Auditing and Assurance Services

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

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Executive Summary
There are two parts of this report of report. It can be seen from the outcome of the first part of
the report that the key audit matters purport to communicate the matters with major
significance in the audit. It also states that the collapse of Lehman Brothers contributed
largely towards the introduction of new auditing standard. The outcome of the analysis of the
second part states that the provided information is useful for the users to deliver additional
information.

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Table of Contents
Introduction................................................................................................................................3
PART A......................................................................................................................................3
Purpose and Objective of Key Audit Matters........................................................................3
Purpose...............................................................................................................................3
Objectives...........................................................................................................................3
Analyse and Summarise Key Audit Matters..........................................................................3
Why key Audit Matters is Important?................................................................................3
Requirement of Key Audit Matters....................................................................................4
Application of Key Audit Matters......................................................................................4
Lehman Brother’s Case..........................................................................................................4
The Case of Lehman Brothers............................................................................................4
Could ASA 701 Would Help?............................................................................................4
Going Concern ASA 570.......................................................................................................4
Importance of Going Concern............................................................................................4
Why Auditors Look At It?.................................................................................................5
PART B......................................................................................................................................5
Banking Industry Level..........................................................................................................5
Key Audit Matters of Each Bank...........................................................................................5
Did the Key Audit Matters Achieve its Purposes in the Industry?........................................5
Discussion on Similarities......................................................................................................6
Discussion on Differences......................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
Appendix..................................................................................................................................10

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Introduction
The presence of many instances of corporate collapses can be seen where the auditors
were majorly involved in the manipulation of accounting books that led to those corporate
failures. The world financial crisis of 2008 is considered as another crucial even where the
audit profession had a major role to play. The new auditing standard “ASA 701
Communicating Key Audit Matters in the Indepdent Auditor’s report” was developed as a
major outcome of the world financial crisis. One of the major aims of behind the
development of ASA 701 was to make the shareholders of the companies to gain more
understanding about the firms they invest in (Sirois, Bédard and Bera, 2018). In this aspect,
another crucial aspect is the presence of going concern issue within the companies that
hampers the company’s ability to continue as a going concern in the future and “ASA 570
Going Concern” or ISA 570 provides the auditors with the rule and regulations to deal with
the going concern uncertainty within the organizations. It indicates towards the crucial fact
that both the standards of ASA 701 and ASA 570 are crucial for the auditors in conducting
the audit of the companies. The first objective of this report is to discuss about different
aspects of the key audit matters such as purpose, objectives, role of ASA 701 and going
concern issue. The objective of the second part of the report is to analyse the key audit
matters of the banks under the Austrian banking industry.
PART A
Purpose and Objective of Key Audit Matters
Purpose
It needs to be mentioned that there is a certain purpose for the key audit matters.
 The main purpose of the communication of the key audit matters is to ensure the
enhancement of the communicative value of the report of the auditors through
delivering highest transparency regarding the audit performed (auasb.gov.au, 2019).
 Another major purpose of the communication of the key audit matters is to provide
additional information to the users of the financial statements in order to help in
comprehending those matters that had major significance in the audit of the company
for the current year (Bédard, Gonthier-Besacier and Schatt, 2014).
 Another major purpose of communicating key audit matters is to show the users of the
financial statements the major areas where the management has applied significant
judgments (auasb.gov.au, 2019).
Objectives
The main objective is to put the obligation on the auditors of the companies for the
appropriate determination of the key audit matters. After the determination of the key audit
matters, the auditors are needed to form correct audit opinion in the financial statements of
the companies (Cordoş and Fülöp, 2015). After the formation of correct opinion, the need for
the auditors is to ensure proper communication of the key audit matters through properly
describing them in the report of the auditors. Overall, it aims in identifying as well as
communicating the matters that are of crucial significance to the audit of the company
(Altawalbeh and Alhajaya, 2019).
Analyse and Summarise Key Audit Matters
Why key Audit Matters is Important?
Major importance of key audit matters can be seen in the identification of the matters
that are of great interest for the audit of current year due to the fact that these matters can lead
to the material misstatements in financial statements. In this manner, the users of the financial

4AUDITING AND ASSURANCE SERVICES
statements can gain knowledge and information of these issues which is helpful in the
decision-making process. For these reasons, key audit matters are important (Sirois, Bédard
and Bera, 2018).
Requirement of Key Audit Matters
It needs to be mentioned that there are certain requirements of the key audit matters.
First, it is needed for the auditors to determine the matters which are crucial for the audit of
the current year through the assessment of the areas of highest assessed risk of material
misstatement. It is required for the auditors to assess the significant events or transactions that
can lead to material misstatement. Second, it requires the auditors to communicate the key
audit matters in proper manner with the users of the financial statements as well as the
employees charged with governance. Lastly, they are required to ensure proper
documentation in these matters in the auditor’s report (Bédard, Gonthier-Besacier and Schatt,
2015).
Application of Key Audit Matters
For the application of the key audit matters, the auditors are needed to consider the
matters that need significant auditor’s attention. They are needed to comply with ASA 315
for the assessment of the areas of higher assessed risk of material misstatements. After that,
they are needed to commutate the key audit matters in the separate key audit matter section in
the auditor’s report while providing proper description of those matters. These aspects need
to be followed for the application of key audit matters (Gimbar, Hansen and Ozlanski, 2016).
Lehman Brother’s Case
The Case of Lehman Brothers
The collapse of Lehman Brothers is considered as one of the largest collapsed in the
history. It needs to be mentioned that Lehman Brothers was involved in the wrong use of
repurchase agreement transactions (Repos) which was used to hide the company’s high
leverage position at the time of auditing. The management of the company improved their
balance sheet a huge margin with the use of Repos. The auditors of the company defended
the company’s policy to treat the Repos as sales. All these aspects together contributed
towards the collapse of the company (Stevens and Buechler, 2013).
Could ASA 701 Would Help?
It needs to be mentioned that there is a connection between the collapse of Lehman
Brothers and ASA 701 since this new standard was introduced as a result of the collapse of
Lehman Bros and 2008 financial crisis. The new auditing standard of ASA 701 would have
addressed the auditing issues in Lehman Brothers if it was available that time (Reid, 2015).
There was major loopholes in the auditing of Lehman Brothers and thus, the new auditing
standard of ASA 701 was recommended. In the presence of all these aspects indicates
towards the fact that the presence of ASA 701 would help the auditors in communicating
these key audit maters in the Lehman Brothers to the respective parties that could have
restricted the collapse (Azim, 2013).
Going Concern ASA 570
Importance of Going Concern
The going concern concept is important because it is considered as a measure of the
ability of a company to continue its operations for unforeseeable future. It helps in signifying
the fact that the company does not have any intention to restrain its operations in the future. It
is considered important because it shows the financial stability of the companies (Shvyreva
and Kruglyak, 2016).

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Why Auditors Look At It?
According to ASA 701, Paragraph 6, the auditors consider the assessment of the
going concern status of the companies with the aim to assess the company’s ability to
continue as a going concern for unforeseeable future. It puts the obligation on the auditors to
obtain adequate as well as appropriate audit evidence on the appropriateness of the
management’s use of the going concern basis of accounting in order to prepare the financial
statement. The main intention of the auditors behind this particular analysis is to ascertain the
fact that whether there is any uncertainty exists about the company’s ability to continue
operation as a going concern. In the presence of these reasons, going concern assessment is
important to the auditors (auasb.gov.au, 2019).
PART B
Banking Industry Level
The Banking Industry is considered is considered as the largest part of the financial
system of Australia which consists of 147 authorized deposit-taking institutes (ADIs) which
occupies around 55% of the Australian financial institutes. The presence of four types of
ADIs can be seen in the Australian banking industry; they are banks, building societies, credit
unions and otters. Banks are further classified into four main sub-categories; they are major
banks, other domestic banks, foreign subsidiary banks and foreign bank branches. The six
banks under the major banks are ANZ Bank, Bank of Queensland, Commonwealth Bank,
Medibank Private Limited, National Australia Bank and Westpac Bank. It needs to be
mentioned that the banking industry majorly contribute towards the development of
Australian economy. At the end of 2017, asset value of $4.6 trillion was held by the ADIs.
Thus, banking can be considered as a major industry in Australia (rba.gov.au, 2019).
It needs to be mentioned that the auditors are needed to consider certain aspect while
auditing the banks under the Australian banking industry; they are business leadership, risk
management, regulatory matters, propositions and information technology and finance. In
case of business leadership, the auditors are needed to take into consideration aspects like
organizational culture, merger and acquisition, governance and business partnership. Under
the risk management aspect, aspects that need to be considered by the auditors are risk
management frameworks of the banks, recovery and resolution plans and others. The crucial
aspects under the regulatory matters are conduct, compliance framework and others. The
important aspects under information technology are cyber, data governance and privacy, data
migrating and others. The crucial aspects under finance are fraud and financial crime,
treasury management, cost control, regulatory and financial reporting and investment
governance (deloitte.com, 2019).
Key Audit Matters of Each Bank
The key audit matters of ANZ Bank, Bank of Queensland, Commonwealth Bank,
Medibank Private Limited, National Australia Bank and Westpac Bank are provided in the
appendix.
Did the Key Audit Matters Achieve its Purposes in the Industry?
It can be seen from the above discussion that the main purpose of the key audit
matters is to shed lights on the matters that include events and transactions in the financial
statements of the companies which are of major importance of the audit due to the fact that
they can lead to material misstatements in the financial statements. It can be seen from the
appendix that the auditors of the selected banks have put the key audit matters in the
appropriate section of the auditor’s report (Lawson, O'Hara and Spencer, 2017). When
analysing the key audit matters of these banks in the appendix, it can be seen that the auditors

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have efficiency discussed the key audit by mentioning the name of the account that is at risk
along with the note number. For example, the auditors of Westpac Bank has considered the
“Provision for impairment charges” as the key audit matter and they have mentioned the note
number that is Note 14 of the financial statement (westpac.com.au, 2019). This is helpful for
the users of the financial statements to check the details of the balance for acquiring greater
understanding on the matter.
Another major purpose of key audit matters is to provide additional information on
the matters for assisting the users in understanding why the matters are of greater interest to
the audit of the company. It can be seen from the appendix that the auditors have provided
valid description of the matter in the key audit matter section where they have specified the
amounts of the account that can be at the risk of material misstatement (Levy, 2018). In some
cases, the auditors have provided the name of the accounting standard that has been followed
to treat that specific financial substance. For example, “Provision for credit impairment on
loans at amortized costs” is a key audit matter in NAB where the auditors have provided the
standard name. In order to provide more information, all the auditors have discussed about
the estimations, assumptions and judgments used by the managements of the banks have used
for the accounting treatment of that specific area (nab.com.au, 2019). This is considered as a
crucial step to inform the users about the complex nature of the assumptions, judgments and
estimations (Altawalbeh and Alhajaya, 2019).
Moreover, the auditors of all the banks have clearly stated the reasons for which they
have considered matter as the key audit matter. As per the appendix, “Loan Impairment
Provision” is a key audit matter of Commonwealth Bank where the auditors have considered
this as a key audit matter due to the complex nature of the model’s assumptions and
calculation (commbank.com.au, 2019). Lastly, the auditors of these banks have clearly
communicated the undertaken audit strategies that they have undertaken for dealing with the
identified key audit matters. Thus, on the basis of the above discussion, it can be seen that the
key audit matters have achieved their purpose for communicating the key audit matters in the
banks under the Australian banking industry (Bédard, Gonthier-Besacier and Schatt, 2014).
Discussion on Similarities
It can be seen from the appendix that there are two key audit matters which is similar
for all the six selected banks; they are provision for impair for loans and other assets and IT
systems and control for financial reporting and banking system. It needs to be mentioned that
all the six selected banks under this banking industry use significant judgements, assumption
and estimates for the determination of impairment of the assets. For this reason, the presence
of this key audit matter can be seen for all the banks (medibank.com.au, 2019). On the other
hand, major reliance of these banks can be seen on the IT system and control for conducting
different banking operations and errors in these system can create major material
misstatement in the financial reporting of these banks. For this reasons, the auditors have
considered this aspect as the key audit matters for all the six banks. In addition, NAB,
Westpac and ANZ banks have a similar key audit matter that is the fair value of the assets
and liabilities (shareholder.anz.com, 2019). The auditors have considered these as the key
audit matters in the presence of complexities in the three level process of fair value. These are
the major similarities in the key audit matters of these six banks.
Discussion on Differences
Along with similarities, the presence of certain differences can be seen in the key
audit matters of the banks. It can be seen from the appendix that NAB has a key audit matter
named “Restructuring Provision” which includes key assumptions for measuring the
restructuring provision and thus, it is considered as key audit matter (nab.com.au, 2019). In

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case of ANZ, one key audit matter is “Accounting for Divestment” which includes applied
judgments for the assessment of the profitability from divestment and thus, it is considered as
the key audit matter. Bank of Queensland includes key audit matter named “Valuation of
Goodwill” due to the presence of the assumptions in the value-in-use model (boq.com.au,
2019). These are the major differences in the key audit matters of the selected banks.
Conclusion
It can be seen from the above discussion that the auditors of the selected six banks
have reported the key audit matters in the appropriate section of the auditor’s reports in the
presence of proper justification on why they are key audit matters. One crucial fact that needs
to be mentioned in this case is that these key audit matters have brought such issues to the
users of the financial statements that is not possible for them to detect in the absence of
auditor’s knowledge. In this manner, they become able in acquiring useful on these matters
that are of utmost importance to the audit and decision-making. In addition, the users of the
financial statements can gain additional information on the aspects like used judgments,
assumptions and estimates that the managements of these companies have used for the
accounting treatment of these issues. After that, the auditors have provided the base on which
they have considered these matters as the key audit matters. It needs to be mentioned that the
key audit matter section provides information on the adopted audit procedures for these
identified key audit matters. Based on the above discussion, it can be concluded that the
reported key audit matters have been able in assisting the users in gaining useful information
on these matters. For this reason, the auditors are needed to ensure the proper communication
of the key audit matters.