Key Audit Matters in Australian Banking Companies

This report analyzes key audit matters in Australian banking companies and the importance of transparency in financial reporting. It examines the application of ASA 701 and the compliance with existing rules and regulations. The report also discusses the Lehman Brothers scandal and its impact on auditing standards. The audit processes and key audit matters of National Australian Bank, Bank of Queensland Limited, Commonwealth Bank of Australia, and Westpac Limited are evaluated. Recommendations are provided to improve transparency and prevent misrepresentation and fraud.

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Contents
Introduction............................................................................................................................................3
Extent, research and application............................................................................................................3
Importance, evaluation, analysis............................................................................................................4
National Australian bank...................................................................................................................5
Bank of Queensland limited..............................................................................................................6
Commonwealth bank of Australia.....................................................................................................7
Westpac limited.................................................................................................................................9
Recommendation.................................................................................................................................10
Conclusion...........................................................................................................................................11
References............................................................................................................................................12

Introduction
This report will undertake to examine key audit matters according to ASA 701, which lead to
communicate main key audit matters of organization in order to create transparency
through independent reports of the Auditors. ASA 701 standard identifies that whether
the company strives to communicate right information or not (Chen, and Su, 2016). In
this report, it will be analyzed whether the company has been reporting ASA 701 by
identifying the key audit matters. This report will analyze the annual reports of the
banking companies of Australia such as ANZ, Westpac, national bank of Australia,
commonwealth bank of Australia, and Queensland limited bank. Apart from this, this
report will prioritize the application of ASA 701 and will also try to ensure that financial
reports are prepared transparently with accordance to compliance of all the existing rules
and regulations (Gelderen, Hesselink, Westert, Robben, Boeijen, Zegers, and
Wollersheim, 2017). Further, it is important to value the trust and confidence of the
shareholders and customers because they have the power to create the importance of
corporate social responsibility (Kulikova, Sokolov, Ivanovskaya, and Akhmedzyanova,
2015). In some instance, this report will examine the importance of this standard and the
case of Lehman Brothers bankruptcy has led to the shake AASUB standards to launch the
standard of ASA 701 communicating KAMs so that they can promote transparency
(Kulikova, Sokolov, Ivanovskaya, and Akhmedzyanova, 2015).
Extent, research and application
The best example of non-compliance and lack of transparency in regards to fulfilling the
audit needs and key audit matters in the organization. Further, there is common

discussion of the collapse and scandal of Lehman Brothers. This scandal resulted in
building of the strict AAS where the auditors will be bound to ensure and check whether
the company complies with the accounting standards for the accounts and reports its
transactions. Lehman Brothers scandal is the event of misrepresentation of the data that
has further led to liquidation and bankruptcy with the included environment of great
depression (Chen, and Su, 2016). When complying to accounting standards and achieving
transparency, it has been identified as mandatory action to communicate certain rules and
other key audit matters as per AASB so that auditors can monitor high risk and
fluctuating financial assets in the financial statements. Collapse of Lehman Brothers, it is
seen that there are several loopholes and unidentified gap lying between the directors and
the management, which means there is a lack of communication. In relation to address
transparency, inadequate, internal auditing, and misconduct brought some of the
important regulation in order to address transparency and its compliance. From the
scandal of Lehman, the organization gave home loans to the common people and with the
financial crisis in 2008, the prices of houses shattered like anything leaving the people
who have been asking for the value. Lehman was empty handed and this leads to collapse
of Lehman and bankruptcy. With the collapse of capital market with low market rates,
people are not able to get same level of value (Andersen, and Hansen, 2018).
Importance, evaluation, analysis
KAMs (key audit matters) take into consideration the professional judgment which is directly
associated with the transparency in the financial statements. Auditors will delegate their
perception in regards to financial activities and its relevancy to the description. Audit will
be addressed on the basis of guidelines for the next few years (Chen, and Su, 2016).

