MP221 Auditing and Assurance Report: NAB Financial Analysis

This report provides a comprehensive analysis of the National Australia Bank (NAB), focusing on auditing and assurance principles. It begins with an overview of NAB's operations, identifying key business risks such as economic, financial, compliance, and operational risks. The report then applies analytical procedures to the bank's balance sheet, pinpointing assets and liabilities as key account balances susceptible to material misstatement. The analysis further identifies the existence and valuation assertions as the primary risks associated with these accounts. Finally, the report outlines and justifies specific audit procedures, including inspection, observation, external confirmation, recalculation, reperformance, and analytical procedures, designed to gather sufficient and appropriate audit evidence to address the identified risks and assertions. This includes the audit of the increase in profits of the company that need to be verified by the auditor. The report highlights the importance of audit procedures to verify the financial statements assertions and to ensure the accuracy of the financial reports.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the student
Name of the university
Author Note

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Table of Contents
Introduction......................................................................................................................................4
Discussion........................................................................................................................................4
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Executive summary
The Australian bank named National Australian Bank is public bank that operates in the
Australia and New Zealand. The bank operates in the banking and financial service. The bank
earns a revenue of $19,101 billion, and earn a net income of $5,554 billion. The bank has a total
assets of $806, 51 billion. The annual report of the bank has been analyzed. The key business
risk, key account balances at risk of material misstatement have been identified. The relevant
audit procedure have also been discussed in the report. The audit procedure will provide the
effective audit evidence that need to confirm the existence of the business risk assertion.

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Introduction
The Australian bank named as National Australian bank is the largest bank and the
financial organization in Australia. The bank was ranked fourth in terms of capitalization market
rate, earnings and the numbers of customers. As on the basis of market capitalization the bank
was ranked 21st in the world. The bank has a huge size of total assets and this is the reason the
bank was ranked 50th in the world. The company operates in banking and the financial services
and the bank provide service to the people of Australia and New Zealand. The bank has 1590
branches and 35,063 employees all over the world (Nab.com.au. 2019). The banks earns a
revenue of AUD$19,101 billion per year and is listed on the ASX stock exchange of Australia.
The net income of the company for the year 2018 is AUD $ 5,554 billion per year. The products
that the bank offers are the occupation banking, customer banking, wholesale banking and
affluence management. The business risk is a risk that all company’s and the organization
experiences at some point of time. The business risk is a factor which threatens an organization
ability to attain the desired targets and financial goals. The sources of this risk can be internal
and external such as internal management and the overall economy. However, the companies can
protect themselves from this risk by adopting the adequate the risk management strategy. The
motive of this report is to analyze the key business risk and the key assertion of risk of National
Australian bank. The related audit procedure and the audit evidence for the identified risk has
been stated and discussed in the report.
Discussion
The common business risk in a company are the competitive risk, profitable risk,
operating risk, lawful risk, compliance risk, strategy risk, program risk and many others.
According to the annual report, the company is undergoing through an economic risk, financial
risk, compliance risk and operational risk. The company’s undergoes through an economic risk
as because the relevant changes in the economy will increase and decrease the sales of the
company. The government debt of the country is exceptionally high for large advanced
economies (Heltzer & Shelton 2015). This results in impacting on credit and funding cost. The
debt of Australian and New Zealand government remains low by the benchmark of the advanced
economy. The decrease in the sovereign credit rates could have unfavorable effect on the

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business of the company operating in New Zealand and Australia. The business risk increase as
the economy gets highly leveraged and the increase in bond rates. The financial risk of a
company is related with the financial health of the company. The company has a total amount of
net impaired asset of $846 Million for the year 2018 and $1,033 million for the year 2017. The
company is also undergoing through credit risk, the lending activities of the bank and the
activities of the group has led to credit risk. This activities include the book banking, trading
book and other financial instruments such as loans, trade financing, inter-bank transaction,
swaps, bonds, transaction of foreign exchanges and many other things. The cash and liquid assets
of the bank is $48,947 for the year 2018, and $41,117 for the year 2017. The balances of this
assets has led to an exposure of credit risk. This contain principally of repurchase agreements
and securities borrowing disposition. These guarantee’s with high liquid securities and security
in the surplus of the borrowed or the amount of loan. Compliance risk involves in complying
new rules that has been set by the government or any other governing bodies of the company.
The government is managing to increase standards and customer expectation. The explanation
and advice in related to responsible lending operations of the bank under the “National Customer
Credit Protection Act 2009”. This have been developed in the recent years and have been
subjected to focus at the royal commission. However, if the compliance and the conduct related
controls of the group fails then the group may exposed to some risk. This risk will led to increase
in cost of compliance, fines, and additional requirements of capital. The contracts such as loans,
guarantees and other securities will be unenforceable. There could be suspension in license for
the business of the group. This will also effect on the monetary position of the group and impact
on the goodwill of the company. The operational risk occurs in a company system or the process.
The risk is resulting from the insufficient or failed interior process, people and systems or outside
events. This risk arises from the day to day operation and the transaction of the company.
Operational risk led to financial loss, fines, penalties, and decrease in goodwill of the company.
This loses of the companies will led to impact the position of the company and financial position
of the company (Cohen & Simnett 2014). National Australian Bank also undergoes some
operational risk and the charges experienced by the company is $596 Million for the year 2018
and $973 million for the year 2017. The provisions for the operational risk event losses are raised
for non-lending losses, which includes the loss from the lawful action that is incidentally related

