8
Basis for opinion....................................................................................................................8
Independence..........................................................................................................................9
Audit approach.......................................................................................................................9
Key audit matters...................................................................................................................9
Difference of management and auditor’s responsibilities in relation to the financial report
..............................................................................................................................................11
Material Subsequent events..................................................................................................11
Effectiveness of the material information............................................................................12
Lack of Material information...............................................................................................12
Conclusion................................................................................................................................13
References................................................................................................................................14

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Introduction
The International Auditing and Assurance Standards Board has implemented a host of
reforms that have been intended to improve the utility and transparency of auditor report.
These variations have been in effect since 15th December, 2015.Through the existence of the
auditor’s report, the standard report enclosed a host of recommendations on how to better
manage the exposure of auditors to litigation(Morley 2016.). However as a result of the
financial crisis that engulfed the globe, investors had to take a step back. They felt that they
should have been warned of corporate failures prior to the crisis. The investors now demand
more stringent examinations of financial statements by auditors. Under this new enhanced
reporting, the auditors will need to deliver more evocative discernments into the audit
(Kachelmeier,Schmidt and Valentine 2017). This can be done through customised
disclosures. Diclosures of this nature will facilitate an open communication between auditors
and investors. The auditor’s opinion will be presented first. This will be followed by the
section contining the basis for opinion of the auditors report . There will be a new section,
that will be made mandatory for listed entities (Newton et al.2015). This new section will
summarise key audit matters . it is also compulsory for auditors to include a separate section
This section is called the material Uncertainty section about the going concern risk of the
company. In this section there is an uncertainty regarding the ability of the entity to continue
its current form . This requires the management to make adequate disclosures in respect of
this matter.Auditors are also required to include an independence statement. This will declare
the fact that the auditors have satisfied all their ehical responsibilities (Yu et al.2018). The
report analyses the effectiveness of the extended audit reporting procedures of the company
Commonwealth Bank.

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Discussion
About Commonwealth Bank
The commonwealth bank is one of the largest banks in Australia.it provides a host of
financial services and communities all over Australia. It is presently one of the most
reputable financial institutions. It provides institutional banking and wealth management
services to multiple countries all over the world.
Auditor’s Independence Declaration
According to the external auditor of Commonwealth Bank, PWC , the lead auditor
had made an independent declaration . The declaration suggested that the audit contained no
discrepancies regarding the independence requirements of the auditor of the Corporaton Act,
2001 . There was also no discrepancies regarding any breach of professional conduct rules in
respect of the audit(Tepalagul and Lin 2015).
Independent auditor’s report
The auditor’s report , after auditing all the relevant financial statements of a company
came to an unqualified opinion. The opinion stated was that all the financial stattements of
the company is in fact done as per the Corporations Act 2001 . The auditor was also of the
opinion that a true and fair view of the company was provided. The audit also revealed that
the financial positions of the Group was provided.. The financial report also complies with
the Australian Accounting standards and the Corporations Regulations 2001.( Griffiths,
Mendoza and Arthur 2015)so
Non Audit Services performed by the auditor
In addition to the audit related services provided by he auditors at pwc, there were some non
audit services that were payable to the auditor that includes:

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 Project assurance services- this is a service that is provided by the auditor . This
relates to providing an independent and objective oversight of he likely financial
performance of the many projects that the bank plans to finance and undertake in the
future(Bell, Causholli and Knechel 2015).
 Taxation services- the auditor also performs taxation services to the company. This
includes on mainly advising the company on efficient tax planning measures and
providing tax compliance advice.
 Risk management, compliance and controls related works-The auditor also provides
risk management services to the bank. The bank , while financing new projects or
during their operations may get exposed to many risks like credit risk, liquidity risk,
market risk etc. Risk management helps in the identification and evaluation of risks
involved ad suggests out a course of action that helps in minimising the impact of
those risks(Bell, Causholli and Knechel 2015). The auditor also performs internal
control and compliance services which means ensuring that the company has
complied with corporate laws and procedures or not.
A further independent declaration by the auditor in terms of providing non audit services
to clients has been discussed. This states that the non audit services provided by PWC had no
bearing to the requirements of the auditor independence of the Corporations Act
2001.According to the audit committee, the non audit services was provided in conformance
to the generals standard of independence as levied by the Corporations Act
2001(Commbank.com.au 2018).
Auditor’s remuneration
The remuneration that is payable to an auditor is comprised of both audit and non
audit services that is provided to the bank. The audit services include providing statutory

