Audit: Analysis of AMP Ltd's Business Operations and Risks

This audit assessment analyzes the business operations of AMP Ltd, including its competitors, legal requirements, and inherent risks. It also identifies key accounts at risk and discusses the decision to conduct an audit.

Running head: AUDIT
Audit
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussion........................................................................................................................................4
Areas of Operation of the business..............................................................................................4
Four Major Competitor of the Business......................................................................................5
Laws Affecting the Operation of AMP ltd..................................................................................5
Four Key Inherent Risks of AMP Ltd.........................................................................................7
Five Accounts at Significant Risk...............................................................................................9
Decision to Conduct Audit........................................................................................................10
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................12

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Executive Summary
The assessment aims to analyze the business of AMP ltd which is engaged in the business of
providing financial products such as superannuation and insurance products. The assessment
shows the area of operations of AMP ltd and also identify the risks which the business faces
from the perspective of audit. The assessment would be identified the key competitors of the
business in the industry and also the legal requirements which businesses need to follow in the
economy. The different laws and regulations to which the company complies with is shown in
the discussion. The assessment deals with accounts which are under risk from the perspective of
audit and how the same risks affect the business is AMP ltd is also shown.
Introduction
Audit is an independent examination of the books of accounts for the purpose of
determining whether the financial statements which is prepared by the business are true and fair
view of the financial position of the business. The main purpose of conducting an audit is to
ensure that the investors are provided with all the information which would help them to take
appropriate investment decisions. In some cases, audit is also used by businesses as a measure to
ensure that no misconduct is taking place in the organization and the internal control of the
business is working appropriately (DeFond and Zhang 2014). The process of audit requires the
auditor to effectively assess and identify risks in the financial statements of the business
(Louwers et al. 2015). The process of audit is important as the audited balance sheet is
considered by the investors before they any decisions regarding investment in a business.
The assessment aims to analyze the operational activities of a company on the basis of
which the business generates revenue and also identify the risks which are faced by the business.

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The company which is being considered in the assessment is AMP ltd. AMP ltd is one of the
listed Australian company which is engaged in providing financial products such superannuation,
investment and insurance products to the customers. The company is regarded as one of the
leading businesses in the industry (Corporate.amp.com.au. 2019). The company also has
operations in New Zealand and as per estimates the company is recognized to have one of the
largest shareholder’s register in comparison to other businesses which are operating in the
industry.
The assessment would be recognizing four other close competitors of the business of
AMP ltd and analyze the business environment in which the company operates. The assessment
also deals with analysis of the core business activities of AMP ltd and what are the risks which
the company faces. For the purpose of assessing the risks, the auditor’s report and annual report
of the business is considered for the year 2017.
Discussion
Areas of Operation of the business
The business of AMP ltd is engaged in the operation of providing financial products to
the customers and is considered to be engaged in financial sector of Australia. Some of the
activities or products which is offered by AMP ltd are setting up of superannuation funds,
investment options and also offers insurance contracts to the customers. The company has
systematically helped the residents of Australia to achieve their financial goals for almost 170
years (Corporate.amp.com.au. 2019). The management of AMP ltd is trying to expand the
operations of the business internationally for which the annual report of the company shows that
the management has provided increased emphasis on developing and enhancing the core

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strengths of the business. Some of the areas where the business has diverted the focus is
Australian wealth management, AMP Bank and AMP Capital which are subsidiaries which
operate under the group (Corporate.amp.com.au. 2019). The focus of the business is on the
activities which are undertaken by such companies.
The company specializes in providing retirement solutions to the general people and the
annual report of the business shows 142,000 customers in Australia live well in retirement due to
continuous effort of AMP ltd (Corporate.amp.com.au. 2019). Another area which is developed is
the wealth management services which is provided by the business and the same is done through
insurance products, superannuation funds. AMP is a leading life insurer and provides policies
that are held by individuals or are a part of their superannuation fund.
Four Major Competitor of the Business
The market in which the business of AMP operate in is highly competitive as a lot of
banks are also involved in providing financial products to the customers. In case of Australia, the
four major banks of Australia are also engaged in providing similar products in the market. In
addition to this, the financial products which are provided by different businesses are not much
different from each other and only difference which may be there is relating to the rates of
interest and time duration for financial products like retirement schemes and superannuation
funds. Therefore, it can be clearly being said that the market for financial sector is highly
competitive in nature.
One of the major competitor of AMP ltd is Westpac which is into banking services but
the business also provides financial products which are similar to the products which are offered
by AMP ltd. Another maj0r competitor of the business is Suncorp ltd which has similar

