Audit Issues of CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE

This report analyzes the necessity of the materiality concept while performing the audit work of any organization. The report contains the details of the audit process of the CYBG bank. The first section of the report contains the detailed elaboration of the materiality misstatements in the audit report. The second section gives an explanation of the various ratios of the company and based on these ratios the decision taken by the auditors. The last part contains the cash flow analysis and the going concern identity of the organization.

Running head: AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
Audit Issues of CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
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1AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Section 1.....................................................................................................................................3
Section 2.....................................................................................................................................6
Section 3...................................................................................................................................13
Conclusion................................................................................................................................14
Reference..................................................................................................................................16

2AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
Executive summary
The aim of the report is to analyse the necessity of the materiality concept while performing
the audit work of any organisation. The report contains the details of the audit process of the
CYBG bank. The first section of the report contains the detailed elaboration of the materiality
misstatements in the audit report. The second section give an explanation of the various ratios
of the company and based on these ratios the decision taken by the auditors. The last part
contains the cash flow analysis and the going concern identity of the organisation.

3AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
Introduction
It is essential for every organisation to maintain a clear and transparent financial
statement to avoid any unmodified report of the auditor and for that reason the organisations
should follow all the international standards of auditing. The international standard of
auditing states that the organisations should disclose all the material misstatements to the
auditor to avoid any risk of losing the going concern identity of the organisation.
Discussion
Section 1
Level of materiality to be used
For financial reporting materiality is the most significant factor that is to be measured
by the auditor. The international standard of auditing highlight the following points that are to
be considered by the auditors:
The material misstatements are considered if they could effect the decisions of users of the
financial statements.
The materiality can be adjudged based on the situation including the scope and nature of the
misstatements.
The user’s common needs as a group is also reflected as base for the judgement of the
materiality.

4AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
The significance of materiality from the viewpoint of the auditors is that the auditors
require rational reassurance concerning the point that the financial statement based on which
the auditor will give his report is free from any material misstatements. The notion of
materiality is the basic need for any audit work. It is used by the auditors at the initial stage of
planning and the while accomplishing the audit work and to assess the effect of the
recognized misstatements on the audit and of uncorrected misstatements in the financial
statements (Graham Bedard & Dutta 2018).
The supervision set by the international standard for auditing is the ultimate principle
for defining the idea of materiality. The auditors follow the procedures of the ISA
requirements on materiality and uses real-world examples to highlight good practices, key
tasks and common drawbacks. The rules and framework of the ISA is made with the aim to
help the audit firms to better comprehend the materiality concept and to make appropriate
planning to evaluate any material misstatements in the financial statements (Brown et al
2018).
There are no permanent methods to determine the materiality but there are three basic
steps following which the auditors will be able to regulate the materiality of the financial
statements these are stated below:
 Setting a benchmark
 Determining the level of the benchmark
 Choice justification
The charter of the IAS looks at these steps and the possible challenges that arise. It
deliver rules concerning the fact that what might be suitable to set exact level of materiality
for specific type of dealings and what to do with the long period transactions where it is
essential to reassess the concept of materiality. The charter also explains what performance

5AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
materiality is, providing the strategies on how it can be determined (Edgley Jones & Atkins
2015).
The application of the materiality concept to recognize the misstatements can be done
by following the guidelines
 Collecting misstatements during the course of audit
 Categorising misstatement affording to the nature
 Valuation of the materiality of the misstatements
 Effect of misstatements on the audit
Unlike the audit of single entity group auditors, the auditors of the group companies
must use judgement to define the group materiality and group performance materiality. The
key variance between the group company audit is that the in group companies the auditors
also have to decide levels of constituent materiality for establishments that have audits for the
purpose of the group audits. The basis of the international standard for audit give the auditors
an idea about the procedure to define the component materiality and component performance
materiality , component materiality of associates and joint ventures and the effect of changes
in group materiality (Brasel et al 2016).
There is no regulation to regulate the level of materiality but it is determined on the
basis of the qualified judgement of the auditor. The two examples of applying a percentage to
a benchmark are for a profit making manufacturing unit, which is 5 percentage of profit
before tax, and for not for profit the benchmark is 1 percentage of before tax profit (Bassey et
al 2018).
The 5-percentage rule is the best quantitative estimates to help the auditor to identify
the potential material transactions and events. The 5-percentage rule states that the reasonable
investors would not be influenced in their investment decisions by a fluctuation in net income

6AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
of 5 percentage or less than that. Nor would the investor be swayed by a series of fluctuation
of less than 5 percentage in income statement line items as long as the net change in
percentage is less than the 5 percentage. This theory has been the fundamental behind the
working materiality estimates and that is the reason why this method has been used to
determine the materiality level of CYBG Plc Cdi 1:1 Foreign Exempt Lse group staples
securities ltd (Dritsas & Petrakos 2018).
In the draft report the following matters has been disclosed by the company
Foundation of accounting
The financial report has been prepared using the same accounting principle that has
been used in the preparation of the previous financial year which indicates that the company
has maintained the principle of maintaining uniformity in maintaining a particular standard of
accounting (Parlier et al 2018).
Corporate evidence
The financial report of CYBG Plc Cdi 1:1 Foreign Exempt Lse group trust and its
controlled entities for the year ended 2018 was approved in accordance with a resolution of
the board of directors of CYBG Plc Cdi 1:1 Foreign Exempt Lse management limited as a
responsible entity of SGT (DeFond & Lennox 2017).
Basis of preparation of the financial report
The company has followed all the regulation of the corporation act and that brings
transparency in the preparation in the financial reports. The company has made all necessary
disclosures in the financial report that are necessary to disclose any material interest of the
related parties (Cassell et al 2016).

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Section 2
The CYBG Plc Cdi 1:1 Foreign Exempt Lse is a full service bank give service to the
UK consumers and small and medium sized enterprises. The company operates its business
under the Clydesdale bank Yorkshire bank and B brands. The bank serves nearly 3 million
customers through online modes like mobile banking and Omni channel model of online
banking with a network of 169 branches and 40business banking centres (Geiger & Kumas
2018).
The receivable turnover of the company is moderate that means the company is able
to realise the amount from the debtors to whom it sales its products. The asset turnover ratio
is moderate and at par with the industry average so it indicates that the company is doing its
business in keeping pace with the overall standard of the industry.

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The return on assets ratio of the company is lower than the industry standard, which
indicates that the assets of the company gives lower return to the company in comparison to
the other companies in the industry. The return on assets of the company is decreasing in the
last three years that is from 2015 to 2018. The auditor should indicate that as a major threat
for the industry (LópezPuertas‐Lamy Desender & Epure 2017).
Return on investment
The return on investment indicates that how much the investors can earn by investing
in the company. This ratio is a good indicator that how well the company is performing in
comparison to its competitors. The return on investment ratio of CYBG PLC CDI 1:1
FOREIGN EXEMPT LSE is NIL and the industry average ratio is 0.01, which means that
the company is performing poorly and for that, it has failed to give good return to its
investors. This indicates that the company will face challenges to sustain for long period in
the industry (Byrnes et al 2018).
Return on equity

9AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
The return on equity is the ratio that indicates that the shares of the company is in
uptrend and the how much return the shareholders will get by investing in the equity shares
of the company. The return on equity of the company is -4.32 percentage that means that the
shareholders will lose their money if they invest in the shares of the company. The company
in this ratio also far behind the industry average and that indicates the organisation is
continuously failed to perform. The auditor will also take a note of this fact and will consider
this issue as a major point in their notes of audit (Gu Simunic & Stein 2019).

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Gross profit margin
The gross profit margin of the company is in a decreasing trend that means that the
company has not been able to control the cost of production and able to generate revenue on
a continuous basis. The gross profit margin is nil which means that the company is not able
to make any profit which is a bad indicator for the company.