National Australian bank
The auditors have strived to interpret some of the items of the balance sheet through current
AASB and further it is seen that whether AASB is applied properly in relation to
transparency. While analyzing the credit impairment and the amortized cost, it is seen
that company comply to reflect to the credit loss model (Saastamoinen, and Pajunen,
2016). The company is aligning with the credit loss model while treating the amortization
and impairment as per AASB. Organisaiton always approached to comply with forward-
looking elements of macroeconomics. The information that is being used to determine the
certain provisions for credit impairment of assets (Saastamoinen, and Pajunen, 2016).
This includes credit quality analysis, transactional data that is captured during the loan
regulation (Yee, Sujan, James, and Leung, 2017). The auditors will examine the
uncertainties related to mathematical appropriateness, examination of processes,
governance model and its related performance where it will become convenient to
examine and look forward for the incorporation of certain factors and also the effect on
the external and internal credit models that does not capture it easily. Importance of
modeling and other assessment will further determine the related overlaps and the
sensitivity while collecting contingencies and provisions where they have applied their
certain modeling assumptions. Auditors have examined, found, managed, scrutinized, and
related climate uncertainties, which is related to loan portfolio. The organization has
included IT experts and actuaries that will further specify the expertise so that other
procedures can be achieved.
It is achieved whether ASIC has been proclaimed where it would a diversification of the
activities, which includes wide reviewing and checking the compliance with necessities

for full disclosures renewal of fees and notices in the factor where this sector can be
influenced. After industry has been checked so as the authorities have attempted to
request NAB to undertake review of sales by authorizing it to other deposit. The auditor
further ensures if company have good liquidity position to earn analysis on the regular
basis. The auditors keep a check on the combination of contracts and behavioral
modeling so that it can represent transparent information regarding balance sheet and
cash flows. Auditors ensure this transparency and at the same time, it maintains a good
quality of liquidity position of the portfolio of assets, which will further enhance and
support business operations. On the other side, it is observed that organisaiton is able to
maintain deposits that are based on stable and maintain a maturity of growth as well as
growth perspectives.
Bank of Queensland limited
The auditor of this organization considers elements such as valuation of software, true
valuation of the financial assets, measuring the goodwill, IT, fair examination of the
assets and also the controlled environment (Bank of Queensland limited, 2018).
The audit process has prioritized that the organisation should test the sample of credit risks,
annual examination of loans, security evaluation, advances, and it related LGD ratios so
that it can identify the portfolio of important items (Bank of Queensland limited, 2018).
Then, it should measure in terms of the independent values of the market so that there can
be a comparison between the results of the consistent items and other collective
provisions, and estimated proceeds from sale (Banker, Basu. and Byzalov, 2016). While
respecting to consider the sufficiency and anticipated loss of credit provisions in which it
includes examination in the light of AASB 9 so that it can avail while pertaining to treat

the credit losses (Bank of Queensland limited, 2018). The auditors have examined
intangible assets where it has evaluated historical correctness while forecasting cash
flows of operating system (Banker, Basu. and Byzalov, 2016). It is further estimated with
the assistance of comparing actual result with the growth rates by inclusive of aligning
the strategic plan. External auditors has conducted the sensitive and its related certain
estimates that is certainly relevant to terminal growth rating, discounting rates, other
forecasting of the growing rates where it identifies some other estimations which has led
to high risk and at the same time ho consistent it is when applying it (Bank of Queensland
limited, 2018). The organization will make ensure that it have worked with experts,
valuation of specialists, comparison of the growth rates, knowledge of the experts, and
terminal growing rate so that it can identify some of the assumptions to ensure the usage
of model used. This has tested feasibility of the assumptions as used in the model of
terminal growth rate (Bank of Queensland limited, 2018).
Auditors have ensured it is important to design and the efficiency in order to communicate
key audit matters to access mainstream huge control when setting relevance for the
financial instrument, which is being measured through market risk processes. To set a
usage of valuation of models, the organisation utilizes external data with other
independent reports of the market so that deviation can be found (Banker, Basu. and
Byzalov, 2016).
Commonwealth bank of Australia
It has been observed that there are KAMs are being addressed internal and external financial
statements when forming other opinions. The auditors avails a separate thoughtful
according to the 701 communicating key audit matters where commentary outcomes for a

