Key Audit Matters in Annual Reports of Westpac, AMP, and ANZ

This article discusses the key audit matters reported in the annual reports of Westpac, AMP, and ANZ. It examines how these audit matters align with the findings of the Banking Royal Commission and the requirements of ASA 701. The article also explores the role of organizational culture in auditing and suggests steps for auditing organizational culture.

Running head: MASTER OF PROFESSIONAL ACCOUNTING
Master of Professional Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Part A.........................................................................................................................................2
Requirement 1........................................................................................................................2
Requirement 2........................................................................................................................2
Requirement 3........................................................................................................................3
Part B..........................................................................................................................................4
Requirement 1........................................................................................................................4
Requirement 2........................................................................................................................6
Part C..........................................................................................................................................7
References..................................................................................................................................9

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Part A
Requirement 1
Westpac – It can be seen from both the 2018 and 2017 Annual Report of Westpac that the
audit partner of the Bank, PwC, has reported five key audit matters in 2018 and 4 key audit
matters in 2017. Among these key audit matters, 4 key audit matters in 2018 are same as
2017 while PwC has reported one additional key audit matters in 2018 that is AASB 9
Financial Instruments (westpac.com.au 2019).
AMP – As per the 2018 and 2017 Annual Report of AMP, the auditors, EY, have reported
six key audit matters in 2018 and five in 2017. There are major changes in the audit of 2018
due to the inclusion of new key audit matters such as sales of AMP Life Wealth Protection
and Mature Policies, customer remediation protection and others (corporate.amp.com.au
2019).
ANZ – As per the 2018 and 2017 Annual Report of ANZ, KPMG, the audit partner, has
identified five key audit matters in 2018 and three in 2017. The audit of 2018 has changed
due to the inclusion of two new key audit matters; they are provision for customer
remediation and accounting for divestment (shareholder.anz.com 2019).
Requirement 2
As per ASA 701, Paragraph 13 of Description of Individual Key Audit Matters, the
key audit matter shall include a reference to the related disclosure, if any, in the financial
report and they shall address two crucial aspect; the reason behind considering the matters as
most significant and the procedures applied for addressing these key audit matters
(auasb.gov.au 2019). The sufficiency of the description of the key audit matters is largely
dependent on the professional judgment of the auditors (auasb.gov.au 2019).

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It can be seen from the audit reports of these three banks that the audit partners that
are PwC, EY and KPMG have followed the requirements of the ASA 701 Key Audit Matters.
As per the requirements of ASA 701, all of these three audit partners have referred to the
relevant sections while addressing the key audit matters (auasb.gov.au 2019). For example, in
the 2018 Annual Report, PwC refers to Note 14 of the financial statements while addressing
key audit matter of provision for impairment charges (Sirois, Bédard and Bera 2018). The
same aspect can be seen in case of EY and KPMG. After that, in accordance with the
requirements of ASA 701, all these three audit partners have provided the description of the
reasons for which the matters have been considered as key audit matters. They have also
provided the description of the audit procedures they have undertaken to address these key
audit matters. They have also addressed the judgements and assumption involved in these key
audit matters. However, the only difference can be seen for KPMG since they have not used
the tabular format like PwC and EY for reporting the key audit matters (Sirois, Bédard and
Bera 2018).
Requirement 3
PwC, EY and KPMG have followed the requirements of ASA 701 for providing
description of the key audit matters and undertaken audit procedures to address them. It can
be seen that these auditors have explained the elements of these matters that can lead to the
risk of material misstatement. At the same time, they have mentioned about the relevant
accounting sections of AASB that have involvements in these key audit matters for the ease
of understanding of the users (auasb.gov.au 2019). Moreover, they have mentioned about the
involvement of relevant assumptions and accounting judgments involved in these key audit
matters which these three banks used. In accordance with ASA 701, they have mentioned
about the circumstances in which the matters need to be considered as key audit matters. All
these aspects indicate towards the fact that all these three audit partners have communicated