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auditing to the company and forming an independent opinon on the financial statements of a
company. The non audit services on the other hand include, as mentioned above providing
project assurance services, taxation services and risk management services (Chang and Lim
2016). The fees of non audit services has been found to be compatible with the level of
maintaining auditor’s independence. The audit related services mainly includes the reviews
of assurance and attestation of the foreign disclosures of the Group.Other audit services
include internal control review systems and providing financial or supervisory data(Chang
and Lim 2016). The taxation services also included training and assistance facilities .
(Commbank.com.au 2018).
The percentage changes of the auditors remuneration with prior year has been given below:
2017 2016 % change 2017 2016 % change
a) Audit and audit related services
Audit services
PWC australian firm 16643 15779 5.48% 10758 11271 -4.55%
Network firms of Pwc Australian firm 5167 4886 5.75% 705 703 0.28%
total rem for audit services 21810 20665 5.54% 11463 11974 -4.27%
Audit related services
pwc austrlain firm 5765 3433 67.93% 4952 2564 93.14%
Network firms of PWC austrlain firm 981 1083 -9.42% 178 374 -52.41%
total remuneration for audit related services 6746 4516 49.38% 5130 2938 74.61%
total remuneration for audit and audit related services 28556 25181 13.40% 16593 14912 11.27%
b) Non audit services
Taxation services
PWC australian firm 617 1215 -49.22% 197 1161 -83.03%
network firms of PWC 1601 1465 9.28% 834 598 39.46%
total remuneration for tax related services 2218 2680 -17.24% 1031 1759 -41.39%
other services
pwc australian firm 4347 4741 -8.31% 4300 4394 -2.14%
network firms of PWC 534 123 334.15% 0 0
total remuneration for other services 4881 4864 0.35% 4300 4394 -2.14%
total remuneration for non audit services 7099 7544 -5.90% 5331 6153 -13.36%
total remuneration for audit and non audit services 35655 32725 8.95% 21924 21065 4.08%
Group company
Role, composition and functions of the Audit committee
An independent audit committee is very vital constituent in reflecting a good
corporate governance of the company. The audit committee is normally set up by the board of

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directors as a subcommittee . The powers of this committee are set up by the Board itself.
The audit committee helps in supporting the board to fulfil its oversight responsibilities.
These responsibilies relate to areas that include an entity’s financial reporting and systems
of internal control . The committee also helps in risk management services and the external
and internal audit functions(Badolato, Donelson and Ege 2014). In case of commonwealth
bank , the audit committee provides functions like facilitating maintenance of the.
independence of auditor, providing internal control system and making sure that the
applicable laws, regulations and standards have been best complied with. The audit
committee of the Commonwealth Bank has a very important role to play in maintaining that
all the relevant audit and non audit services that have been provided by the auditor have been
duly complied with according to the auditing standards and requirements.
The audit committee should be structured in such a way that it contains at least three
members. All of these members should be non executive directors(Samaha, Khlif and
Hussainey 2015) . Also the majority of them should also be independent directors. This
committee should also be chaired by an independent director . That director however cannot
be the chairman of the board. The members also need to possess a mix of accounting and
financial expertise, coupled with industry knowledge and skills in order to enable them to
perform their duties in this regard. The audit committee of Commonwealth Bank includes:
 Catherine Livingstone – the chairman of the bank
 Shirish Apte- non executive director
 Launa Inman- non executive director
 Harrison Young- non executive director

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The auditor charter, as set out by the Commonwealth bank sets out the authority of the
audit committee to help in carrying out the responsibilities of the members of the audit
committee. This charter empowers the audit committee members to have unrestricted access
to information and any management personnel. It gives them the degree of freedom that is
necessary for the audit committee to keep a strict check on overseeing all audit and non audit
function . These services are however performed by the external auditor . The charter also
pre approves all auditing and non audit services performed by external auditors. Further it
also resolves any disagreement between the management and the auditor(Böhm, Bollen and
Hassink 2016).
Independent Auditor’s report to the shareholders
The opinion of the auditor, after reviewing the financial statemets suggested that the
company has presented a true and fair view of the financial statements . It has also followed
the relevant proviosions of the Australian accounting standards. The financial reports
comprises of
 The balance sheets of the company as on 30th june 2017.
 The income statements of the company The statement of comprehensive income
 The statement of changes in equity
 The statement of cash flows
Basis for opinion
The company also asserted that they obtained enough audit evidence so as to form a
basis for an audit opinion . They also asserted that they have conducted their audit according
to the Australian Accounting Standards. The auditor has expressed an unqualified opinion

9AUDIT, ASSURANCE AND COMPLIANCE
on the financial statements . He has come to this opinion after being presented with all
relevant financial statements(Chan and Vasarhelyi 2018).
Independence
As per the audit report, the auditor asserts that the audit has been accomplished in a
manner that is independent.. The auditor had followed the requirements of the Corporations
Act as per the auditor independence requirements. In addition the auditor also successfully
met the ethical requirements of the APES 110 Code of ethics for Professional Accountants.
This code of ethics is pertinent to the financial audit in Australia. The auditor has also
satisfied all the ethical responsibilities . These responsibilies were put in place with the code
of ethics ( Páez and Liu 2017.).
Audit approach
The auditor asserts that the scope of the audit is to make sure that the audit has been
done in a way so as to ensure that the auditor can formulate an audit opinion on the financial
reports. He can best undertake the scope of his audit if he takes into account the geographical
and management structure of the company. A further understanding of the accounting
process and controls will help him in formulating a better and more thorough review of his
opinion. (Sirois, Bédard and Bera 2018). They have also taken steps that the audit team has
the necessary skills and expertise to undertake an audit of such a complex banking company.
Key audit matters
According to the professional opinion of the auditors , key audit matters represent those
matters that are most significant in the auditing function of a company. The key audit matters
included are:

