CBA Audit Report Analysis

This report analyzes the CBA annual report, focusing on the auditor's section. It examines the auditor's compliance with independence requirements, non-audit services, remuneration, key audit matters, and audit opinion. The report also discusses material subsequent events, the effectiveness of material information, and undisclosed material information. Finally, it outlines follow-up questions that can be asked to the auditor at the AGM.

AUDITING

Executive Summary
Auditing is a systematic and independent examination of books of accounts, statutory
records and statements related with an organisation to ascertain accuracy and dependability of
financial statements revealed by that business. Auditing is vital task representing fair view of
financials of company. In this process authenticity of remuneration to directors and auditors is
checked. The outcomes are generated for audit report for CBA which is effectively prepared for
financial statements with references taken from professional bodies regulations.

TABLE OF CONTENTS
INTRODUCTION..............................................................................................................................1
1. Auditor compliance with Independence requirements....................................................1
2. Non-audit services............................................................................................................1
3. Auditor's Remuneration and comparison with prior year................................................1
4. Discussing Key Audit Matters............................................................................................4
5. Audit Committee of company...........................................................................................7
6. Outlining Audit Opinion....................................................................................................7
7. Directors and Management responsibilities differ from Auditor’s responsibilities..........8
8. Outlining material subsequent events..............................................................................9
9. Discussing effectiveness of material information- Group materiality...............................9
10. Undisclosed material information from annual report.................................................10
11. Asking follow-up questions to Auditor at AGM............................................................10
CONCLUSION................................................................................................................................10
REFERENCES................................................................................................................................. 12

INTRODUCTION
Auditing is vital task representing fair view of financials of company. Present report
deals with CBA (Commonwealth of Australia), which is a banking company, providing wide
variety of services to customers. In this report, CBA's annual report ended as at 30 June, 2017
has been effectively reviewed particularly with that of Auditor's section. PwC is the auditor of
CBA and compliance of independence requirements are discussed along with non-audit
services. Moreover, remuneration of auditor with previous year is explained with percentage
change. Key audit matters and audit opinion are reviewed. Material subsequent events and
effectiveness of material informatics and follow-up questions to be asked to auditor are
discussed. In all, it can be said that auditor of CBA has assessed financials by taking into account
relevant information and thus, carried out whether financial statements reflects fair view of
affairs of company or not.
1. Auditor compliance with Independence requirements
In annual report of 2017, Auditor has complied with provisions of Corporations Act 2001
of Australia and no contraventions are being made to it. Furthermore, no contraventions are
made with regards to professional code of conduct with respect to audit.
2. Non-audit services
The non-audit services have been provided by Price water house Coopers to CBA are
satisfactory as they are compatible with independence declaration made by auditor. Such
services were being adopted by Audit Committee as per the laid down provisions and policies
(Craig, Smieliauskas and Amernic, 2017). On the other hand, nature of non-audit services were
being complied and independence of auditor was not compromised as communicated by
directors.
3. Auditor's Remuneration and comparison with prior year
1

Particulars 2017 ($'000) 2016 ($'000) Inc/Dec % Change
A) Audit and related services
Audit services
Price water house Coopers
(Australian organisation) 16643 15779 864 5.48%
Network firms of Price water
house Coopers (Australian
organisation) 5167 4886 281 5.75%

Total fees of Audit services 21810 20665 1145 5.54%
Audit related services
Price water house Coopers
(Australian organisation) 5765 3433 2332 67.93%
Network firms of Price water
house Coopers (Australian
organisation) 981 1083 -102 -9.42%
Total fees of Audit services 6746 4516 2230 49.38%
Total fees of Audit services and
related services 28556 25181 3375 13.40%
B) Non-audit services
Services related to taxation
Price water house Coopers
(Australian organisation) 617 1215 -598 -49.22%
Network firms of Price water
house Coopers (Australian
organisation) 1601 1465 136 9.28%
Total fees of tax related services 2218 2680 -462 -17.24%
Other Services
Price water house Coopers
(Australian organisation) 4347 4741 -394 -8.31%
Network firms of Price water 534 123 411 334.15%

