Auditing Theory and Practice: PDF

Auditing Theory and Practice
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Executive Summary
The report is developed to provide an analysis of the implications of ASX Corporate
Governance Principle on Westpac Bank Corporation, an ASX listed entity. It has been depicted
that the bank effectively complies with the corporate governance statement framework that has
enabled it to achieve long-term growth and development. Also, the risk assessment procedures
implemented as per auditing standard for identifying the audit risk has assed that it has
implemented effective strategies for mitigation of audit risk and also it nature of operations and
financial performance is associated with minimum chances of facing any audit risk.
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Contents
Implication of ASX Corporate Governance Principles for BHP Billiton.........................................................4
Developing Solid Framework for Management & Oversight...................................................................4
Structure the Board to Add Value............................................................................................................5
Ethical and Responsible Way of Acting....................................................................................................5
Safeguarding Integrity in Corporate Reporting........................................................................................5
Making Timely and Balanced Disclosure..................................................................................................6
Respecting the Security Holders Rights...................................................................................................6
Risk Identification & Management..........................................................................................................6
Fair and Responsible Remuneration........................................................................................................7
Risk Assessment process of the Westpac Bank...........................................................................................7
 Nature of Entity...............................................................................................................................7
 Market Analysis:..............................................................................................................................8
 Business Strategy:............................................................................................................................8
 Analytical process............................................................................................................................8
Computation of Income & Balance Sheet Ratios.....................................................................................8
Audit Risk & Its mitigation.....................................................................................................................10
References.................................................................................................................................................11
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Implication of ASX Corporate Governance Principles for BHP Billiton
The ASX Corporate Governance council has released its principles and recommendations
of corporate governance for meeting the diverse needs and expectations of the shareholders.
ASX has directed all the business entities listed on ASX to develop its corporate governance
statement as per the standard principle and recommendations. This is done to improve the
transparency in the business processes and achieving the trust and satisfaction of the
stakeholders. Westpac Bank, an Australian bank a financial service provider involved in
providing various types of innovative financial products and services for personal , business or
corpora banks. The bank listed on ASX is committed to highest level of governance and seeks to
develop a culture that promotes highest level of ethical standards and corporate integrity. The
bank also developed a statement of governance as per ASX principles that can be analyzed as
follows:
Developing Solid Framework for Management & Oversight
ASX listed entities need to develop a sold foundation for management by establishing adequately
the respective roles and responsibilities of the board and the management personnel. In this context,
Westpac has developed and disclosed its Board Charter in the corporate governance statement that has
outlined the roles and responsibilities of the Board. It includes overseeing the management of the bank,
providing strategic evaluation of the performance of Board members, determining the remuneration of the
key management personnel and so on. The key management personnel are directly accountable to the
Board and carries out several functions in relation to managing the day-today activities of the bank. Also,
there is an established procedure according to council principles for over-viewing the performance of
Board and management. The Board performance is monitored annually by a self-assessment process in
support of an independent consultant. The results obtained are reviewed by its overall members and are
discussed with the Chairman of the risk committee. The standard measures for evaluating the
performance of management are established by the board. The performance of Board is ensured in
relation to the standard objectives determined as per the remuneration policy or practices on an annul
basis. Therefore, it can be said that Westpac effectively complies with the ASX Council standard
principle of developing a solid framework for management and oversight (2017 Westpac Group
Corporate Governance Statement, 2017).
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Structure the Board to Add Value
An ASX listed entity also needs to develop an effective structure of board consisting of wide
range of skills, knowledge and competency to carry out its roles and responsibilities in an adequate
manner (Bazley, Hancock and Robinson, 2014). Westpac Banking Corporation have maintained the
independency of its board by appointing the members having wide range of relevant financial and other
skills and knowledge. Also, they possess an in-depth experience for guiding the overall business. The
Board is composed of mainly non-executive directors and their independence is assessed by the bank on
an annual basis. They carry out their roles and responsibilities independently without the association of
the management. The Nomination committee established by the board holds the responsibility of
development and reviewing the policies on composition and diversity of Board. The corporate
governance statement of the bank has disclosed the skills, experience and attributes of the Board members
separately with the help of a figure (2017 Westpac Group Corporate Governance Statement, 2017). It also
guides the report on hiring members by placing emphasis on type of skills ad experience required for
making it more effective and efficient (ASX Corporate Governance Council, 2014).