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the key risks and audit procedures to the users of the financial statements in the most efficient
manner in accordance with the requirements of ASA 701 (auasb.gov.au 2019).
Part B
Requirement 1
The findings of the Haynes Royal Commission into Financial Services indicate
towards certain risks into the operations of these three banks. The following discussions
shows to which degree the reported Key Audit Matters (KAMs) of these three banks have
reflected the risks arising from the findings.
Westpac – As per the findings of Banking Royal Commission, two subsidiary entities of
Westpac which are Asgard and BT were charging major advice-related fees from the
customers even though they were no longer receiving advices. Westpac took the
responsibility of this conduct since it was due to the errors because of inadequate procedures
and processing to remove these fees; and Westpac had to pay $634,490 to the customers
(royalcommission.gov.au 2019). PwC has included Operation and IT System and Controls as
one of the KAMs in 2016 since the dependency of the group on complex IT systems that
include complex processes and procedures for the completion of 80% of the operations. To
most of the extent, this KAM reflects the specific risk arising from the finding of the Banking
Royal Commission since the error was due to the absence of insufficient procedures and
inconsistent processing of banking system (Bédard, Gonthier-Besacier and Schatt 2014).
AMP – The findings of the Banking Royal Commission has showed two specific issues in
AMP. The first issue is that the subsidiaries of AMP that are ASL and NM have implemented
their outsourcing arrangements in such a manner that has created real and serious difficulties
to each of the trustees of the bank. The second issue is related to the group life insurance
offered to the members of the superannuation funds of AMP Superannuation Limited and

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NM Superannuation Property Limited (royalcommission.gov.au 2019). As per the 2017
Audit Report of AMP, EY has considered the Valuation of life insurance policy liabilities as
a KAM due to the presence of significant judgements and assumption in the valuation of the
provisions for the settlement of future claims. This does not reflect the identified risk to the
full extent since it has not considered the assessment of potential insurers. However, there is
not any KAM in 2017 Audit Report related to outsourcing arrangements (Czerney, Schmidt
and Thompson 2014).
ANZ – It can be seen from the findings of the Banking Royal Commission that there are
certain key issues regarding the distribution of the superannuation product of ANZ called
Retail Smart Choice Super (royalcommission.gov.au 2019). Since superannuation is a
complex financial product, the bank has breached efficiency, honesty and fairness in the
distribution of this superannuation product; and this breach leads to misleading the
customers, preventing staffs from telling whether the product is suitable or not and
encouraging the customers in opening these accounting without considering the
consequences. According to the 2017 Audit Report of ANZ, the reported KAMs do not
reflect this risk since these KAMs are not related to superannuation product (Boolaky and
Quick 2016).
It can be seen from the above discussion that the PwC, the audit partner of Westpac,
has considered error in the process and procedure in their system through the KAM of
Operation of IT system and controls, but they have not considered the errors from their staffs’
end in the process. EY, the audit partner of AMP, has neglected the crucial matter related to
outsourcing arrangements in the reporting of KAM and they have also neglected the
assessment of potential users in KAM. In case of ANZ, KPMG has totally neglected the key
issue of the distribution of superannuation product in KAM and thus, the reported KAMs do
not reflect this particular risk. It implies that the auditors of these three banks have neglected

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the issues raised by the Banking Royal Commission in the reporting of KAMs (Boolaky and
Quick 2016).
Requirement 2
According to the findings of the Banking Royal Commission, organizational culture is
a major concern that needs to be addressed by the banks (royalcommission.gov.au 2019).
Organizational culture can be considered as a set of durable and fundamental assumptions as
well as norms that help in determining how things are actually done within the organizations.
It needs to be mentioned that the lack of organizational culture was responsible for the
collapse of many companies and it leads to the growing interest in the area of organizational
culture on how to thoroughly assess the organizational culture with the degree of audit
methodology (Furnham and Gunter 2015). The presence of certain techniques can be seen
that the external auditors used for measuring organizational culture while putting major focus
on control environment. Most of the external auditors have started to assess the tone at the
top of the audit function areas that include communication among the senior managers,
middle managers and other employees. Some of the audit departments incorporate evaluation
of organizational control for their everyday audit procedures. In addition, other external
auditors conduct structured and entry-level interviews for measuring organizational culture. It
can be said in the presence of all these aspect that the external auditors can audit the
organizational culture (Furnham and Gunter 2015).
Certain steps might be followed while auditing the organizational culture by the
external auditors. There needs to be a senior executive of the client’s company in the external
audit team for ensuring insider cooperation. Then, the expertise of the audit team needs to be
verified for making sure whether the team has prior experience in auditing organizational
culture. Then, the external auditors are needed to survey the employees and executives for
assessing the dominant mind-set. In this process, the auditors must have the full access of the

