Auditing: Key Matters, Financial Reporting Issues, and Responses

This report discusses auditing key matters, financial reporting issues, and potential responses in the context of National Australian Bank. It covers topics such as credit impairment, goodwill assessment, and information technology system control. The report also explains how these audit matters affect audit risk and offers potential responses such as substantive procedures.

Auditing

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
Identifying the key audit matters.................................................................................................1
Discussing how these audit matters relating to financial reporting issues that involve
significant management judgment..............................................................................................2
Explaining how these audit matters affect the audit risk............................................................3
Discussing the potential responses to these audit matters...........................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Auditing the process of inspecting the quality system of the organization related to its
recording and analysing the financial information so that compliance with the overall standards.
In the current era, having the effectual auditing procedure in turn gaining the relevant ability to
de\liver the crucial & fair information in turn accomplishing the objective of making relevant
financial reporting avoiding any complications can become possible. The present report is based
on National Australian Bank is one of the successful financial institution that focuses on being
effective internet centric for gaining higher profitability and substantiality. The key operations of
the company that is basically exerted by the firm includes offering business, personal banking,
private wealth related services, etc. in turn accomplishing the goal of greater market share can
become possible. The major goal of the particular organization is to align with the global trends,
so that effective business structure to coordinate with the prevailing requirements of market can
be accomplished.
MAIN BODY
Identifying the key audit matters
Key audit matters that auditors professional judgment that helps in identifying that the
most crucial assessed risks of the material misstatement (Key Audit Matters, 2021). Auditors
report is one of the significant statement that is helpful in identifying the prevailing audit matter
in turn accomplishing the goal of risk assessment can be done. National Australian Bank (NAB)
is one of the successful organization that pay attention on having the appropriate level of
auditing process as offering the corrective information to stakeholders via formulating fair
financial statements can become possible.
Provision for credit impairment is one of the key audit matter that is identified as an
estimation of the potential losses that company might experience due to the credit risk. This is
considered to be one of the significant risk as has the major level of the impact on the material
financial statement. It is treated as the expense on the company's financial statement. For gaining
the effective & fair financial reporting having appropriate estimation of this is highly essential in
order to get the appropriate level of compliance with prevailing Australian accounting standards
(Lin and et.al., 2020). This is one of the major risk that has been recognized from the evaluation
and has major impact.
Impairment assessment of goodwill considered to be the crucial key audit matter in the
report of NAB. This is related with accounting charge that company record when carrying value
of goodwill on the financial statements that exceeds its fair value. This is inspected by referring
the purchase agreement to ensure consideration paid. There are different kinds of the indicator
that can be assessed in the particular banking financial reports that comprises negative change in
technology, increase in market interest rates, net assets of the company are found to be higher
than market capitalization.
Information technology system & control over financial reporting is found o be the key
auditing matter as it is related with controlling actions which are decided to provide reasonable
assurance that the company 's financial statement are reliable and prepared in according to the
standards. These were found to be ineffective in the National Australian Bank as it control
actions which are taken were not reliant on the particular environment. Provisions for customer-
related remediation and associated costs, regulatory compliance matters and legal
proceeding is found to be the crucial key audit matter (Mihret and et.al., 2021). From the
evaluation of the particular report of the specified bank that there is key assumption made which
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made it the complex matter recognized. On the basis of this, it can be interpreted that h there are
different types of the audit matters which are identified and found to be crucial.
Discussing how these audit matters relating to financial reporting issues that involve significant
management judgment
From the evaluation it can be identified that the mentioned matters are found to be
crucial as it leads to impact the financial statement of National Australian Bank. Each type of the
audit matter has the influence on the overall processing of the company as leads to formulate
issue related with financial reporting. As being the company which is operating on ASX 200
require to publish its financial statements in the most accurate manner so that significant fair
information with maintaining full disclosure for stakeholders so that crucial decision-making can
become possible.
Provision for credit impairment at amortized cost has affected the financial issues as it
has not been calculated properly which has affected the income statement of the company. This
is identified that the key judgment is that improper credit loss methodology which has resulted
into the deterioration in credit quality. The provision of the credit loss is expected to be
recorded on the assets side of the balance sheet. The impact is seen on the income statement as
involved as uncollected accounts expense which results in influencing profitability of the
company. This particular activity does not help in complying with the accounting standards so
recognized as major issue. This does not allow the stakeholders to obtain the crucial information
which can be considered as reliable and effective as change in the modeling assumptions by
NAB has been done in turn meeting goals of taking sound decision get affected. In addition, this,
adequacy & appropriateness of disclosure related to credit impairment within financial report.
