Audit Strategy for ANZ Bank New Zealand Limited

This article discusses the audit strategy for ANZ Bank New Zealand Limited, including its financial data, ratios, objectives, strategies, and related business risks. ANZ provides diverse financial products and services to consumers and businesses in 34 countries. The major customers of the bank are Australian consumers and businesses. The article also covers ANZ's accounting policies, related parties, and measurement and review of financial performance.

Auditing & Assurance (BBAC601)
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Audit strategy
The Client
Name:
ANZ Bank New Zealand Limited
Address:
Melbourne, Australia
Year of Establishment:
1st October 1951
Field of Operations:
Bank is specialized in providing diverse range of personal and business financial solutions.
Period of financial report period under consideration:
2016-2017
Type of financial report:
The financial report prepared by the banking Group are consolidated that is integrating
the financial results of the bank and all its subsidiaries
Industry, regulatory and other external factor
Economic Condition
The financial system within Australia is presently in a good economic condition. Banks
have increased resilience to adverse conditions as they have maintained capital ratios above
regulatory minimums. The high capital generation within the banks of the country is supported
by high level of aggregate profit due to good performance of the banks in the current and past
period of time. Also, there is less evidence in relation to occurrence of bad and doubtful debts in
the banks and also the non-performing assets have stabilized over the period of six months. The
credit growth rate of the banks is good and there is also increase in the foreign lending by the
banking sector of Australia (Financial Stability Review, 2017).
Law and Regulations
Banks operating within Australian banking sector are regulated and monitored by the
Australian Prudential Regulation Authority (APRA). APRA directs banks over maintaining the
adequate capital ratios and also works actively to increase their resilience. The monetary policy
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directing the banking functions is developed by the Reserve Bank of Australia (RBA) (Financial
Stability Review, 2017).
Level of competition
The level of competition with the Australian banking sector is moderate as the banking
operations are controlled b the big four banks within the country (Competition, Efficiency and
Innovation in Banking, 2014).
Name of main competitors
The four major banks within the country possessing high level of competition are
National Australia Bank (NAB), Commonwealth Bank (CBA), Australia and New Zealand
Banking Group (ANZ) and Westpac (WBC).
Level of government’s support
The banking institutions within Australia are largely supported by the government. The
recent Financial System Stability Assessment is developed by the government to provide its four
major banks a funding subsidy (The Australian Government Guarantee Scheme: 2008–15, 2016).
Level of demand for goods or services provided
The wide range of products and services provided by the bank is in high demand by the
Australian consumers and businesses. For example, bank lending is a major source of external
financing for small and medium sized businesses within Australia. The counseling services of the
bank are in high demand by the retail customers for gaining advice on related financial needs and
investment.
Current or potential significant barriers to entering the Industry
The current barriers of entry to Australian banking industry are high capital requirements,
license laws and strict regulatory compliance. The potential barriers of entry are increased level
of competition by the big four banks of Australia (Financial Stability Review, 2017).
Nature of the entity
Its operations
ANZ provides diverse type of financial products and services to the consumers. These
include internet banking, bank accounts, credit cards, home loans, personal loans, travel and
international, investment and insurance.
Major customers
The major customers of the bank are Australian consumers and businesses.
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Specific Class of Customers
ANZ provides it’s banking products and services within 34 countries but its specific class
of customers include Australian and New Zealand consumers.
Major suppliers
The major suppliers are Telco Company for landlines and internet services, printers and
suppliers of office related products, packing material suppliers, courier, transport and shipping
services suppliers (ANZ Group: Supplier Code of Practice, 2018).
Ownership’s structure and details about corporate governance
ANZ ownership structure can be defined through its executive committee, including
Chief Executive Officer and other members working as Group Executive in the bank. There is
presence of an effective structure of Board of Directors, audit committee risk and remuneration
committee for ensuring the presence of sound corporate governance policies within the bank.
Operational structure
Business structure comprises of several distinct segments such as retail and corporate &
commercial banking unit, institutional division, investment, insurance and counseling services.
Accounting policy
Main accounting policies
ANZ develop its financial statements as per AASB standards and Corporations Act 2001.
The valuation of financial instrument by the bank is carried out at fair value that is quotes in
relation to the market process in an active market. The goodwill and other intangible asset are
also valued at fair value by the banking group.
Changes in the year compared to prior years
Here has been significant changes in the financial report of the bank in relation to the
presentation of credit risk. For example, industry classification is shown separately for New
Zealand residents.
Impact due to change in Accounting Standards
ANZ Banking group has replaced accounting standard of AASB 139 BY AASB 9 in
relation to the recognition and measurement of financial instruments.
Related Parties of the ANZ Bank
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As per IAS 24 there is requirement to disclose the related parties of the reporting entity.