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operations as AMP ltd and the company is also popular among the people. National Australian
Bank (NAB) is also considered to be one of the close competitor of AMP ltd and the scale of
NAB is much wider than AMP ltd and therefore provides serious competition to the business.
Another main competitor of AMP Ltd is ANZ bank which also has operations both in Australia
and New Zealand and also offers similar product to the customers of the company.
Laws Affecting the Operation of AMP ltd
The market in which AMP ltd operates is highly competitive and changes can take place
in an instant. The financial markets of Australia are regulated by two authorities who have
different roles, which are Australian Securities and Investments Commission (ASIC) and
the Australian Prudential Regulatory Authority (APRA). The financial services industry
continues to be subject to significant regulatory change. The management of AMP ltd has to
follow the regulations which is related to insurance, superannuation contracts. In addition to this,
the management also needs to adhere to banking regulations as AMP bank also falls under the
group.
The business also needs to following the taxation rules which is applicable on the revenue
which is generated by the business during the period. The tax regulations which the management
of the business needs to adhere to is enforced by Australia Tax Office (ATO). In addition to this,
the business also needs to follow the Corporation Act 2001 which is applicable on all companies
and ensure that no rules of the same is violated. The Corporation Act of 2001 regulates the
different matters of the firm such as operations of the firm, its formation, duties of the officers.
The annual report of the business shows that a certain amount of tax is paid by the business and
the same is as per the regulations of taxation rules. In addition to this, the auditor’s report

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confirms that the management of the company has followed all regulations of Corporation Act
2001.
The management of AMP ltd also needs to focus on environmental regulations which
requires the business to not conduct any activity which can harm the environment in any way.
This falls under the corporate social responsibility of the business. In the normal course of its
business operations, AMP is subject to a range of environmental regulations and the annual
report of 2017 clarifies that all the environmental regulations which is applicable on the business
is efficiently followed by the management of the company. The environmental legislations are
important and should be followed by the management of the company in order to demonstrate to
the public that the business is not only thinking of making profits but also thinking for the
welfare of the community as a whole.
The next major law which the management of the company needs to adhere to is the
employment law which are formulated by the government for the purpose of ensuring that the
management of the company are taking all the necessary steps for creating a safe and healthy
working environment for the employees. The business of AMP ltd also needs to take care of the
brokers of the business and ensure that all the needs and expectations of the employees are
fulfilled. In addition to this, the management of the company is also responsible for
implementing a code of ethics which every individual is expected to follow in the organization.
The code of ethics is implemented in order to ensure that no employee of the business engages in
any misconduct or illegal activity.

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Four Key Inherent Risks of AMP Ltd
Inherent risks refer to the presence of omission or misstatement in the financial statement
which might materially affect the annual reports of the business. There are various factors which
affect the inherent risks of the business, however, the management of a company can minimize
the same by incorporating a proper internal control system (Coetzee and Lubbe 2014). The
inherent risks of AMP ltd is identified after assessing the annual report of the business for the
year 2017. The four key inherent risks which can be identified from the annual report of the
business is shown below in details:
 The annual report of the business shows that there is a life insurance contract liability and
the same is shown to be of significant amount which is $ 23,683 million. The item is also
included in the key audit matter of the business and considered to be an item at risk.
There is a risk whether the business has appropriately valued the life insurance contracts
or not (Ruhnke and Schmidt 2014). If the same is not valued properly, the financial
statement would be showing in appropriate results and the actual financial position of the
business would not be available.
 The income statement which is prepared by the management of the company shows
significant increase in the revenue which is generated by the business which is the main
reason that net profit of the business has significantly risen during the year. The interest
income, dividend which the business receives on financial assets has increased
significantly during the year which the auditor needs to ensure that there is no
manipulations involved in the same (Johnstone, Gramling and Rittenberg 2013). There is
risks that some of the items may be misappropriated so that a proper profit figure can be
shown in the annual report of the business.

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 The company has made investments in financial assets which is shown in the annual
report of the business for the year 2017. Investments which is made by the business in
financial assets amount to $ $136,675 million and the same represents 92% of the total
assets of the company (Bentley, Omer and Sharp 2013). The valuation of investments is a
complex process and there is a risk that if valuation process went wrong the financial
position of the business would be showing inaccurate results. The auditor of the business
has included the item in Key audit matters of the business.
 The balance sheet of the business also shows intangible assets and goodwill of the
business which might also be under risks. Goodwill and intangible assets total $3,218
million and represent 2% of total assets. The goodwill of the business is valued at
historical cost which suggest that the goodwill represent purchased goodwill and the
auditor needs to confirm whether all impairment charges and amortization is allowed on
goodwill and intangible assets of the business. The auditor needs to apply verification
procedures for the same or take help from an expert for appropriately valuing the
goodwill of the business. The same is also included in the key audit matters of the
business.
Five Accounts at Significant Risk
The annual reports of the business show that there are several accounts which are at risk
of being misrepresented and the same needs to be identified by the auditor of the business and
necessary steps is to be taken by the management of the company in order to ensure that the
financial statements are showing true and fair view. The five accounts which can be recognized
from the annual report of the business for being at risks are listed and explained below:

