Audit Planning and Analytical Procedures for Westpac

The assignment discusses the audit planning process of Westpac, a leading Australian bank. The company faces various risks, including actual or potential claims, business risks, and information technology assimilation risks. To mitigate these risks, auditors perform analytical procedures to identify potential risk areas and plan other audit procedures accordingly. The analysis reveals that while Westpac's liquidity position has improved, its debt-to-equity ratio has increased, indicating an unfavourable solvency condition. Furthermore, the company's profitability has declined, suggesting undesirable financial health. Ultimately, the study highlights the importance of audit testing in analyzing and detecting issues affecting a company's financial health.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
University Name
Student Name
Authors’ Note

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Executive Summary
The current study elucidates in detail about audit planning taking into consideration the
operations of one of the major banks of Australia (Westpac). The current segment analyses
banking industry and the operations of the company Westpac operates. This study also
presents the different steps involved in audit planning of the firm. Thereafter, the study also
detects the risks that might be faced by the company and carries out an analytical procedure
using key financial ratio.

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Table of Contents
Introduction................................................................................................................................4
Acceptance of the client and Planning of Audit.........................................................................4
Analysis of the business of the client.........................................................................................5
Analysis of the business risk of the client..................................................................................7
Performing analytical procedures..............................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
The current report elucidates in detail the audit planning with special orientation to the
operations of the firm Westpac. The current segment analyses the industry that is the banking
industry in which the company Westpac operates and evaluates the operations of company.
This study conducts an industry analysis and company analysis and audit planning of the
firm. Thereafter, the study also detects the risks that might be faced by the company and
carries out an analytical procedure.
Acceptance of the client and Planning of Audit
The current report illustratively elucidates the sequential procedures for planning for carrying
out audit of the firm. The present segment explains the successive steps that can be adopted
for undertaking the planning of audit in the company Westpac. Audit planning thereby
involves the following steps:
- Discussions with the client
- Review of documentation of audit of Westpac
- Analysis of financial assertions of the company Westpac
- Analysis of interim pecuniary assertions of the company Westpac
- Identification and consultation with diverse non-audit personnel of specifically the
accounting corporation (Arens et al., 2012).
- Staffing required for the purpose of audit of the firm Westpac
- Timing of different procedures of audit (Eilifsen et al., 2013).
- Outside help essentially needs to be determined counting the utilization of a particular
specialist as necessary and determination of the nature and extent of involvement of
the internal assessors of the specific client (William Jr et al., 2016).

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- Pronouncements on different accounting principles as well as audit guidelines that
need to be read and assessed (Louwers et al., 2015). This can help in the process of
development of specifically complete audit programs aptly fitting the exclusive
requirements of the business of the client as well as industry (Simnett et al., 2016).
- Scheduling with the client is required to coordinate actions. For example, schedule
prepared by client necessarily need to be ready at the time when the assessor is
anticipated to assess them (Arens et al., 2016). The client has the need to be informed
regarding the dates at which they can be prohibited from accessing bank safe deposits
in order to make certain that the integrity of different counts of security that is
specifically held at banks (Arens et al., 2016).
Analysis of the business of the client
Westpac Banking Corporation is the presently the client of the accounting firm NY. Westpac
Banking Corporation also referred to as Westpac is essentially one of the big four Australian
banks as well as financial service provider that is headquartered in Sydney. Westpac operates
through four different core business divisions that include Consumer Bank, Business as well
as Commercial Bank, Westpac Institutional Bank along with Westpac New Zealand as well
as the BT Financial Group. Essentially, consumer bank is accountable for necessarily sales
as well as service of approximately 9 million consumers across the nation Australia and aids
them in the regular banking needs of the consumers. Again, business bank division is
accountable for both sales as well as service of diverse small along with medium sized
enterprises, different commercial along with the agribusinesses in Australia together with the
asset and tools/instruments finance and functions under the corporation Westpac. Particularly,
BT Financial Group is essentially the wealth management division of the corporation
Westpac Group that subsequent to the merger with the business entity St. George Bank

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Limited also takes into account the wealth division of the firm St. George. Furthermore, the
Westpac Institutional Bank also offers a wide range of financial services to different
commercial, corporate, institutional as well as government clientele.
Analysis of the banking industry
The financial results of the majority of the Australian banks emphasizes the fact that the
growth in earnings of the companies are slowing down, representing the influence of
enhanced regulatory needs and a downcast domestic economy. However, specific margins
have continuously decreased across diverse majors in spite of asset re-pricing and enhanced
financing from different customer deposits, stressing all the difficulties of the present low rate
of interest as well as deposits of customers. The economic outlook in this case remains
difficult and the majors continue to stress on the capital efficacy, overall productivity and
added refinement of different business models. Unceasingly challenging conditions of
market, increasing regulatory capital, enhancing loan impairments as well as margin
compression exert downward pressure on the returns of the industry (Arens et al., 2016).
Jointly, the majors operating in the banking industry of Australia declared a cash profit
enumerated after tax of approximately $29.6 billion during the financial year 2016 that is
necessarily down by around 2.5% recorded during 2015. The decrease in earnings mainly
owes to decrease in net margin of interest, flatter non interest earning, increase in loan
impairment alterations and greater cost of operations. In particular, these facets are also
apparent from the decrease in the specific statutory net gains from continued operations of
approximately $2.6 billion to nearly $28.8 billion. The challenging outlook for different
majors is essentially set to continuously driven by poor growth in revenue, erosion of margin,
enhanced charges of impairment, greater downward pressure on particularly return on equity
as well as earnings per share. Consequently, the ability of the majors to detect cost eliminate

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chances that can be realised specifically in the short and medium terms without
compromising with the prospects of the growth of the revenue.
Analysis of the business risk of the client
Analysis of the operations of the business Westpac Banking helps in understanding the
exposure to diverse business risks. Varying nature as well as scope of business operations
also poses business risks. Essentially, Westpac has a diverse mix of specific financial market
trading business to particularly St. George along with the important operations in institutional
banking, underwriting along with general insurance all of these expose the shareholders of
the firm St. George to diverse risks than normally they are exposed to (Westpac - Personal,
Business and Corporate Banking, 2017).
In essence, St, George has no exposure to the market of New Zealand. In essentially, Westpac
generates around 15% to 20% of the profit enumerated after tax from the business operations
of the company in New Zealand (Westpac - Personal, Business and Corporate Banking,
2017). However, St. George has not got any kind of exposure to the market of New Zealand.
In this case, it can be mentioned that the nation New Zealand is encountering slowdown in
terms of growth of economy due to the outcome of the slowdown of the housing market,
drought, higher rate of interest and increasing inflation that have eroded the overall consumer
as well as business confidence (Westpac - Personal, Business and Corporate Banking, 2017).
Essentially, these kinds of conditions can probably lead to low earnings and enhanced bad
debts from specifically New Zealand wing of Westpac.
Again, large bad debts also pose business risks to the operations of Westpac. In particular,
Westpac also declared that it does not have the identical level of exposure to the specific
kinds of loans that have compelled both NAB as well as ANZ to declare enhancement in the
overall provisions as well as write downs for the period ending on Sept 2008 (Westpac -

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Personal, Business and Corporate Banking, 2017). The company also have small
collateralised obligations of debt, however, management of the firm has publicly declared
that this specific portfolio has witnessed no significant measurable influence on earnings.
Nevertheless, all banking corporations are essentially exposed to different degrees of rising
level of bad debt and this firm Westpac also have exposure to the weak commercial property
as well as markets of New Zealand (Westpac - Personal, Business and Corporate Banking,
2017). Contrarily,rating organization Standard & Poor’s also substantiated the AA rating of
Westpac after analysis of the probable credit loss during the short to the medium period of
time.
The company Westpac also faces business risk in the making huge investments for the
process of reviewing the legacy information system. Essentially, this might possibly add to
the overall level of complexity and risk to the procedure of assimilation (Westpac - Personal,
Business and Corporate Banking, 2017).
In addition to this, association with the third parties of the corporation that is within RAMS
businesses as well as BTIM (by means of license contracts) generate added risks since poor
level of performance or else termination of specific agreements of franchise might influence
the revenue adversely and cause damage to the brand.
The corporation Westpac also faces contingent liability risk. This is because the corporation
Westpac is engaged in a number of actual or else potential claims as well as proceedings in
diverse ordinary processes of business (counting tax liabilities) that are not determined and
for that no specific provision is there in the balance sheet (Westpac - Personal, Business and
Corporate Banking, 2017).
There are also certain unavoidable business risks faced by the firm Westpac. Westpac is
necessarily subject to specific disclosure requirements of particularly ASX and compliance

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with the requirements poses risk to the business. Additionally, the assimilation of the system
of information technology of both St. George and the company Westpac is also considered to
be very intricate and risky and require considerable investment of both time as well as
resources (Westpac - Personal, Business and Corporate Banking, 2017). Considerable amount
of risk also remains in using two brand strategies that is essentially being attempted on a scale
that is much larger than what is has been in other dealing.
Performing analytical procedures
Analytical processes can be considered to be one of financial audit procedures that assist the
assessors to comprehend the business and alterations in the business of the firm Westpac.
Essentially, this helps in the processes of identification of prospective risk areas to plan other
procedures of audit in combination with other processes of audit testing with respect to
specific financial declarations (Cohen & Simnett, 2014). Auditors might undertake analytical
procedures for Westpac at three different phases that is at the beginning, in the middle as well
as at the end of the process of audit. This process also includes application of financial ratio
for assessment of financial information with respect to prior period.
Liquidity Ratio
Current Ratio 2015 2016
Current Assets 791254 817144
Current Liabilities 758241 781012
1.043539 1.046263
Quick Ratio
Cash and cash equivalents 14770 17015
Current Liabilities 758241 781012
0.019479 0.021786
Solvency Ratio
Debt to Equity Ratio
Debt 3908 4326
Equity 53098 58120
0.0736 0.074432
Equity Ratio

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Total Equity 53098 58120
Total Assets 812156 839202
0.065379 0.069256
Profitability Ratio
Gross Margin Ratio
Net Income 10341 10232
Net Sales 10644 11049
0.971533 0.926057
Return on Assets
Net Income 10341 10232
Average Total Assets 812156 839202
0.012733 0.012193
Analysis of the financial assertions reveals that both the current ratio as well as quick ratio
increased although by a very significant degree. This reveals that the liquidity condition of
the firm remained constant during the time period. Debt to equity ratio indicating the
solvency has increased although insignificantly. This reflects an unfavourable condition for
the firm as debt has increased in comparison to equity over the two year period. However,
equity ratio has improved reflecting desirable financial condition. Again, profitability has
declined indicating undesirable financial health of the firm. Therefore, it can be said that
audit test can help in analysing and detecting the issues that are affecting the financial health
of the firm (Westpac - Personal, Business and Corporate Banking, 2017).
Conclusion
The above mentioned study helps in understanding different steps involved in audit planning
of the client company that is that of the Westpac. The study also analyzes financial results of
the majority of the Australian banks and helps in gaining insight regarding the overall
banking industry. The present segment also helps in gaining insight regarding the risks that
the company encounters and thereafter carries out analytical procedure for audit.

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References
Arens, A. A., Best, P., Shailer, G., Fiedler, B., Elder, R. J., & Beasley, M. (2016). Auditing
and assurance services in Australia: an integrated approach. Pearson Education
Australia.
Arens, A. A., Elder, R. J., & Beasley, M. S. (2016). Auditing and assurance services: An
integrated approach. Prentice Hall.
Arens, A. A., Elder, R. J., & Mark, B. (2012). Auditing and assurance services: an integrated
approach. Boston: Prentice Hall.
Arens, A. A., Elder, R. J., Beasley, M. S., & Jenkins, G. J. (2016). Essentials of Auditing and
Assurance Services: An Integrated Approach. New Jersey: Prentice Hall.
Cohen, J. R., & Simnett, R. (2014). CSR and assurance services: A research
agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.
Eilifsen, A., Messier, W. F., Glover, S. M., & Prawitt, D. F. (2013). Auditing and assurance
services. McGraw-Hill.
Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C.
(2015). Auditing & assurance services. McGraw-Hill Education.
Simnett, R., Carson, E., & Vanstraelen, A. (2016). International Archival Auditing and
Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A
Journal of Practice & Theory, 35(3), 1-32.
Westpac - Personal, Business and Corporate Banking. (2017). Westpac.com.au. Retrieved 11
September 2017, from http://www.westpac.com.au

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William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A
systematic approach. McGraw-Hill Education.