Key Audit Matters in Independent Auditor’s Report

The report highlights the importance of auditing report for risk management as well as to deter fraud. It aids in the prevention of accounting irregularities that prevent the risk of material misstatement.

RESEARCH, CRITICALLY ANALYSE AND EVALUATE KEY
AUDIT MATTERS IN INDEPENDENT AUDITOR’S REPORT
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Executive Summary
The report highlights the importance of auditing report for risk management as well as to
deter fraud. It aids in the prevention of accounting irregularities that prevent the risk of
material misstatement. Auditing standards are associated with internal assessment in order to
evaluate the effectiveness of the existing internal controls of the organization that limits the
attaining organization's business goals and objectives. The Commonwealth Bank adheres to
ASA 701 standard on auditing in order to control the internal operation in the organization
and reduce the risk of fraud as well as a material misstatement. It is recommended to consider
auditor’s ethical value that enhances the effectiveness of the auditing report.
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Table of Contents
Introduction................................................................................................................................4
Research Rationale of Auditing Standard 701.......................................................................4
Explanation.............................................................................................................................5
Analysis..................................................................................................................................6
Efficiency of Key audit Matters.............................................................................................7
Auditing Standards of Commonwealth Bank.........................................................................8
Recommendations......................................................................................................................8
Conclusion..................................................................................................................................9
References................................................................................................................................11
Appendix: Internal Control in Auditing..................................................................................13
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Introduction
Internal auditing of an organization aids in the prevention of fraud in the organization. The
auditing report is prepared based on strict rules and regulations associated with the
company’s operation and internal controls. It aids in the prevention of accounting
irregularities that prevent the risk of material misstatement. The auditing of an organization is
related to the judgment of the professional auditors who provides with a financial assessment
of the organization based on the various existing resources. The study highlights the auditing
standard of ASA 701, which is considered for analyzing the key auditing factors associated
with Commonwealth Bank. It also discusses the auditing standard of the organization along
with the efficiency of ASA 701 in relation to Commonwealth Bank.
Research Rationale of Auditing Standard 701
Auditing standards are associated with internal assessment in order to evaluate the
effectiveness of the existing internal controls of the organization that limits the attaining
organization's business goals and objectives. As highlighted by Abdullatif and Kawuq (2015,
p.32), maintaining effective internal control is essential in order to align the company's
operation with the objectives of the organization as well as prevent misappropriation of its
assets. It aids in preventing fraud as well as aid in minimizing the costs associated with
capital.
Ineffective and inefficient auditing report of the Lehman brothers leads to the collapse of the
investment firm. The main issue related to the auditing report associated with the investment
firm was the lack of future projections related to the market boom in the housing sector. Lack
of implementation of the counter-strategies during fluctuations in market conditions enhanced
the risk associated with the liquefaction of the form. The report provided by the auditor's
failure to reveal as well as communicate the associated firm regarding repurchase agreement
transactions. As opined by Cordoş and Fülöp (2015, p.67), lack of effective auditing report
failed to maintain the organizations' constant inflow of capital to finance operations. In order
to address this issue, the policymakers implemented a new Standard on auditing, ASA 701,
which is related to communicating key audit matters (Refer to Appendix).
The Auditing Standards of ASA 701 is associated with auditing Key Communicating Matters
in Independent Auditor's Report was amended on 5th December 2018. The scope of the
auditing standard of ASA 701 encompasses the importance of the auditor's and their
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responsibility associated with the importance of communication key in audit report
(auasb.gov.au, 2019), the Standard on Auditing 701 is associated with International Standard
on Auditing (ISA). It aids in the enhancement of the communication value of the auditing
report. As opined by Cordoş and Fülöp (2015, p.78), improved communication in case of
auditing report aids in the enhancement of team cooperation and also provides better ideas
associated with the execution of business strategies. As highlighted by Liao and
Radhakrishnan (2015, p.34), the new auditing standard the professional auditors are expected
to adhere to the risk-based auditing system in order to reduce the risk associated with frauds.
● The Standard on Auditing, ASA 701, is the standards highlighted are associated with
the importance of communication to provide accurate judgment on current financial
issues.
● Matters are addressed based on the report of the financial. Statement.