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to the amounts of principal outstanding of loans arising from the frauds and other related
operational issue of the company (McGain et al. 2015).
The risk in data misstatement is the risk that exist in the financial statement of a company. This
risk could be either individually or in aggregate (Bentley, Omer & Sharp 2013). The difference
between the amount that is required by following accounting standard and the amount that is
included or excluded from the financial records of a company. The reason for occurring of
misstatements is because of a fraud or error. The data misstatements of the financial records are
when the risk can be expected to influence the decision are based taken on those financial
statements (Zhang et al. 2013). The components for the measurements of material misstatement
risk are inherent and control risk. The inherent risk is the sensibility of a transaction or account
balance to material misstatement as due to the nature of the transaction. The control risk is a kind
of risk that controls the applied prevention or correction misstatements that will be ineffective for
the prevention and correction of misstatements. The key account balances in a balance sheet are
the assets, inventory, liabilities and equity of a company (Auasb.gov.au. 2019). According to the
annual report of the company the two key account balances that are at a risk of misstatement is
the assets and the liabilities of the company (Carey, Knechel & Tanewski 2013). The reason
behind this is that the total assets for the company get increased from the previous year
(aasb.gov.au. 2019). The amount of total assets for the company in the year 2018 is $823934
million and for the year 2017 it is 814516. The plant, property and equipment decrease from
before and the cash and liquid assets increases. The plant, property and equipment decreases by
$53 million from before and increases by $7565 million from before. The total liability of the
company for the year 2018 is $774192 million and for the year 2017 is $765915 million.This is
because failure in the system of controls that are used by the business. The related notes of
financial statements for the above mentioned assets and liabilities are missing in the report
(Mock & Fukukawa. 2015). This led to a reason for risk of data exaggeration. The complex
calculation of the financial assets also led to a possibility of data exaggeration. The calculation of
cash and liquid is complex in nature this led to a possibility of misstatement of the amounts. The
complex calculation have more than the simple calculation of a financial statement.
The two key assertion of risk for the two key balance accounts is the Existence and valuation of
the accounts (Auditing and Assurance Standards Board. 2015). The existence risk assertion of an

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account balance means that the liabilities, shareholders and the assets balances appeared in the
financial statement are actually exist as stated at the end of the accounting period (Kotsanopoulos
& Arvanitoyannis 2017). The valuation risk assertion mean that all the assets, liabilities and the
equities that have been identified in the financial statement of the company are valued in a proper
way or not. The reason behind selection of these risk assertion is due to the balance figures of the
amounts given in the financial statement provided in the annual report (Liu et al. 2015). The
reason of the increase in profits need to be verified by the auditor. The investors, shareholders
and the other users are investing on the company on basis of this relevant information provided
in the annual report (William, Glover & Prawitt. 2016). The auditor of a company need to verify
the existence of the above identification of risk by following the proper audit procedure, and
audit plan. The designing and the audit procedures need to verify the financial statements
assertion. This needs to be consider whether the audit procedures are suitable to meet the
objective of the audit. The procedure have to be designed in such a way that the necessary and
the appropriate evidence could be collected from the audit procedure. The audit procedures that
needed to be perform for the above identified risk assertion is inspection of accounts, observation
of accounts, inquiry, External confirmation, recalculation of financial data and records,
reperformance and analytical procedure of accounts (Hay, Stewart & BoticaRedmayne 2017).
Inspection means the audit procedure, which is related to verification of records or documents
that are internal and external. This could be in the form of written document, electronic or any
other similar form and the physical verification is also need to perform by the auditor. The
inspection of these documents, records provides audit evidence for verification and confirmation
of the existence risk assertion of an asset (Junior, Best & Cotter. 2014). The inspection of the
tangible assets will provide audit evidence of the existence of the good. However, the rights and
obligation of the asset and the valuation of the asset’s audit evidence cannot be obtained from
that. The procedure of observation is an audit procedure that includes of a procedure that is being
performed by the others and the evidence is obtained about the actual performance (Knechel &
Salterio 2016). The evidence that is provided from the observation is for some time, for an
example the attendance of the auditor at the counting of the inventory by the staff of the
company the auditor observe the performance of the controlled activities (Reding et al. 2013).
The external confirmation procedure may be an important source of effective and relevant source
of audit evidence (Hall 2015). The audit evidence is collected from the written source that comes