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EBITD margin
The EBITD margin indicates that the companies earning capacity before paying
interest, taxes, and other non-cash items. This ratio is also decreasing on a continuous basis
from the year 2015 to 2018. The five-year average ratio of the company is 19.35, which is
lower than that of the other companies .this indicates that the company is not performing well
and that can effect on the share price of the company.
Operating margin
The operating margin of the company is -6.69, which shows the inefficiency of the
company to operate with high profit margin. The industry margin is only 41.50 which means
that the company is far more behind than the industry if the operating ratio is considered as a
benchmark. The poor performance of the company can easily be identified from the results of
the efficiency ratios (Geiger & Kumas 2018).
Net profit margin
The net profit margin is the most important ratio to determine the overall efficiency of
the company. In this ratio, also, the company is behind the industry level, the industry’s ratio
is 32.71 percentage whereas the net profit margin of the company is -10.81 percentage which
i this shows how ineffectively the organisation has performed.
The key risk areas for the audit is that the company is failed to reach the standard of
the industry in all the ratios the poor management of the company is solely responsible for
this and the auditor may address this reason in the audit plan. Not only in the current years
but also in the last three years the organisation has not been able to perform well.
The main five financial assertions are stated below
Existence

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The assertion of existence means that the assets liabilities and the shareholders equity
balances that are appearing in the financial reports of the company really exist or not.
Completeness
The assertion of completeness is an assertion that the financial statements made are
thorough and include every item that should be included in the statement for a given
accounting period.
Rights and obligation
The assertion of rights and obligation is a basic assertion that all assets and liabilities
included in a financial statement belong to the company that is issuing the statements.
Accuracy and valuation
The assertion of valuation is the statement that all the figures that are given in the
financial statements are accurate and based on the proper valuation methods.
Presentation and disclosure
The final assertion of the financial statements is that of presentation and disclosure.
This is the assertion that all appropriate information and disclosure regarding the company’s
financial statements are included in the statement and all the information presented in the
statement is presented in affair and transparent manner that facilitates ease of understanding
the information contained in the statement (Kausar Taffler & Tan 2017).

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Section 3
From the above table it is observed that the company’ cash flow from operation
generates the highest of cash outflows the cash outflow from the operating activity is $1125
and it has increased from $532 in the year 2017(https://www.cybg.com/resources).This
indicates that the company is operating with inefficiency and fail to generates cash inflows
for the organisation.
.
The company has the greatest inflow in the financial activities the net cash outflow
from the investing activity is $386 in the financial year 2018 and in the year 2017 it was
$2085.

14AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
The company‘s primary cash receipt is from the issuance of bonds and amount drawn
down under TFS its main cash payments are from redemption and principal repayment on
RMBS and covered bonds (Lakis & Masiulevičius 2017).
The main non-cash items of the financial activities are the redemption of bonds . The
main non-cash investing activities are the proceeds from the sale of investments .
A going concern is a business that does not have any risk of getting insolvent in the
near future from the review of the cash flow it is observed that the comp any has sufficient
cash position to sustain in the long run. Therefore, there is no risk of the company to declare
itself as insolvent in the near future (Kachelmeier Schmidt & Valentine 2017).
From the audit report of CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE, it can be
observed that the company has maintained all the accounting principles properly and that
there is no material misstatements in the financial statements of the company. The auditor
also gives a clear certificate, which mentions that the company has followed all the principles
of accounting and maintained transparency in recording all the transactions properly. The
auditors have used the ISA 570 audit procedure to measure the going concern risk of the bank
(Hapsoro & Suryanto 2017).
The three main audit issues that affect the major areas of audit are the failure to gather
sufficient evidences, lack of due care in the maintaining documents necessary for the purpose
of audit and the lack of professional scepticism. During the audit work the auditors found
these issues and that they have mentioned in there audit reports.
Conclusion
From the above discussion it can be concluded that the company has followed all the
requisite accounting and auditing principles and does not make any material misstatement in

15AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
the financial reports. The company also have strong financial condition which ensure that the
company will be able to maintain the going concern identity.

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17AUDIT ISSUES OF CYBG PLC CDI 1:1 FOREIGN EXEMPT LSE
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