● It also includes references on the basis of Qualifies (Adverse) Opinion.
● The auditor's report is also associated with governance.
Alignment of the auditing report of Commonwealth Bank with Standard on Auditing 701
helps to provide with insightful reports associated with functions of the bank. This
contributes to enhancing trust among the public sector as well as helps to attain stability. As
opined by Javaid and Javid (2018, p.12), in the era of globalization the world is reduced to a
global village in which people are adhering to attain global standards by convergence or by
adopting the various rules and regulations. The International Standard of auditing aids in the
improvement of auditory communication. It aids in regulating the accounting standard of
Commonwealth Bank that includes the regulatory requirements which affect the financial
statement of the group (commbank.com.au, 2019).
Explanation
Implementation of the new standards associated with ASA 701 included the importance of
effective communication in order to enhance transparency while providing the report
concerning Commonwealth Bank. Enhanced communication increases the flexibility and
enables to adhere to effective approaches to deal with different risks. As opined by Sirois et
al. (2018, p.13), the communicating key associated with ASA 701 in order to disclose the
matter associated with auditing it is essential to adhere to proper references to frame auditor
report. The accounting standards of ASA 701 helps the Commonwealth Bank helps to
maintain consistency in accounting policies (commbank.com.au, 2019). In order to adhere to
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appropriate disclosure, changes are implemented in the Bank's existing policies and also
provides with significant decisions based on the management financial statements of the
Commonwealth Bank (commbank.com.au, 2019).
Analysis
Development of Banking Assets
Effective management of the banking assets enhances the efficiency to maintain buffer
capital that increases the risk-taking capacity of the bank. Efficient auditing of the financial
report of the Commonwealth Bank and increased transparency helps to develop trust among
the public sector. As opined by Boolaky and Quick (2016, p.45), efficient communication
adopted by the professional auditors for providing effective financial report helps to gather
information regarding the various aspects. It aids in providing static data that helps to obtain
future projection with maximum accuracy. As opined by Abdullatif and Kawuq (2015, p.45),
the auditor's report of the Commonwealth Bank aids in developing better understanding
related to assurance framework that increases the comfort level associated with disclosure of
risks as well the services that are being provided by the bank. The auditor’s report related to
banks is associated with satisfaction and trust level of the public sector, which is increased by
enhancing the transparency level of Commonwealth Bank. As suggested by Zhang et al.
(2017, p.238), effective analysis of the buffer capital in Commonwealth Bank aids to provide
future projection regarding the risk-taking capability of the bank. The ASA 701 adheres to
determining the key audit matters that are highlighted in the financial statement of the
Commonwealth Bank. As opined by Francis et al. (2016, p.163), this helps the organization
to align to effective approach during a specific situation. This aids in the development of the
Commonwealth Bank by increasing the existing buffer capital.
Inventory Management
The auditor of Commonwealth Bank mainly focuses on different types of loans, mainly
focusing on the amounts estimated by the management and the potential risks associated with
the failure of repayment (commbank.com.au, 2019). The bank mainly adheres to account
inventories, which are calculated based on the working capital. As mentioned by Brunelli
(2018, p.89), inventory management of Commonwealth Bank is associated with the
management of stock as well as existing working capital. The completion of the loans is
judged by the collective impairment of assessment as well as specific impairment of
assessment. The auditors address the key issue based on the ageing of the loans by
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recalculating the time period for delinquency and the mode of repayment by the borrower. As
highlighted by Sirois et al. (2018, p.13), effective communication during auditing report
helps to attain transparency regarding the risk assessment of the banking sector by analyzing
the risks in a more efficient manner. Efficient inventory management and efficient auditor's
report helps to maintain effective capital management and stochastic cash flow
(commbank.com.au, 2019). As mentioned by Barrow and Kourentzes (2016, p.90), the
auditors mainly assess the reasonableness of the collateral associated with it that reduces the
risk of the financial crisis that leads to merger or closure of banks. By adhering to an effective
financial statement, it helps to assess the ongoing capacity of the bank on the basis of
management and accounting (commbank.com.au, 2019).