The related parties can be controlled or non controlled entities. Controlled entities refer to the
entities that are in control with any reporting entity and it is mandatory to include the controlled
entities in the consolidated financial statements. Reporting entity has the power to control the all
the activities and management at the controlled entities. On the non controlled entities are those
entities that are not the controlled entities and has no control of reporting entities. Non controlled
entities are not included in the consolidated financial statements.
Following are controlled entities of the ANZ Bank:
(Annual Report, 2017)
Following are non controlled entities that are owned by the ANZ Bank on the reporting date:
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(Annual Report, 2017)
Preliminary analytical procedures
Financial Data Year 2016 Year 2017
AUD in million AUD in million
Net Profit $ 5,720.00 $ 6,421.00
Revenue $ 29,951.00 $ 29,120.00
Total Assets $ 914,869.00 $ 897,326.00
Total Equity $ 57,818.00 $ 58,959.00
Financial Ratios
Ratios Year 2016 Year 2017
Net Profit Ratio 19.10% 22.05%
Return on Assets 0.63% 0.72%
Return on Equity 9.89% 10.89%
Comment on the above ratios:
Net profit ratio: Net profit ratio shows the percentage of net return that company earns in one
reporting period. This ratio is very significant from the investor’s point of view as well as
management point of view. It is essential to compute this ratio perfectly so that profitability
position of the company can be ascertained. The net profit ratio of ANZ Bank was 19.10% in
year 2016 and it got increased to 22.05% in year 2017. It means there has been significant
increase in this ratio in the current reporting period. It is duty of the Auditor to verify the
increase in net profit in the current year is true and represents correct position on the reporting
date (Damodaran, 2011).
Return on Assets: Return on assets ratio provide the percentage of net return earned by the
company through using the assets of the company. This ratio is important as it shows how
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efficiently the assets of the company are used to earn one dollar net profit. The return on asset
ratio of ANZ in year 2016 was 0.63 % and it got increased to 0.72% in year 2017. It shows that
company does use the assets in most efficient way as return on assets was less than 1 % (Davies
and Crawford, 2011).
Return on Equity: Return on equity shows amount of one dollar earned by the entity using the
equity as reported in the financial year. This ratio is expressed in terms of percentage and it is
very essential form the management point of view. The return on equity was 9.89% in year 2016
and it got increased to 10.89% in year 2017, reflecting a growth of exact 1% in the current
financial year as compare to previous year (Annual Report, 2017)
Objectives, strategies and related business risks
The main objective or strategies of the ANZ is to use the strong Australian and New
Zealand Foundation, market lending service and insights and distinctive geographic locations to
meet the needs of the customer and to capture and opportunities in more better way. There are
many business related risks that ANZ bank has to go through and make strategies to overcome
them. Some of important business related risks that company has to face are capital adequacy
risk, compliance risks, credit risk, insurance risk, liquidity and funding risk, market risk,
operational risk, reinsurance risk, reputation risk, and strategic risk (About ANZ, 2018).
Measurement and review of financial performance
On the basis of remuneration report, it has been found that management assesses the
performance of CEO, groups and each disclosed entities at the end of each financial year. In this
performance assessments there has been review based on annual target and progress that has
been made by each official towards the long term goals of the company (Annual Report, 2017)
.
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References
About ANZ. 2018. ANZ: Profile. [Online]. Available at: http://shareholder.anz.com/our-
company/profile?_ga=2.163307964.104543023.1524536263-724484881.1524536263 [Assessed
on: 23 April, 2017].
Annual Report. 2017. ANZ. [Online]. Available at:
http://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf [Assessed on: 23
April, 2017].
ANZ Group: Supplier Code of Practice. 2018. [Online]. Available at: http://www.anz.com/about-
us/corporate-sustainability/supply-chain/supplier-code-practice/ [Accessed on: 24 April 2018].
Competition, Efficiency and Innovation in Banking. 2014. [Online]. Available at:
https://www.rba.gov.au/publications/submissions/financial-sector/financial-system-inquiry-
2014-03/competition-efficiency-and-innovation.html [Accessed on: 24 April 2018].
Damodaran, A, 2011. Applied corporate finance. John Wiley & sons.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Financial Stability Review – April 2017. 2017. [Online]. Available at:
https://www.rba.gov.au/publications/fsr/2017/apr/aus-fin-sys.html [Accessed on: 24 April 2018].
IFRS. 2018. IAS 24 Related Party Disclosures. [Online]. Available at:
http://www.ifrs.org/issued-standards/list-of-standards/ias-24-related-party-disclosures/#about
[Assessed on: 23 April, 2017].
The Australian Government Guarantee Scheme: 2008–15. 2016. [Online]. Available at:
https://www.rba.gov.au/publications/bulletin/2016/mar/5.html [Accessed on: 24 April 2018].
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