Auditing and Assurance

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
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AUDITING AND ASSURANCE1
Table of Contents
Introduction:...............................................................................................................................2
Rationale for ASA 701:..............................................................................................................2
Explanation on ASA 701...........................................................................................................3
KAMs of the Companies under Australian Banking Industry...................................................3
Industry Selection...................................................................................................................3
KAMs of the Australian Banks..............................................................................................3
Bank of Queensland...............................................................................................................3
ANZ Banking Group Limited................................................................................................3
Commonwealth Bank.............................................................................................................4
National Australian Bank.......................................................................................................4
Medibank Private Limited......................................................................................................4
Westpac Banking Group........................................................................................................5
Conclusion and recommendations:............................................................................................5
References:.................................................................................................................................6

AUDITING AND ASSURANCE2
Introduction:
Recently there has been a major engagement of auditors is noticed in the collapse of
bigger company. This happened when the auditors failed to take into the account the fraud
acts or events in financial report that contributed to collapse of the company. To avoid further
frauds, some important changes is introduced in the audit procedure. The introduction of
ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report (ASA
701) can be regarded as one such changes that has increased accountabilities of the auditors
relating to the recognition and reporting of key audit matters as well as issues for the benefit
of audit clients and financial report users (Kumar and Sharma 2015). The purpose of this
report is to assess the primary rationale for introducing the new auditing standards where
focus is placed on the main reason that contributed to the decline of Lehman Brothers.
Following this, the report would assess the auditor’s efficiency in recognizing and reporting
the Key Audit Matters of the ASX to top 100 listed banks in Australian banking industry
(Auasb.gov.au 2019). The report would be providing the recommendation relating to the
ASA 701 based on the analysis made.
Rationale for ASA 701:
In order to locate the material misstatement, the auditors are under obligation of
testing the financial reports. In the recent years it is noticed that there has been a decline in
auditor’s responsibility and this decline is evidently noticed in the biggest downfall of
companies all across the world (Murdock 2016). The decline of Lehman Bros is an important
example where its auditors Earnest & Young were mainly accountable for the failure of the
corporation. The management of Lehman brothers used the Repos illegally to manipulate the
business leverage position so that they can report their financial reports in an enhanced way
to present it to the investors and stakeholders. The management increased the company’s
balance sheet by $50 million by using Repos (Edwards 2016). Though the management were
aware of the manipulation in the financial statement, the auditors of the Lehman Bros issued
the management with the unqualified audit opinion by overlooking these aspects. This
ultimately resulted in the failure of the company and ultimately contributed to global
financial crisis.
The primary reason for introducing the new auditing standard ASA 701 is the decline
of Lehman Bros and the simultaneous outbreak of financial crisis across the world in 2008.
The primary motive of the controllers developing the ASA 701 is to make sure that the
problems of auditing is addressed unlike the Lehman Bros that was overlooked. It became
necessary to consider the audit gaps in the audit of Lehman Bros due to the incorrect auditing
and this resulted in the introduction of new audit standard namely ASA 701 (William, Glover
and Prawitt 2016). According to the new auditing standard requirement given under the ASA
701 it is of utmost importance for auditors to make sure that the appropriate disclosure is
made for areas that has high audit risk. According to 701, it requires the auditors to assess the
management’s judgements and they are under obligation of considering the effect of
important transactions and events on the financial reports of organizations (Jones 2017).
Furthermore, the ASA 701 requires the disclosure of audit issues based on the key audit
matters in the audit report. The Lehman Bros would have been saved from collapse given the
new auditing standard of 701 was available during that time.
Another important concern from the failure of Lehman Bros is the company’s ability
to continue as the going concern (Agerberg et al. 2018). The financial crisis of 2008
represents how rapidly changes in financial markets can result in the decline of large
companies such as Lehman Bros. Unfriendly market situation can impact the company’s