Liquidity and Funding
The ASA 701 mainly aligns with judgments based decision making by aligning the goals and
objective of the organization. Enhanced communication with the stakeholders as well as
employees of the Commonwealth Bank aids in the development of effective risk management
and increases transparency regarding the issues of the current financial year. As opined by
Pollard et al. (2018, p. 1249), regular meeting with the supervisor of the bank and the auditor
aids in an enhanced level of communication. This helps to enhance the exchange of
information between different individuals that helps to address the risks and provides with
new guidelines and related to it in significant ways. The Commonwealth Bank adheres to the
standards of auditing 701 associated with liquidation and funding (as influenced by Carnegie,
2016, p.398), aligning the auditing report with the new Standard of auditing 701 aids in
effective implementation of the communicating practices that aids in maintaining accurate
assumption as well as a consolidated entity.
The efficiency of Key Audit Matters
The Commonwealth Bank adhering to Standard of Auditing adhere to ASA 701 that aids in
the enhancement of communication among the auditor’s as well as the investors and
supervisors that helps to address the issues in a current financial year. As opined by Hay et al.
(2018, p.473), the alignment of the auditor’s report with the associated risks focusing on
current aspects aids in adhering to specific approach in order to overcome the same.
Commonwealth bank follows the new guideline that helps to maintain an effective inventory
that enhances the transparency related to the risk assessment of the bank. By aligning with the
current financial statement, it aids to develop future projection related to the risk-taking
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capacity of the bank. As opined by Pollard et al. (2018, p. 1249), helps to exchange
information among the supervisor as well as the auditors.
Figure 1: Current Issues in Auditing
(Source: as influenced by Pollard et al. 2018, p. 1249)
Auditing Standards of Commonwealth Bank
The Commonwealth Bank adheres to the Standard on Auditing ASA 701 in order to enhance
the performance of the bank based on the current financial report as well as the management
system of the Commonwealth Bank. As opined by Brunelli (2018, p.90), the Commonwealth
Banking Group is structured into 7 segments that include the competencies level. It also
highlights the appropriate skills that are associated with each segment that is essential to deter
the risks associated with the same insignificant manner. In order to adhere to effective
auditing, the Commonwealth Group identified different entities as well as the business
activities associated with it in an effective manner (commbank.com.au, 2019).
Recommendations
Objective Specific Measurable Attainable Realistic Time Period
Incorporation
of the
consumer
development
The
Commonwea
lth bank can
incorporate
It can be
measured by
analyzing the
performance
It can be
attained by
maintaining
effective
It is possible
in real life
application
6 months
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Development of Banking Assets
Inventory Management
Liquidity and Funding

plan guidelines
that enhance
public sector
trust
based on
financial
statement
inventory as
well as a
database
associated
with
financial
performance
Incorporation
of guidelines
related to
ethical
concerns
Enhanced
ethical
concerns
associated
with the
auditor's aids
in providing
almost
accurate
future
projections
It is
measurable
based on the
effective
guidelines
provided
after
enhanced
communicati
on with the
auditors
It can be
attained by
enhanced
communicati
on among
the
supervisors
of the bank
as well as the
auditors
It is
applicable in
real life
3 months
Table 1: SMART Recommendations
(Source: as influenced by Liao and Radhakrishnan, 2015, p. 601)
Conclusion
Thus, it can be concluded that internal assessment is an essential aspect in order to reduce the
risks associated with company liquefaction. It aids in aligning the internal process of the
organization in order to enhance the performance of the Commonwealth Bank. The
Commonwealth Bank adheres to the guidelines provided by Standard on Auditing ASA 701
that helped to enhance the communication which is between the supervisor and the auditor
that help to develop auditor's report based on increased transparency. Inventory management
of Commonwealth Bank is associated with the management of stock as well as existing
working capital. The completion of the loans is judged by the collective impairment of
assessment as well as specific impairment of assessment. The standard on Auditing adheres
to the issues associated with the current financial aspect that helps to follow specific
guidelines to address the current issues. The Commonwealth Bank mainly adheres to account
inventories, which are calculated based on the working capital. It also highlights the
appropriate skills that are associated with each segment that is essential to deter the risks
associated with the same insignificant manner. It is essential to incorporate ethical code
conduct.
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Appendix: Internal Control in Auditing Report
(Source: https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/
corporate-profile/corporate-governance/Audit-Comittee-Charter-June-2018.pdf)
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