house Coopers (Australian
organisation)
Total remuneration of other
services 4881 4864 17 0.35%
Total fees for non-audit services 7099 7544 -445 -5.90%
Total fees for audit and non-audit
services 35655 32725 2930 8.95%
It can be interpreted from the above table that, Auditor's remuneration paid in 2016 has
undergone change in next year. It is reflected in total fees paid for audit related services which
was 4516 ($'000) in 2016 and increased to 6746 in 2017 by having 49.28 % change. On the
other hand, total fees for audit and related services has also changed by 13.40 % from previous
year. Non-audit services are also changed. Non-audit services were 7544 in 2016 and decreased
to 7099 in 2017 having -5.90 % change. Collectively, audit and non-audit services remuneration
are increased by 8.95% in 2017.
4. Discussing Key Audit Matters
Audit matter
Provision for impairment of Lending assets: Provisions for impaired lending assets are
considered by management of CWB as auditing matter with regards to time frame and size of
provision to be recognised. An understanding has been developed for control, which is relevant
for the audit purpose. Key designs were framed for conducting auditing throughout the year:
 Determination of impaired loans.
 Integrity and reliability of credit information provided by Group's system.
 Assessment by management about integrity of this model.
Audit Procedure:

For individually assessed provisions, auditors of CWB follow audit procedure of
examination of cash flow forecasted by management of company which support calculation of
impairment along with assessment of key judgements.
For testing collective assessed provisions, key data which is transferred between system
of group is tested for their accuracy and correctness (Pollard and et.al., 2018). Comparisons
was between support key evidences and market practices key assumption along with
comparability of modelled calculations with auditor's own calculations. In audit of provision for
impairment of lending assets, analytical procedure is been followed through comparison of
data and information.
Audit matter:
Fair value for financial instruments: CWB holds limited financial instruments and their
valuation requires judgement from management as per Australian Accounting Standards. This is
considered as key audit matter Audit because valuation of these instruments highly based on
judgement.
Audit Procedure:
The audit procedure is designed for carrying out assessment through development of
valuation model governance control framework. Checking completeness and accuracy of data
inputs including market data (Anginer, Demirgüç-Kunt and Mare, 2018). Methodologies were
developed for determination of fair value of adjustments and assessments of management is
done for measurement of fair value of their model. In this, test of control procedure is applied
by the auditor as it involves reliance on client's data.
Audit matter:
Provisions for Risk related with conduct, regulator action and related disclosures:
This is considered as key audit matter as Commonwealth Bank is more exposed to risk related
with legal and regulatory procedures of cases including jurisdictional proceedings that can raise
liabilities of bank significantly.
Audit Procedure:

The audit procedure of auditor includes development of an understanding about the
process adopted by bank for identification and assessment of impact of legal and regulatory
items and conduct risk.
Audit matter:
Valuation of liabilities of insurance policyholder: This is taken in account for auditing by
the auditor because valuation by management for matters related with settlement of future
insurance claims include intensive judgements and a small assumption can lead to materially
effecting valuation of liabilities.
Audit Procedure:
For this comparison of methodology and models used by management of the bank
is done with those which are generally applied in industry and regulatory standards.
Along with this, an understanding is developed by auditor for controlling measures used by
management of the Bank related with valuation matter. In this procedure the substantive test
of detail is applied as it is related with assessment risk involved in various matters.
Audit matter:
Valuation of retirement benefits: Common wealth Bank have defined two benefits
plans for employees, one in Australia and another in UK. Both this plans has financial
significance on financial reports of the group so it is taken as key audit matter by t auditor.
Audit Procedure:
Auditors have tested the data used by management for computation along with source
documents. Reasonableness of assumptions made for calculations is assessed with use of
external market data (Patterson and Smith, 2015). Auditors also developed their expectations
for possible alternative obligations and compared it with calculations done by management. In
this, analytical procedure is followed to carry out audit as there is comparison of calculation and
data.
Audit matter:
This is taken as key Audit matter because commonwealth bank's operations and
financial reporting matters heavily rely on its IT system. Also, automated accounting
procedures, manual control system of IT is also considered for auditing.