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from outside the company. The source can be in a form of paper or electronic media or through
any other media. These confirmations are used by the auditors when the auditor need to confirm
and verify assertion related to account balance of assets and liabilities (vanBuuren et al. 2014).
The auditor may need to verify the agreements, transaction, invoices, statements and the
contracts with the third parties and the company (Jans, Alles & Vasarhelyi 2014). The inquiry
procedure relates to the audit procedure that is being performed broadly during the performance
of an audit in an addition to the other procedures. This concludes the searching of both the
financial and nonfinancial data and information inside and outside the entity. The enquiry will
provide some new information, that will help in confirmation and verification of the above
identified risk assertion. The recalculation procedure is the procedure which includes the
verification of the mathematical accuracy of the documents or records. This will help in
verifying the accuracy of the identified asset in the financial statement. The audit procedure of
reperformance includes the independent implementation by the auditor of procedures or controls
that were performed by the company before as a part of internal control (Griffiths 2016). The
analytical couse of action involves the evaluation of financial data through the analysis and
verification of relationship among both the financial and non-financial data of the company. The
analytical procedures also include the investigation of fluctuation in data. This procedure
encircle the investigation of notable differences from the expected amounts. The analytical
procedures may be used as substantive procedure (Johnstone, Gramling & Rittenberg. 2013).
These are more applicable to the large volume of transaction’s that lean to be predictable over
time. The above mentioned audit procedures help in identifying and verifying the identified risk
assertion for the National Australian Bank. The audit also have to give physical verification to
the assets in addition. The existence assertion, valuation and the other relevant assertion should
be verified by attending and performing the audit procedures of inventory counting. The
inventory counting also provides evidence for the completeness and verification of the assets
(Auasb.gov.au. 2019). The companies maintained a detailed record of the transactions, this is
because the board of directors of the companies want to prepare financial reports without any
material misstatement. The companies, which do not maintain this a complete physical count of
inventory need to be done at a close date to the company’s monetary year end. The auditor
during the audit procedure require to observe the management’s performance, inspect the
inventory of assets and perform the necessary test counts. The selection of the item need to be

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very specific in order to obtain the effective and relevant audit evidence. The selected items are
such as the high value or key items, items that contain certain amount and the items that contain
specific information. The designed audit procedures that have been performed should be
documented in the audit report as an audit objective as for the intension to achieve the risk
assertion relate to the class of transaction.
Conclusion
This can be concluded from the above discussion, that the National Australian bank is a
popular bank in Australia. The bank was ranked fourth in the world in terms of asset size,
turnover and for the number of customer present. The analysis of the annual report of National
Australian Bank has been done. According to the detailed analysis it has been identified that the
bank is undergoing some business risk such as operational, economic, compliance and financial
risk. The bank is experiencing an impact and a threat in the unstabling the monetary position of
the bank. The reputation and the goodwill of the bank is also reducing. The analysis of the
income statement and the balance sheet provided in the annual report also have been analyzed
and some key account balance risk have been identified. The key account balance of the balance
sheet are the asset and liabilities of the bank. There could be a risk in material misstatement have
been identified. This could be because a fraud or an error in the system and as because of less
information given in the annual report of the bank. The identified risk assertion have also been
state in the report related to the key account balances. The identified risk assertion are existence
and valuation. The relevant audit procedure that could be performed for the above identified
risks have also been explained. The audit procedure that have been mentioned in the report are
the most adequate and will provide effective audit evidence to confirm the existence of the
identified risk assertion of the company.

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