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 The investments which is made by the business in financial assets are assessed to be
significantly at risk. The figure which is shown in the balance sheet of the company
forms a major part of the total asset figure. Therefore, if the figure is misrepresented the
entire financial position of the business would be affected. The misappropriation of the
investment in financial assets would suggest that the assets are cooked to be more than
the liabilities of the business which is not favourable (Guénin-Paracini, Malsch and Paillé
2014). The auditor in key audit matters section states that the valuation of such
investments is complex in nature and therefore difficult to assess whether the item is
fairly represented in the balance sheet of the company.
 The goodwill and intangible asset figure which is shown in the balance sheet of AMP ltd
is shown to be of significant amount and the account is under risk as the valuation and
representation of the assets is not accurate (Jha and Chen 2014). The valuation of
intangible assets are subjected to impairments, amortization which makes the valuation
process a bit complex in nature. The auditor of the business needs to apply verification
process on the same and he can also take the work of an expert of the field. The
intangible assets of the business also include rights and technology and the same can be
hacked by cyber criminals.
 The liability side of the business shows life insurance contract which is undertaken by the
business. The same represent a significant amount in the liability section of the balance
and therefor need to be considered by the auditor (Bratten et al. 2013). The amount is
shown to have fallen slightly and the sane is also included in the key audit matter of the
business. In the case of AMP ltd, the key issue is the valuation of assets and liabilities of

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the business. The auditor needs to take a help of an expert in effectively valuing the life
insurance contracts of the business.
 The cash and cash equivalent balance is shown to be appropriate in nature as per the
annual report of the business but the auditor still needs to check the same in order to
ensure that there is no material misstatement in this respect. The cash balance is
considered to a major account in a balance sheet of the business and any misappropriation
in the same can misguide the users of the financial statements.
 The annual report of the business of AMP ltd for the year 2017 also shows that the
expenses of the business is significantly high and therefore the auditor needs to apply the
practice of vouching to reveal whether the expenses which are incurred by the business
are genuine or not. The expenses directly affect the profitability of the business and this is
very important as the investors of a look for a profitable business and not for a business
whose profit is declining.
Decision to Conduct Audit
The above discussion shows that the financial statement which is prepared by the
management of the company is filled with significant risks and therefore the management of
AMP ltd needs to undertake audit process in order to assess the financial aspects which are
reported in the annual report are showing true and fair view or not. The risks which are identified
by the business are not much major in nature and the management of the company can conduct
audit in order to get assurance that the financial statement of the business is showing accurate
view of the current financial standing of the business (Knechel and Salterio 2016).
The corporate governance of AMP Ltd is weak as the business currently has suffered by
from a scandal where the business has been held for charging higher prices. Therefore,

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conducting an audit of the financial statement would be the best approach which can be taken by
the management in order to get back the confidence of the stakeholders of the business. The
management of the company can maintain a certain level of transparency in reporting by
conducting an audit of the financial reports.
Conclusion
The above discussion shows analysis of different operations and performance of the
business of AMP ltd for the year 2017. The analysis is conducted with the help of the annual
report of the business. The above discussion also shows the business risks which is faced by the
business of AMP ltd as per the 2017 annual report. The management of the company needs to
take necessary steps to improve the financial reporting process and also ensure that all relevant
and material information are included in the annual reports. The above assessment also
recognizes five accounts of AMP ltd which are represented in the annual reports which faces
significant risk. The discussion is conducted from the perspective of an auditor and the
identification and assertion for the risks are on the perspectives of the auditor.

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Reference
Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting
irregularities, and audit effort. Contemporary Accounting Research, 30(2), pp.780-817.
Bratten, B., Gaynor, L.M., McDaniel, L., Montague, N.R. and Sierra, G.E., 2013. The audit of
fair values and other estimates: The effects of underlying environmental, task, and auditor-
specific factors. Auditing: A Journal of Practice & Theory, 32(sp1), pp.7-44.
Coetzee, P. and Lubbe, D., 2014. Improving the efficiency and effectiveness of risk‐based
internal audit engagements. International Journal of Auditing, 18(2), pp.115-125.
Corporate.amp.com.au. (2019). Reports. [online] Available at:
https://corporate.amp.com.au/shareholder-centre/results-reporting/reports [Accessed 9 Jan.
2019].
DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting
and Economics, 58(2-3), pp.275-326.

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Guénin-Paracini, H., Malsch, B. and Paillé, A.M., 2014. Fear and risk in the audit
process. Accounting, Organizations and Society, 39(4), pp.264-288.
Jha, A. and Chen, Y., 2014. Audit fees and social capital. The Accounting Review, 90(2), pp.611-
639.
Johnstone, K., Gramling, A. and Rittenberg, L.E., 2013. Auditing: a risk-based approach to
conducting a quality audit. Cengage learning.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Ruhnke, K. and Schmidt, M., 2014. Misstatements in financial statements: The relationship
between inherent and control risk factors and audit adjustments. Auditing: A Journal of Practice
& Theory, 33(4), pp.247-269.