Information system reporting and control:
Audit Procedure: Auditors focus on evaluation and tasting of effectiveness of designs and
operational measures implied for controlling the integrity of IT system of group. Direct test
applied by the auditor on a sample basis for audit testing and to check system functionality.
5. Audit Committee of company
Yes, there are various non-executive directors of CBA. These are Launa Inman, Shirish
Apte, Brian Long, Harrison Young (Annual Report of CBA. 2017). There is no Audit Committee
Charter for the company. However, it gives advices to Board of Directors and then after their
approval, further tasks are done in the best possible manner. On the other hand, auditor of
CBA, PwC has complied with general standard imposed by Corporations Act 2001. This means
that Audit Committee provides advices to Board and effectively attain activities in a better way.
6. Outlining Audit Opinion
Audit opinion has been made by PwC auditor of CBA, giving wide opinion about the
financial statements of company in effective manner. It has been identified that auditor has
audited Group and CBA's balance sheets, statements of - income, comprehensive income,
changes in equity and cash flow and notes to financial statements implying accounting policies
being adopted by company for the year ended on 30 June, 2017 and director's declaration. By
conducting proper analysis of these statements, it is found that, financials provide true and fair
view of Group and Company's affairs for the period. Moreover, statements are effectively
complying with Australia's regulations and standards such as AAS (Australian Accounting
Standards) and Corporations Regulations 2001.
Furthermore, it can be identified from the audit opinion that audit is designed in order
to provide assurance that financials are free from misstatements which may arise due to error
or fraud (Carson, Fargher and Zhang, 2017). Misstatements are considered to be influence
economic decision-making by users of financial information up to a high extent and it is
required that audit should be done in a proper manner by keeping in mind all such provisions
(Hay, Stewart and Botica Redmayne, 2017). Moreover, audit opinion has been made with
relation to geographic and management structure of CBA as a whole. Broader economies,

financial and internal controls are being taken into consideration and auditing is done. Hence,
as per the Audit opinion of CBA, Group and Company's financials are reflecting true view
regarding overall operations of organisation.
7. Directors and Management responsibilities differ from Auditor’s responsibilities
Directors and Management responsibilities-
The higher personnel’s of CBA are to follow all the guidelines of accounting standards
and regulations so that financial statements may be effectively prepared with ease. Directors
has duty to produce financials as per the frameworks representing overall position of company.
Moreover, true view should be represented with the help of preparation of financials by abiding
regulations. Moreover, it is the duty to provide that internal control must be taken into account
which represents fairness of financials. Furthermore, CBA's directors and management are also
responsible in the context that misstatements must be extracted as it arises due to error or
frauds which must be taken into consideration by management. Another responsibility is to
assess and determine that whole CBA Group and Company would be able to continue for long-
run which is represented from going concern concept.
Auditor’s responsibilities-
Auditor has main responsibility and duty to analyse that he/she needs to be taken into
consideration regarding financials which should be free from misstatements arising out of fraud
or error (Kotsanopoulos and Arvanitoyannis, 2017). Moreover, another responsibility is issuing
auditor report including audit opinion. Reasonable assurance does not mean that full guarantee
is given with relation to company's financials. AAS needs to be taken into consideration and
rules must be followed in a better way. Misrepresentations, omissions with intention should in
reporting, also not to be made which is the due responsibility of Auditor in financial report.
Hence, responsibilities of auditor and directors and management differs a lot.
8. Outlining material subsequent events
There are various material subsequent events which are represented in annual report of
CBA. On 3 August, 2017, AUSTRAC (Australian Transaction Reports and Analysis Centre) went
on and commenced civil proceedings against organisation. AUSTRAC has alleged CBA with

regards to contraventions of four provisions of Anti-Money Laundering and Counter-Terrorism
Financing Act, 2006. On this, CBA is dealing with this matter seriously and will file defence
against it in the future. It is representing that Court proceedings are taken into consideration
and as such, detailed information will be presented to the Court in further proceedings
(Simunic, Ye and Zhang, 2015). Another material subsequent event happened on 4 August
2017, it was in relation to Aussie Home Loan (AHL) Acquisition, John Symond has exercised it
and as such, CBA Group will acquire 20 % interest in AHL. Purchase consideration will be made
by issuing shares of company and remaining 20 % will be made according to terms and
conditions agreed in the financial year 2012. The acquisition was expected to be met at the end
of August 2017. On the other hand, CBA is planning to be committed towards customers by
providing insurance products as per its policies. Hence, strategic actions have been followed by
CBA.
9. Discussing effectiveness of material information- Group materiality
Material information used for conducting audit of financials of CWB are:
 Determined overall Group materiality of $606m, that reflects 5% earning of the bank
before taxation. For Determination of scope, nature, time frame of completion, extent
of procedures related with audit, above threshold limit is applied, along with qualitative
consideration. Moreover, measures are developed for effective evaluation of
misstatements in financial reports of the bank (Groomer and Murthy, 2018).
 Profit before tax have been considered in presentation of audit reports because this is
the metric against which performance of bank is measured and is a generally accepted
benchmark in making industry.
 5% is selected as per professional judgement of auditor and also this is the range which
is accepted a threshold limit in this industry.
10. Undisclosed material information from annual report
The material information disclosed by Auditor is limited to profit before tax only and
they have considered 5% as threshold limit as it is generally accepted in banking industry.
The profit after tax can be used and disclosed in auditor's report as this is a key point which is
considered by stakeholders for evaluation of performance of bank (Glover, Prawitt and Drake,
2014).

