Auditing and Assurance: Impact of Royal Commission Hearing on AMP Bank

This report analyzes the impact of Royal Commission Hearing on AMP Bank's audit plan, major audit risk areas, general balance sheet and transaction based audit objectives, internal control weaknesses, and recommendations.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
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Table of Contents
1. Introduction......................................................................................................................2
2. Royal Commission Hearing Affecting Audit Plan..........................................................2
3. Two Major Audit Risk Areas of AMP............................................................................3
4. General Balance Sheet and Transaction Based Audit Objectives...................................4
5. Internal Control Weaknesses and Recommendations......................................................5
6. Conclusion.......................................................................................................................6
References............................................................................................................................8

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1. Introduction
AMP Bank selected in this report is deemed to be a renowned financial institution of
Australia that offers a range of residential loans, deposits along with self-mortgaged financial
institutions (Carey 2015). Being positioned as largest retail and corporate superannuation service
provider it also operates the largest risk business all over the nation. The objective of the report is
to analyze the hearing of Royal Commission and its impact on the superannuation, banking and
financial services of AMP Bank. Moreover, it will also analyze the major audit risk areas of
AMP, its general balance sheet and transaction based objectives along with analyzing the internal
control and weaknesses of the company in order to make suitable recommendations.
2. Royal Commission Hearing Affecting Audit Plan
The hearing from the Royal Commission was based on their investigations on the
Australian financial services companies those are involved in misconduct. Such hearing from the
Royal Commission has impacted AMP Company’s audit process as the financial institution
ignored several warnings indicated by the high risk advisors (Chang 2017). The organization
failed to invest in the archaic audit systems along with rewarded planners for sales without
stopping to take into account service quality. In such situation the hearing of the Royal
Commission is deemed to impact the audit plan of the company in accordance with ASA 315
accounting standard. This standard is deemed to affect the audit pan of AMP Company as it
confirms with the Auditing international standards (Galanti 2017). This auditing standard is to be
followed on AMP being a financial institution in “Identifying and evaluating the material
misstatement risks through attaining understanding on organization and its environment” that is
issued by “Auditing Assurance Standards” board.

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Compliance of AMP Company with this auditing standard ensures compliance with ISA
315. The audit plan of AMP Company will be altered after the recent hearing of Royal
Commission on implementation of ASA 315 in the Australian financial institutions (Gillet-
Monjarret and Rivière-Giordano 2017). This auditing standard will apply to the financial report
audit of AMP Company in compliance with “Corporations Act 2001”. As per this standard, the
company needs to recognize and evaluate the material misstatements risks because of error or
fraud through understanding the organization and its surroundings, encompassing the
organization’s internal control. This can further facilitate in designing as well as implementing
responses related with the material misstatement risks (Gordon, Henry, Jorgensen and Linthicum
2017). The audit plan for the financial institutions must also consider whether the information
attained from auditor’s client acceptance is important for recognizing uncertainties related with
material misstatements.
3. Two Major Audit Risk Areas of AMP
Two major audit risks have been identified for AMP Company and it has also been
identified that such accounts are being important. Moreover, the potential effect of the audit risk
on the organization’s financial statements along with offering details on auditing processes to
analyze the account balances affected by such risks (Ismail, Ramli and Darus 2014). One of the
audit risks faced by AMP Company is that AMP was found lying to its regulators because of
which its chief executive turned out to be the first high profile casualty of the commission. It was
also found that the financial advisors of the company failed to comply with the consumers best
interests. Consider the same it has been observed that in AMP the major audit risk that took place
is “conflict of interest” that is taking place in case banks are offering financial advice to its retail
consumers along with selling financial products to them (Persson and Napier 2015).

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Another major audit risk faced by AMP Company is that there was lack of proper internal
control in the bank. As per “Para A50-A73 of ASA 315” it has been observed that the financial
institution failed to attain an understanding of internal control associated with audit (Riaz, Ray
and Ray 2015). Most of its internal controls related with its audit process were not suitably
linked to its financial reporting and all the processes of internal control are observed to be
important to the audit process in AMP Company. The financial institution has also violated
“Para. A77-A87 of ASA 315” the management with consideration to individuals charged with
governance has failed to maintain a culture of ethical behavior and honesty in the audit and
financial reporting process (Riaz, Ray and Ray 2015). The Royal commission has revealed that
violating this standard, AMP Company was involved in charging advise fees without delivering
service and has misled the “Australian Securities and Investments Commissions” through
unethically and unlawfully maintaining internal controls.
4. General Balance Sheet and Transaction Based Audit Objectives
Two relevant general balances based and two transaction based audit objectives relied on
the risk factors identified for AMP Company in previous sections. The balanced related audit
objectives offer a suitable framework that can facilitate auditors in gathering enough suitable
evidences. Balance based audit objectives are implemented to the account balances (Gillet-
Monjarret and Rivière-Giordano 2017). Such objectives are explained below:
 Occurrence or Existence (amounts included exist)- This considers including the
accounts receivable from the consumer within the amount receivables trail balance at the
time there is no receivables from consumers in case they violate the objectives. This also
includes existence deals with potential overstatements in case of AMP Company.

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 Completeness (in which the present amounts are included)- This considers failure to
encompass the account receivable fro the consumers in the trial balance of account
receivables at the time the receivable exists violates such objectives set by AMP
Company (Gillet-Monjarret and Rivière-Giordano 2017).
General transaction based audit objectives of AMP Company are deemed to be the same like
the management assertions that is explained within the problem and facilitate the auditor in
deciding the audit evidences that is important in satisfying management based assertions (Gillet-
Monjarret and Rivière-Giordano 2017). The classification, accuracy, timing along with
summering and posting are considered to be the subset of allocation and valuation assertion.
Certain transaction based audit objectives of AMP Company are also determined by its auditors
for every general transaction based audit objectives. Transactions near the date of balance sheet
needs to be recorded in the proper period. That facilitates in determining whether the transactions
are recorded within the suitable period (Chang 2017). The realizable value is also among the
objective of AMP Company based on which assets must be included at the amounts anticipated
to be realized that encompass doubtful debts provision along with write-down obsolesce
inventory.
5. Internal Control Weaknesses and Recommendations
From gathering the findings of Royal Commission, the internal control weaknesses have
been revealed in the internal control system of AMP Company that can facilitate in controlling
and recommendations on dealing with such control based issues (Riaz Ray 2015). The
weaknesses in the internal control took place in the company as the Chairman and Reporting
authority within the organization were involved in unethical act and has also admitted to mislead

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the ASIC. The recent hearings of Royal commission also revealed that AMP’s share price has
been savaged that caused damage to its reputation and internal control process. Based on the
weaknesses found in the internal control it has been observed that it is not operating effectively
in regard to risks faced in maintaining internal control (Sanderson 2014).
Based on the loopholes of internal control of AMP Company, it is recommended to the
company that its auditors must obtain an understudying of the absence of document risk
evaluation process and observe whether it is suitable in circumstances or determining whether it
indicates a considerable internal control deficiency (Turlington 2016). It is also recommended
that the auditor must attain an understanding on important activities that is employed by the
company in supervising internal control associated with financial reporting along with the ones
those control activities associated with audit. AMP must also consider “paragraphs A110-A121
of ASA 315” in monitoring its internal control process through analyzing material misstatement
risks along with its designing in timing, nature and extent of further audit processes (Werner
2016).
6. Conclusion
The objective of the report was to analyze the major audit risk areas of AMP, its general
balance sheet and transaction based objectives along with analyzing the internal control and
weaknesses of the company in order to make suitable recommendations. It was analyzed from
the report that the hearing from the Royal Commission was based on their investigations on the
Australian financial services companies those are involved in misconduct. The organization
failed to invest in the archaic audit systems along with rewarded planners for sales without
stopping to take into account service quality. It was also gathered that One

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of the audit risks faced by AMP Company is that AMP was found lying to its regulators because
of which its chief executive turned out to be the first high profile casualty of the commission.
Based on the loopholes of internal control of AMP Company, it is recommended to the company
that its auditors must obtain an understudying of the absence of document risk evaluation process
and observe whether it is suitable in circumstances or determining whether it indicates a
considerable internal control deficiency.

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References
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Chang, K.H.V., 2017. Internal audit quality and its association with financial distress: An
Australian context (Doctoral dissertation, Curtin University).
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Ismail, M.S., Ramli, A. and Darus, F., 2014. Environmental management accounting practices
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