process will be related to committee of the auditors (Commonwealth bank of Australia,
2018). Main key audit matters is being evaluated that is based on policy holder assets and
liabilities with an exceptional valuation of whole group and company (Commonwealth
bank of Australia, 2018). With the help of annual reports, it is seen that there is the
probability that auditors might use subjective critical reviews when determining and
further identifying the provisions of the impairment, which is going to give assets on
lease basis (Manea, 2016). It is seen that auditors have created a suitable understanding
and controlling which is very relevant to operating cost. It led to find the impaired loans
and its relative reliability in the organization (Commonwealth bank of Australia, 2018).
The corporate will effectively take into consideration the relative reliability of the
organization. The company runs and assists in examining main auditing aspect in regards
to maintain the timing and the amount of recoveries as prepared according to the
borrowers, its related parties, and the detailed loans according to the information as well
known by the company (Commonwealth bank of Australia, 2018). The auditors have
compared main and key inputs while estimating in regards to external data where it is
able or not. The auditor finds the appropriateness of the data which has been transferred
by the big data system and its relation to provisional models. In order to maintain the
same level of transparency, it is seen that auditor has compared the modeled further
calculations so that organisation`s anticipated calculation is based on sampling
(Commonwealth bank of Australia, 2018).
With an aim to avail whole transparency, the auditors have ensured that the organization has
to include main review reports, such as director`s report, informational and other strategic
reports, corporate governance and other performance review reports (Hussein, 2019).

While relating it to the annual reporting, the organization identifies that it is properly the
responsibility according to ASA 701 communicating the key audit matters (Harvey,
2018). In regards to it, the organization has been communicating the main concerns such
as materiality and other consistent in regards to the financial statements (Hussein, 2019).
The auditors have revealed that company greatly holds instrument which has been measured 17
percent of entire total assets among the whole industry group. Instrument includes life insurance
assets and liabilities, bill discounting, and liabilities valued on the basis of fair value. Auditors
have evaluated on the basis of fair value adjustments, model governance, and it has valued to
create other models in order to evaluate the fair value (Saastamoinen, and Pajunen, 2016).
Westpac limited
The auditors of this company have concerned regarding the operating efficiency of the controls
for the expense of impairment. For Westpac, it is seen that the majority of key concern areas are
credit risks, control for the IT system, impairment models, governance, and regular assessment
so that they will manage and communicate data with the underlying understanding of process of
approvals, economic outlays, impairment model, and underlying data. Auditors have identified
that company has been communicating in regards to credit loss model to include the analysis of
the inherent as required by the requirement of AASB 9 (Banker, Basu, and Byzalov, 2016). It is
seen that further the company assess the appropriateness of the big data that it maintains,
checking the transparency with the help of reconciliation of the source system. The auditors of
the company have marked the assessment so that the unit pricing control, model validation,
external custodians, and other various models can regulate it in order to approve new ventures
and projects. It is seen that it is the extent to which collecting the prices have resulted to the
value of market prices and the relevant observable prices so that t last it can determined in the

financial instrument. The auditor has been using the sources of the current market to order to
provide valuation methods.
Recommendation
With an aim to improve and decrease the circumstances of increasing misrepresentation and
frauds, it is seen that it is important to control and regulate a set of steps so that it can improve
the perception of the shareholders (Brunelli, 2018). Lehman Brothers is the best example who
kept charging from the customers at such a high rate. Collapse of Lehman Brothers has led to the
formation of 701 communicating the key audit matters. AASUB has undertaken serious steps for
the misconducting and leading to formation of new reports so that it can improve the
transparency and confidence among the shareholder among the external environment (Brunelli,
2018). The banking industry already suffers from high risk as it intends to raise more debt as
compared to employing equity, as it is important for the banks to keep a check on the operations
of the company whether an appropriate capital structure has been managed or else it will lead to
case of bankruptcy. Therefore, it is important to monitor each transaction regularly to prevent the
poor situations (Brunelli, 2018).
It is the accountability of auditors to scrutinize the financial information of the corporation to
monitor whether stakeholders’ investment is not in danger. This analysis will always signify that
organization that it will create better another greater obliged of legislatives so that companies
who lack of transparency will start complying with the rules and regulation in the company that
will further create confidence among the shareholders in order to make their investment plan. It
is significant to ponder over the auditor`s report of the company so that it will further influence
the competency of the enterprise and apprise it with the faintness of the association. The

organization will u that auditor should conform to the center control faintness and procedures by
investigating the reports, documentation, and operating processes at the same time.
Conclusion
After analyzing the annual report of the banking sector, it is seen that companies such as
Westpac, National Australian Bank, commonwealth bank of Australia, and bank of Queensland
has been meeting the KAMs through communicating the audit matters, as stakeholders are highly
dependent on it.

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