Ethical and Responsible Way of Acting
The Code of Conduct developed by the banking corporation has stated the standards of carrying
out the business operations for marinating the ethical and responsible decision-making. The Code of
Conduct is developed in respect to the ethical principles and standards, these are, honesty, integrity,
regulatory compliance, be responsible to customers, maintaining confidentiality of information, working
in a team and effective management of conflict of interest (Fleckner and Hopt, 2013). The bank is
responsible for protecting the interests and promoting the welfare of its each and every stakeholder and
therefore need to place emphasis on carrying out its operational in an ethical and responsible manner. In
addition to this, Westpac in compliance with the ASX Council principles have also maintained standard
principles of carrying out businesses that includes carrying out the operations as per the trust and
confidence of its stakeholders and developing long-term relationship with the suppliers. The principles
are developed as per the global reporting initiatives to promote responsible business activities within the
bank (2017 Westpac Group Corporate Governance Statement, 2017).
Safeguarding Integrity in Corporate Reporting
The Board has established an Audit Committee for verifying the integrity in the corporate
reporting as per ASX Council principles and recommendations. The committee holds the responsibility
for reviewing and discussing with the management and external auditor the significant financial reporting
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issues, regulatory compliance of financial and non-financial information, risk exposure in financial
reporting and discussing the material issues with the external auditor that can impact the financial
statement or accounting policies (Plessis, McConvill and Bagaric, 2005).
Making Timely and Balanced Disclosure
The banking corporation ensures to make timely and relevant disclosure of information to all its
investors as per the ASX Council principles of corporate governance (Nordberg, 2010). The market
disclosure policy of the banking corporation overviews the communication methods and strategies
adapted for interacting with the shareholders and the investment community. The policy is developed as
per the ASX AND NZX requirements to comply effectively with their disclosure obligations. The
Disclosure committee comprising of CEO, executive team, general manager and disclosure officer holds
the responsibility of communicating effectively with the relevant stock exchanges to provide them all the
materialistic information (2017 Westpac Group Corporate Governance Statement, 2017).
Respecting the Security Holders Rights
The rights of shareholders are protected by developing an effective tow-way communication
strategy with shareholders. The approaches under the strategy includes directly interacting with them via
e-mail, publishing the relevant company information on the investor centre section and accessing to all
major market briefing and shareholder meeting by webcasts or disclosing the relevant information on the
website. The aim of the investor relation program is to provide all required and pertinent information to
the shareholders that can impact the price of securities (2017 Westpac Group Corporate Governance
Statement, 2017).
Risk Identification & Management
The risk management framework for identifying, measuring and controlling the material risk is
established by the Board to review and monitors capital levels for consistency with risk appetite. The
major type of risk impacting the company performance is detailed out in its corporate governance
statement. It ahs also established and maintained separately its risk management governance structure that
ahs provided the specific role and responsibilities of Board and management in over-viewing the risk and
their effective mitigation (2017 Westpac Group Corporate Governance Statement, 2017).
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Fair and Responsible Remuneration
The remuneration committee developed by the board provides guidance in relation to
development of fair and consistent remuneration policies. The committee ensures that remuneration
provides to the director and management is in accordance with the prudential standards. Also, it provides
recommendation to the Board in regard to change sin the remuneration structure. The remuneration of the
management is reviewed on an annual basis for deciding over the matters related to pay for performance
for the management personnel (2017 Westpac Group Corporate Governance Statement, 2017).
Risk Assessment process of the Westpac Bank
Risk assessment process is the main process of the audit and it is done to check any
material misstatement in the financial statement of the company. It is certain that there are so
many risks that can present in the financial statements and can impact the audit opinion given by
the auditor. So it is highly important to verify that financial statement are free from errors or not
(Putra, 2010). To ensure that financial statements of the Westpac are free from any material
misstatement it has been decided to carry out the risk assessment process of the company and it
includes analyzing the company profile, market analysis, business strategy adopted, and review
of financial performance. So it viable to say that risk assessment process helps to find out any
material misstatements that are left in the financial statement either through mistake or
conditionally. Risk assessment does provide any audit opinion on true and fair financial
statements, it is just to check the materiality of the financial statement and other assertion level
information provided to the auditor to review and provide auditor opinion. The analytical process
that needs to be conducted for risk assessment has been provided in the ASA 520: Analytical
Procedures Auditing and Assurance Standards Board, 2009). The risk assessment process of
Westpac Ba(nk has been conducted as follows:
 Nature of Entity: Westpac is one most important major banking organizations of
Australia and largest in the New Zealand. Westpac is involved in providing large range of
banking and financial services like consumer, business and institutional banking
facilities, and services related to wealth management. The organizational structure of
Westpac comprises of Consumer Bank (CB), Business Bank (BB), BT Financial Group
(Australia) (BTFG), Westpac institutional bank (WIB) and Westpac New Zealand.
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Westpac has an extensive network of branches and ATM that are located to all locations
of Australia and New Zealand.
 Market Analysis: It has seen that the economy in Australia has continued to grow at
rapid speed in year 2017 reflecting a increase of 1.8% GDP up to June 2017. The recent
growth in the Australian economy is supported through growth in employment,
confidence in global economy, higher prices of commodities and boost in the public
spending. It has been seen that reserve bank of Australia has kept the interest rates on
hold despite of fast growing economy of Australia. As reported by the RBA that inflation
rate has been lower as it was anticipated. So overall it can be said that market condition
for Westpac Bank are favorable and there has been enough opportunities to grow with
maximum support from the government and economic conditions.
 Business Strategy: The vision of the Westpac Bank is to be global leader in the bank
service industry, aim to help the customers, communities and people in order to prosper
and grow. The strategy of company is to deliver the vision through building deep and
enduring customer relationship, to develop a place where best people want to work, to
remain a leader in the community and delivering maximum returns to the shareholders.
To deliver the strategy Westpac focuses on the core market like Australia and New
Zealand through providing the comprehensive range of financial products and services to
the customers to meet there financial needs.
 Analytical process: This process help to review and measurement of financial
statements to make report on the financial performance of company. The analytical
process of audit includes comparison of account balances, calculating the significant
ratios, ratios for non-financial data, and carry out the regression analysis. In this part
there will be calculation of the income statement and balance sheet ratios to report on the
financial performance of the Westpac Bank (Westpac Group: Annual report, 2017).
Computation of Income & Balance Sheet Ratios
Financial Data on Woolworth Group
Particulars 2016 2017
Net profit $7,445.00 $7,990.00
Revenue $20,954.00 $21,506.00
Total Assets $839,202.0 $851,875.00
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0
Long term Debts
$
185,707.00 $186,022.00
Shareholder's
Equity
$
58,120.00 $61,288.00
Income Statement
Ratios Formula Interpretation
Return on Equity Net Profit/Equity 12.81% 13.04%
There is no risk related
to profitability of the
company
Net Profit margin Net Profit/Revenue 35.53% 37.15%
There is no risk related
to profitability of the
company
Return on Assets Net Profit/Assets 0.89% 0.94%
There is no risk related
to profitability of the
company
Balance Sheet
Ratios
Debt Equity Ratio Debt/Equity 3.20 3.04
Risk has been reduced
as debt capital has
been partially paid in
current year
Fixed Assets
Turnover Revenue/Total Assets 0.02 0.03
Efficiency of the
Westpac to earn the
revenue has been
increased
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Audit Risk & Its mitigation
The audit risk includes the significant risk that can have a material impact on the information provided to
the auditors for reviewing purpose. AS such, the significant risk is identified and disused as follows:
 Credit Risk: It can materially impact the financial information disclosed as credit default due to
lending can occur within the bank across its any business division. In this context, the bank has
developed and implemented several control frameworks such as use of product based standard,
key controls including minimum serviceability standards and maximum loan to security value
ratios. It has also developed principles in relation to responsible lending to mitigate the credit
risk. This includes effective compliance with local legislation, codes of practice and abiding by
the godliness for marketing the products responsible and gain an overview of the market in which
it operates.
 Liquidity Risk: The risk present within the banking corporation due to its inability for meeting the
financial obligations in future context due to occurrence of any contingent condition such as
market disruption. It ahs established a liquidity risk management framework for meeting the cash
flow obligations under wide range of market conditions.
 Market Risk: The risk that can materially impact the earnings potential due to change sin the
market factors such as foreign exchange rates, interest rates or change in equity prices. It has
provided a complete disclosure relating to the strategies adopted for managing the market risk in
the financial report (Westpac Group: Annual report, 2017).
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References
2017 Westpac Group Corporate Governance Statement. 2017. [Online]. Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Corporate_Governance_Statement.pdf [Accessed on: 1 May 2018].
ASX Corporate Governance Council. 2014. [Online]. Available
at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-
3rd-edn.pdf [Accessed on: 1 May 2018].
Auditing and Assurance Standards Board. 2009. Auditing Standard ASA 520 Analytical
Procedures. [Online]. Available
at: http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed on: 1
May 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage
Learning Australia.
Fleckner, A. and Hopt, K. 2013. Comparative Corporate Governance: A Functional and
International Analysis. Cambridge University Press.
Nordberg, D. 2010. Corporate Governance: Principles and Issues. SAGE.
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate
Governance. Cambridge University Press.
Putra, L. 2010. The Use Of Analytical Procedures In Auditing. [Online]. Available
at: http://accounting-financial-tax.com/2010/04/the-use-of-analytical-procedures-in-auditing/ [Ac
cessed on: 1 May 2018].
Westpac Group. 2017. Annual report. [Online]. Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
2017_Westpac_Annual_Report_Web_ready_&_Bookmarked.pdf [Accessed on: 1 May 2018].
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