10AUDIT, ASSURANCE AND COMPLIANCE
1) Provision of impairment of lending assets- This was considered to be a key audit
matter because the managements made subjective judgements in determining whether
the impairment provisions were made against lending assets or not. There was also a
difficulty in approximating the size of such provisions (Commbank.com.au 2018).
The provisions were recognized on the basis of expected future cash repayments.
(Gunn, Khurana and Stein 2018).
The audit procedures performed in this case are:
 Comparing the key assumptions of management to support evidence and market
practices.it is an analytical audit procedure
 Testing the completeness and accuracy of the important data. This data is being
reassigned between the company’s systems and the management models.. It is a
substantive audit procedure(Commbank.com.au 2018).
 Compared key inputs in management’s estimate , like for example the valuation of
securities held(Chan and Vasarhelyi 2018).
2) Determination of fair value for financial instruments- most of the financial statements
of the company are non complex in nature. This is because the fair value is based on
prices and rates . Such rates can be analysed in the relevant financial statements.
( Barker and Schulte 2017). These were found to be financially significant. The audit
procedures performed in this case are:
 The fair value calculation of the group was compared to the calculation of the
auditors. This is an analytical audit procedure .
 The group also procured independent units from market data providers .They used
their own valuation models to implement whether there was any systematic error in
the calculation of fair value or not

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3) Provisions relating to conduct risk, litigation and regulatory action, including related
disclosures- this was considered to be a key audit matter as the company. The
company is expected to conduct key risky matters and solve various legal cases in
numerous jurisdictions. These disputes could give rise to significant liabilities of the
company(Kunkel , Dennis and Garner 2014).
The audit procedures undertaken in this issue include are :
 Making an assessment of the processes of the company that can be used for
classifying and measuring the impact of conduct risk This is considered to be a test of
control
 The management’s judgements were considered . This was done to find out if there
is possible material financial exposure for the company. It was also done to find out if
there was any provision required. This is considered to be an analytical procedure.
Difference of management and auditor’s responsibilities in relation to the financial
report
 The management is accountable for preparaing the financial statements. The
management is liable to implement sound accounting policies and practices that will
help them in preparing the financial statements. The main function of the auditor is
to express an opinion on the financial statements. these statements are prepared by
management(DeZoort and Harrison 2018).
 It is the primary responsibility of management to uncover material errors and
omissions while preparing the financial statements. The auditor’s responsibility is to
conduct the audit as well as report the results. This neds to be done keeping in mind
the generally accepted auditing standards(Commbank.com.au 2018)

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Material Subsequent events
The material subsequent events that are included are:
AUSTRAC civil proceedings- on 3rd August, AUSTRAC started civil penalty proceedings
against the bank. The bank , after taking these allegations seriously has filed a defence in
relation to the matter. The actual outcome will be determined by an Australian court of law
in relation to the legal principles that have been established(Commbank.com.au 2018).
Aussie Home Loan Acquisition- A shareholder named John Symond exercised his put
option.This exercise of put option willl require the comapny to acquire a 20 per cent interest
in AHL. The bought price for the leftover 20 per cent interest will be assessed. It will be
computed in accordance with the conditions that were previosly agreed in 2012.
Effectiveness of the material information
The material information that is reported by the auditor contain a true and fair view of
the financial statement . The information provided by the auditor was material .The audit was
clearly performed in accordance with the audit procedures involved. The material information
is effective in presenting an accurate version of financial statements(Stewart 2015). This
information will help the users of financial statements to make informed decisions.
Lack of Material information
A couple of material informant that is missing from the auditors report include:
 The percentage change in audit remuneration has not been disclosed in the annual
report

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 The financial report did not consider the supplementary information. As a result it
did not expect any form of assurance about them.
 It did not confirm the audit procedures that were undertaken for verifying the
existence and certification of certain items in the financial statements.
Conclusion
After a thorough analysis of the auditors report , it is evident that the company
Commonwealth Bank has applied all the relevant audit procedures and inspected the financial
statements in a fair and responsible way. The resulting opinion has also been illustrated. The
auditors and non auditors services provided by the auditor has been evidently discussed in the
report , including a detailed remuneration chart showing the percentage changes in the
remuneration chart between the year 2016 and 2017. The company has many new key audit
matters , including impairment of lending assets, determination of fair value for financial
matters. The report shows how these matters have been dealt with by the company. It has
made an assessment as to how the auditor has complied with independence requirements and
what audit procedures were implemented on the review of these key audit matters. It also
evaluates the performance of the audit committee and their roles and their performances,
including the charter which states what their responsibility will be. Based on a final analysis
of the audit report, it is evident that the financial statements continue to have a true and fair
view and the audit has been conducted on accordance with the relevant audit standards. The
audit procedures that were followed were appropriate for the preparation of the financial
statements. The audit opinion expressed was an unqualified one, which suggested that the
auditor had verified that all the financial statements and that they reflected a true and fair
view.

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