Analytical Procedures and Inherent Risk in Audit Planning - Bank of Queensland

MASTERS OF PROFESSIONAL ACCOUNTING
MA611- Auditing
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Contents
Executive Summary...................................................................................................................3
1- Results of Analytical Procedures...........................................................................................4
Analytical Procedures............................................................................................................4
Influence of analytical procedures on audit planning decisions............................................7
2- Risk of Material Misstatement (Inherent Risk) at the Financial Report Level......................8
3- Risk of Material Misstatement (Inherent Risk) at the Assertion Level...............................11
References................................................................................................................................15
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Executive Summary
This report is based on various aspects of audit planning Bank of Queensland. Auditing is the
process of investigating financial, operations, statutory and other relational requirements. In
this report, the application of analytical procedures on financial statements of the Bank of
Queensland has been undertaken. Net profit, operating cash flows, current assets and total
assets are risk factors of Bank of Queensland on the basis of an analytical procedure for the
last 3 years. Management has been considered as the inherent risk factor that needs to be
considered while planning audit. Nature of business, the volume of transactions and industry
factors are important considerations and on these bases inherent risk is identified for planning
audit procedures. At last, the risk of material misstatement at the assertion level has been
discussed. Net profit, operating cash flows and impairment on loans and advances are three
accounts at risk of material misstatement at the assertion level.
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1- Results of Analytical Procedures
Analytical Procedures
The analytical procedure uses financial statement analysis of the business entity in order to
develop some base of the auditing process. Under the analytical procedure, figures of
financial statements are analysed by using different analysis techniques and then the trend is
developed and risk areas are identified. In the case of Bank of Queensland, ratios analysis has
been conducted and horizontal analysis of important accounts has been undertaken to identify
risk areas or risk in accounts. Following is the result of ratio analysis of Bank of Queensland:
Particular 2018 ($M) 2017 ($M) 2016 ($M)
Net profit ratio 16.24 % 17.20 % 15.67 %
Return on total assets 0.64 % 0.68 % 0.66 %
Return on equity 8.71 % 9.29 % 9.42 %
Current ratio 1.33 times 1.22 times 1.32 times
Debt to equity ratio 12.74 times 12.64 times 13.18 times
Debt Ratio 0.93 times 0.93 times 0.93 times
Operating cash flow growth (%) 204.97 % -71.85 % 51.13 %
(Robinson, et. al., 2105)
Analysis
Ratio analysis of Bank of Queensland has been conducted and it has been observed that
management has been able to maintain a net margin level in all the years. On the other hand,
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