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human resource data like employee turnover rate, discipline record, annual performance
review and others. The external auditors are required to consider the previous internal and
external audit reports for identifying cultural risks. After that, it is needed to revise the risky
areas based on the identifying organizational cultural risks (Svanberg and Öhman 2013).
In order to cover the cultural matters, there has to be a public statement to say what
companies report their culture. For this reason, there has to be some robust, neutral and
measurable criteria that can be constantly applied. There are certain tangible aspects of
organizational culture that can be audited on evidence-based manner such as function and
structure, vision and values, incentives and responsibilities and others (Testa and Sipe 2013).
These established audit metrics are fairly straightforward since these can tested against
established expectations. Thus, in case, there are audit risks in these aspects, they can be
included in the KAM section since they can be measured against established expectations.
However, major issues can be seen in more unclear cultural aspects like sub-cultures within
departments, processes and others (Svanberg and Öhman 2016). These aspects can be
measured by using terms like collaboration, honesty and transparency; and none of these are
measurable in absolute terms. For this reason, these cultural aspects cannot be audited and
thus, it cannot be included in the KAM section. Based on the above discussion, until there is
not all specific established metrics for auditing the organizational culture, it is better not to
include the cultural matters in the KAM section in 2019 audit report.
Part C
It can be seen from the above discussion that KAMs are essential for the users of the
financial statements because they reflects the key risks of material misstatements in the
financial statements. The auditors have the obligation to follow the standards of ASA 701 for
reporting KAMs where they are needed to provide both the reasons for considering these
matters as KAM and the undertaken audit procedures to address these KAMs. The users of

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the financial statements can identify the key risks involved with these KAMs from the
description in accordance with ASA 701. The above discussion also shows the negligence of
the auditors of PwC, EY and KPMG in considering the findings from the Banking Royal
Commission. The findings of the Banking Royal Commission are essential for both the banks
and the users since they provide the scope to minimize the audit risks. In addition, since
organizational culture can be audited by the external auditors, there needs to be more
established criteria for assessing the organizational culture in order to include them in the
KAM section of 2017 audit report.

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References
Auasb.gov.au. 2019. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 23 Apr.
2019].
Bédard, J., Gonthier-Besacier, N. and Schatt, A., 2014, January. Costs and benefits of
reporting Key Audit Matters in the audit report: The French experience. In International
Symposium on Audit Research. Available at: http://documents. escdijon.
eu/pdf/cig2014/ACTESDUCOLLOQUE/BEDARD_GONTHIER_BESACIER_SCHATT. pdf.
Boolaky, P.K. and Quick, R., 2016. Bank directors’ perceptions of expanded auditor's
reports. International Journal of Auditing, 20(2), pp.158-174.
Corporate.amp.com.au. 2019. 2017 Annual Report. [online] Available at:
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/reports/2018/
Investor_and_annual_reports/2017_annual_report_20_march_2018.pdf [Accessed 23 Apr.
2019].
Corporate.amp.com.au. 2019. 2018 Annual Report. [online] Available at:
https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/asx-
announcements/2019/AMP_2018_AR.pdf [Accessed 23 Apr. 2019].
Czerney, K., Schmidt, J.J. and Thompson, A.M., 2014. Does auditor explanatory language in
unqualified audit reports indicate increased financial misstatement risk?. The Accounting
Review, 89(6), pp.2115-2149.
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Company's Personality. Routledge.

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Royalcommission.gov.au. 2019. [online] Available at:
https://www.royalcommission.gov.au/sites/default/files/2019-02/fsrc-volume-2-final-
report.pdf [Accessed 23 Apr. 2019].
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Shareholder.anz.com. (2019). 2017 Annual Report. [online] Available at:
https://shareholder.anz.com/sites/default/files/2017_anz_annual_report.pdf [Accessed 23
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Shareholder.anz.com. (2019). 2018 Annual Report. [online] Available at:
https://shareholder.anz.com/sites/default/files/anz_2018_annual_report_final.pdf [Accessed
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Sirois, L.P., Bédard, J. and Bera, P., 2018. The informational value of key audit matters in the
auditor's report: Evidence from an eye-tracking study. Accounting Horizons, 32(2), pp.141-
162.
Svanberg, J. and Öhman, P., 2013. Auditors' time pressure: Does ethical culture support audit
quality?. Managerial auditing journal, 28(7), pp.572-591.
Svanberg, J. and Öhman, P., 2016. Does ethical culture in audit firms support auditor
objectivity?. Accounting in Europe, 13(1), pp.65-79.
Testa, M.R. and Sipe, L.J., 2013. The organizational culture Audit: countering cultural
Ambiguity in the Service context. Open Journal of Leadership, 2(02), p.36.

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Westpac.com.au. 2019. 2017 Westpac Group Annual Report. [online] Available at:
https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/ic/
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