Another material information which can be disclosed is related with income statement.
Auditors can determine the level of expenses and bad debts (non-performing assets) occurred
in a financial year which is a main performance checker of the bank.
11. Asking follow-up questions to Auditor at AGM
The question that can be asked to auditors in Annual generals meetings are as follows:
1. Did the audit committee took all the relevant permission which are required for
accessing confidential internal and financial information?
2. Did this report reveals any internal control deficiencies which was discovered by audit
committee during conducting auditing procedures? If yes, describe the same and
suggest some effective measures to overcome those material weaknesses.
3. Are there any items and matters on auditors schedule for unadjusted error and there
was disagreement with management about the same?? If yes, disclose the same and
state how you wish to resolve it.
CONCLUSION
Hereby, it can be concluded that audit process is significant for analysing company's
financials in the best possible manner. The outcome being generated from report signifies that
CBA is effectively preparing financial statements with professional bodies regulations such as
Corporations Act 2001 and AASB so as to reflect true view. Overall, independence auditor
report is issued by auditor and responsibilities are met of Directors and Management and also
Auditor have carried out them. Moreover, it is also being reflected that misstatements are
effectively rectified and subsequent events were occurred as reflected in annual report for
2017.

REFERENCES
Books and Journals
Anginer, D., Demirgüç-Kunt, A. and Mare, D.S., 2018. Bank capital, institutional environment
and systemic stability. Journal of Financial Stability. 37. pp.97-106.
Carson, E., Fargher, N. and Zhang, Y., 2017. Explaining auditors’ propensity to issue going‐
concern opinions in Australia after the global financial crisis. Accounting & Finance.
Craig, R., Smieliauskas, W. and Amernic, J., 2017. Estimation uncertainty and the IASB's
proposed conceptual framework.Australian Accounting Review. 27(1). pp.112-114.
Glover, S .M., Prawitt, D. F. and Drake, M.S., 2014. Between a rock and a hard place: A path
forward for using substantive analytical procedures in auditing large P&L accounts:
Commentary and analysis. Auditing: A Journal of Practice & Theory. 34(3). pp.161-179.
Groomer, S .M. and Murthy, U. S., 2018. Continuous auditing of database applications: An
embedded audit module approach. In Continuous Auditing: Theory and Application. (pp.
105-124). Emerald Publishing Limited.
Hay, D., Stewart, J. and Botica Redmayne, N., 2017. The Role of Auditing in Corporate
Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting
Review. 27(4). pp.457-479.
Kotsanopoulos, K. V. and Arvanitoyannis, I. S., 2017. The Role of Auditing, Food Safety, and
Food Quality Standards in the Food Industry: A Review. Comprehensive Reviews in Food
Science and Food Safety. 16(5). pp.760-775.
Patterson, E. R. and Smith, J. R., 2015. The strategic effects of Auditing Standard No. 5 in a
multi-location setting. AUDITING: A Journal of Practice & Theory. 35(1). pp.119-138.
Pollard, C.M and et.al., 2018. Charitable Food Systems' Capacity to Address Food Insecurity: An
Australian Capital City Audit. International journal of environmental research and public
health. 15(6).
Simunic, D. A., Ye, M. and Zhang, P., 2015. Audit Quality, Auditing Standards, and Legal
Regimes: Implications for International Auditing Standards. Journal of International
Accounting Research. 14(2). pp.221-234.
Online
Annual Report of CBA. 2017 [PDF] Available Through:
<https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/
pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf>