Accounts at Significant Risk in Auditing and Assurance

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author’s Note

AUDITING AND ASSURANCE1
Table of Contents
Accounts at Significant Risk......................................................................................................2
Key Assertions at Risk...............................................................................................................3
References..................................................................................................................................5

AUDITING AND ASSURANCE2
Accounts at Significant Risk
Goodwill – Note 22 of the 2018 Annual Report of National Australian Bank (NAB) discloses
the accounting policies used by the bank for the accounting of Goodwill (nab.com.au 2019).
This section states that NAB considers fair value accounting for the measurement of goodwill
and the company is needed to follow the principles of AASB 138 Intangible Assets for the
valuation of goodwill. The value of goodwill of NAB in 2018 is $2,863 million that is a huge
amount. It needs to be mentioned that the management of NAB has used certain key
assumptions as well as judgements in the areas of determination of the fair value of goodwill,
recoverable amount of the Cost Generating Units (CGU) and impairment. This account can
be at significant risk due to the presence of the above-mentioned key judgments as well as
estimates (Johnstone, Gramling and Rittenberg 2013).
Fair Value of Financial Instruments – According to Note 20 of the 2018 Annual Report of
NAB, financial instruments that NAB holds at fair value include both the derivative assets
and liabilities; such as loans and advances, bonds, notes, trading and hedging derivatives,
equity instruments, trading instruments and debts instruments (nab.com.au 2019). It can be
seen that NAB ha used Level 1 that is quoted market price or Level 2 that is market
observable prices for the measurement of financial instruments. The balances of Level 3 of
the financial assets and liabilities that are $569 million and $76 million respectively are
significantly smaller than the value of Level 1 and Level 2; and the value of assets is nearly
similar to the previous year. The presence of two aspects can lead to this; first, the materiality
extent of the financial instruments recorded at the fair value; and second, inappropriateness in
used judgements as well as involved complexities in the estimation of the fair values of these
financial instruments. For this reason, this account can be considered at significant risk
(Ruhnke and Schmidt 2014).