Impairment assessment of goodwill is found to be the matter of audit as degree of
estimation regarding uncertainty associated with assumption applied in the impairment
assessment. This disclosures within financial report related to the impairment assessment of
goodwill. There is recording of the goodwill on the balance sheet that indicate that value of the
acquired asset has fallen below the amount initially paid (Atabay, 2021.). This reduces income
in income statement and declination of assets on balance sheet. This tends to offer the incorrect
presentation of the financial performance of the company to stakeholder that has influence on
the overall processing of company.
The other key matter of the audit which is related with information technology system
and control over financial reporting which has the major level of the influence on the company's
ability of offering information to stakeholders. The management of the company has paid
attention on including control related to user access, data integrity, etc which is depicting to be
having operating deficiencies. Customer related remediation and associated cost, regulatory
compliance matters & legal proceeding which aids in identifying that there is any availability of
the contingent liability. This aids in having the understanding about the activities such as money
laundering, etc which leads to decide the significant efficiency and accuracy of the financial
statement prepared.
On the basis of this it can be interpreted that there are various lacking area that can be
identified by the auditing processing so that reliability & level of transparency maintained by the
firm can be identified. In addition to this, the particular company is complying effectively with
the accounting standards but there are certain complications which such is inappropriate
assumption which has the influence on its financial statement accuracy and effectiveness. This
involves the significant management judgment in order to offer appropriate level of functioning
in turn meeting the trustworthiness in market to avoid financial issues. The particular
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organization has given emphasis on having the greater level of coordination with standards
issued by international accounting standards boards. But possessing such level of audit matter
has the adverse impact as leads to create audit risk.
Explaining how these audit matters affect the audit risk
Audit risk is concerned with the particular type of threat that auditor expresses as
inappropriate audit opinion when financial statements are materially misstatement. This is
basically associated with possessing the legal liability due to the audit risk which tend to impact
negatively to the organization. The audit matters are has the influence on the audit risk in
negative manner (Smith and et.al., 2021).
Audit risk model is the one of the significant tool that is taken into the consideration by the
auditor to evaluate and manage various risk arising from performing an audit engagement (What
is an Audit Risk Model? 2021). This tends to assess the different form of the risk elements which
comprises inherent, control, acceptable and detection risk. Inherent risk of National Australian
Bank comprises transaction risk which depicts that firm can face the reputation damage. This
tends to offer difficulties in integrating
including failure to realize
expected synergies, disruption to operations, diversion of
management resources, etc. if there is lower risk in this head then the particular accounts
formulated by the firm are not likely to be materially misstated. In addition to this, the main
reason behind this is that there is change in interest rates leads to the inherent risk which leads
mismatch the information.
The key audit matter as mentioned lead to influence the opinion of the auditor which has
the major level o of the impact of leading the rise of audit risk. This does not permit the auditor
to get the significant ability to recognize the misstatement or errors prevailing in the financial
reporting of the organization. As per the audit risk model control risk is associated with having
the significant details of the actions taken by the internal control process of National Australian
bank in turn higher depth understanding can be derived. NAB is having intelligent control score
targets which is helping to overcome the operational and compliance risk. In order to be
successful the company require paying attention on having the relevant understanding that
appropriate information that there is effective control is made to decline such risk.
Acceptable audit risk is concerned with the level of risk that the auditor is willing to
release on the financial statement that can be materially misstated. National Australian Bank is
the one of the significant company that focuses on reducing the complications by having
effective and accurate auditing procedure in turn accomplishing the organizational objective of
offering effective financial reporting can be done. In addition to this, it can be specified that the
particular firm is possessing the reliable processing. On the basis of this it can be mentioned that
when it increases the auditors takes lesser risk.
Detection risk related with having the audit procedure which is not correct that leads to
the auditor towards failure in finding material misstatement. From the assessment of the
financial reporting of the particular mentioned organization which operates on the ASX 200 that
tend to offer the relevant detection of the prevailing risks as fair auditing procedure has been
established. The specified auditing matter leads the firm to get the proper efficiency in
recognizing the risk prevailing such as credit, etc. in turn taking relevant course of action for
overcoming consequences can become possible. This provides assistance in decreasing audit risk
and offer ability to significant formulation of financial reporting.
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Discussing the potential responses to these audit matters
In order to have the successful functioning of the organization it is important for the
company to pay attention on having the relevant level of working by formulating relevant
strategy so that overcoming prevailing lacking areas can be made. As being auditor it is
important to give emphasis on having the relevant understanding about the strategies so that
overcoming these threats to response positively in turn crucial actions to get competitiveness.
There are different form of the audit strategies which can be taken into the process that includes
substantive procedure, control reliance, etc. For being successful in order to accomplish the goal
of conducting the auditing procedure in the effective manner it is important for the auditor to
understand the needs so that suitable approach can be exerted.
For the particular case, substantive procedure which is one of the crucial auditing
strategy that is related with designing are intended to create evidence that support auditor
assembles to support the assertion which states that there is no material misstatement in regard
to completeness, validity and accuracy of organizational financial records. The particular
auditing strategy is helpful in gaining the appropriate information that detecting regarding
material misstatement in the accounting transaction can be identified. This is beneficial to take
into the consideration for improving the overall procedure of auditing as it takes distinct form of
the practice sin precise manner which tend to avoid errors. This comprises having testing
classes, account balance, disclosure, agreeing the financial statement and accounting notes to the
underlying account records. In addition to this, paying attention on the material journal entries
and other adjustments made during the preparation of financial statement. Examining
documentation indicating that procedure has implemented effectively, re performing ensures
that procedure functions has planned, inquiring, etc. On the basis of this, it can be interpreted
that the organization is gaining the significant level of benefit applying this strategy.
For making significant response to the audit matters that are mentioned in the study can
be properly exerted by using the substantive procedure which include creating conclusive
evidence for verifying that significant action for having effective financial records. The
accounting matters that are mentioned in the current study comprises provision for credit
impairment, assessment of goodwill etc. applying the predominant substantive approach helps in
gaining the reliable understanding of the system of the internal control to understand the
potential of misstatement (Kaawaase, 2022). Provision for credit impairment can be effectively
improved by using the significant measuring and recognizing of the losses by using expected
credit loss approach (DISTRICT, 2021). This can be effectively exerted by having the reliable
knowledge about the processing of the credit related transaction so that effective estimation can
be done to get appropriate ability. Impairment assessment of goodwill can be effectively
improved by using the mentioned course of the action through paying attention on making
testing via focusing that it occurs when the recognized goodwill associated with the conducted
acquisition by the specified organization is greater than its implied fair value. For this purpose as
being auditor the focus will be given on having the insights that proper recording of the goodwill
amount by making comparison is done so that eliminating irrelevant aspects which has adverse
impact on the financial reporting can be done.
The main reason behind the specified action is to ensure that weak internal control over
financial reporting can be eliminated. This can lead to get appropriate approach of information
systems o that significant processing to derive integrity & reliability for accomplishing effective
performance can become possible. In addition to this, the usage of the particular strategy of
auditing is helpful in gaining the proper ability to gain information about the trends so that
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reliable action by performing on unannounced basis can be exerted. On the basis of this it can be
interpreted that with usage of this auditing strategy having analytical review, inquiry,
observation, inspection and recalculation can be exerted.
CONCLUSION
From the above report it can be concluded that auditing matters the complex issues
which are disclosed in the financial statements. The particular company possessing auditing
matters such as impairment assessment of goodwill, provision for credit impairment, etc. In
addition to this, it is related with increase or decrease in financial statement which leads
trustworthiness issue among stakeholders. It has applied audit risk model and predominant
substantive approach which has given emphasis on offering depth understanding.
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REFERENCES
Books and Journals
Atabay, E., 2021. Effectiveness of financial auditing in the public health sector: evaluation of
Turkey. In Contemporary Issues in Public Sector Accounting and Auditing. Emerald
Publishing Limited.
DISTRICT, G.I., 2021. Accounting, Auditing, and Financial Reporting Audit Committee
Policy 15.1. 0. Policy. 15. p.0.
Kaawaase, T.K., 2022. Anchoring on dynamic auditing capabilities to manage small and
medium audit practices in a Covid-19-induced turbulent business
environment. Management Matters, (ahead-of-print).
Lin, C. and et.al., 2020. The effects of directors’ and officers’ liability insurance on key auditing
matters. Emerging Markets Finance and Trade. 56(5). pp.977-1002.
Mihret, D.G and et.al., 2021. The auditing profession and the key audit matter reporting
requirement. Qualitative Research in Accounting & Management.
Smith, F.H. and et.al., 2021. The evolving role of supreme auditing institutions (SAIs) towards
enhancing environmental governance. Impact Assessment and Project Appraisal. 39(1).
pp.67-79.
Online
Key Audit Matters. 2021. [Online]. Available through: <https://www.ifac.org/knowledge-
gateway/supporting-international-standards/discussion/auditor-reporting-standards-
implementation-key-audit-matters>
What is an Audit Risk Model? 2021. [Online]. Available through:
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/audit-risk-
model/>
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APPENDIX
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