Auditing ASA 701 Report: Analysis of Key Audit Matters in Banking

This report provides an in-depth analysis of ASA 701, focusing on key audit matters within the banking industry. It begins with an executive summary and introduction to ASA 701, emphasizing its role in promoting transparency and integrated performance. The discussion covers key features of ASA 701, including the importance of key audit matters in annual reports, and the role of auditors in assessing risks and management decisions. The report includes a detailed analysis of six major banks: Commonwealth Bank, Westpac Bank, Bank of Queensland, Australia and New Zealand Banking Group (ANZ), Macquarie Bank, and National Australian Bank (NAB), examining specific key audit matters such as loan impairment provisions, valuation of financial instruments, and compliance issues. The report concludes with recommendations based on the analysis and includes references and an appendix for further information.

Running head: AUDITING ASA 701
AUDITING ASA 701
Name of the Student
Name of the University
Author Note

1AUDITING ASA 701
Executive Summary
The ASA 701 brought about the inclusion of the key audit matters which are essentially faced by
the enterprise in the annual reports of the firm. This move was undertaken to promote
transparency and integrated performance. The report has been given with the objective to
recognize the critical importance of the Key audit matters and highlight its inclusion in the
reports with the help of the listed firms in the Banking industry. Certain recommendations have
also been provided.

2AUDITING ASA 701
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Analysis...........................................................................................................................................5
The Commonwealth Bank...............................................................................................................5
Westpac Bank..................................................................................................................................6
Bank of Queensland.........................................................................................................................7
Australia and New Zealand Banking Group....................................................................................8
Macquarie Bank...............................................................................................................................9
National Australian Bank (NAB)..................................................................................................10
Recommendations..........................................................................................................................11
References......................................................................................................................................12
Appendix........................................................................................................................................14

3AUDITING ASA 701
Introduction
The report will follow a discussion of the key audit matters that are usually faced by an
enterprise while preparing the Auditing and accounting report. The key audit matters can be
essentially mentioned to be the matters whereby the auditor would be obliged to undertake a
judgement of the key audit matters which would be required in the financial statements of the
judgement period. According to Akathaporn, Lankton and Stivason (2018), the key audit matters
are chosen from various topics which are required to be held critical and generally charged with
governance. In consideration with this, the primary objective of the study can be stated to be to
highlight the significance of the new standard ASA 701 and to outline the various Audit matters
which are basically summarized by the individual auditors. In line with this, the given report is
outlining the issue of the banking and finance industry and will understand and critically
examine the key auditing problems that will be defined by the Accounting standard 701.
Discussion
The audit matters which have been underlined in the Standard 701 and designed by the
Australian Accounting board have been highlighted because these matters are of critical
importance and will be requiring immediate analysis and importance (Altawalbeh and
Alhajaya ,2019). However, this judgement and importance is generally based on the viewpoint
and judgment of the different auditors. In line with this, it becomes effective to understand that,
the key audit matters assist in guiding the company and helping them to perform well
understands the matters of priority which require key attention in order to be able to maintain the
overall consistency of the various operations. The key features of the ASA 701 can be identified
to be as follows:
1. The measurement and the inclusion of the Key auditing matters in the different annual
reports have become very essential for the companies which are listed in the stock
exchange.
2. The enablement of the auditors of the different enterprises is critical to undertake as it
assists in including the matters in the different reports.
3. The auditing matters which are being discussed primarily focus on the various areas of
risks which will be essentially required by the enterprise and needs assessment. It also
considers the management decisions which are generally made (Brasel et al., 2016).

4AUDITING ASA 701
4. If any documentation is required in consideration of the Auditing matters need to be
identified effectively.
5. The ASA 701 would be required to see to it that its inclusion takes place in all annual
reports which are being prepared after the 15th of December 2016.
6. The focus of the standard lies in ensuring that decisions can be made in complete
transparency (Tiron-Tudor et al., 2018).
The ASA 570 was essentially designed in order to act as a guidance to the various
auditors who and help them to see to it that their responsibilities can be fulfilled and the
management would be essentially required to see to it that, the Going concern aspect of the
business can be continued with while the financial reports of the enterprise are being prepared
(Köhler, Ratzinger-Sakel and Theis, 2016). The auditing standard has essentially mentioned
that, the auditor has to perform under the duty to consider the risks associated with the overall
operations and would also be required to ensure that they can provide proper guidance to the
management and their overall ability to perform well and consider the entity`s capability to
continue the business operations effectively (Knechel and Salterio, 2016). The case of the
Lehman brothers needs to be highlighted here in the context of which it can be mentioned that
the enterprise filed for the bankruptcy in 2008 whereby it had $639 billion under the asset section
and in line of this had $619 billion under the liabilities. This is one of the primary reasons why
the insolvency came as a big blow to the world and the mortgage industry was taken a back.
The enterprise began its operations on a humble note but later it took the procurement of
the US accommodation and experienced a boom. In association with this, the firm experienced
cracks in the beginning of 2007 and experienced the impact of the same (Kachelmeier, Schmidt
and Valentine, 2017). The enterprise although large in size, failed to assess the various risks
which were faced by it and had a strong influence. In addition to the management of the
enterprise, the auditors of the firm also underwent a considerate mistake whereby they were not
able to understand the defaults of the system and not identify the high level of leverage which
was essentially associated with the firm. This led to a fall in the share prices of the organization
and the valuation of the company took a toll.

5AUDITING ASA 701
Analysis
For the objective of this report, the enterprise which has been selected can be mentioned to
be the Banking industry and the 6 popular companies have been chosen for the assessment:
1. Commonwealth Bank.
2. Westpac Bank.
3. Bank of Queensland.
4. Australia and New Zealand Banking Group (ANZ)
5. Macquarie Bank.
6. National Australian Bank (NAB)
The various key auditing matters which are assessed by the banking enterprises are as follows:
The Commonwealth Bank
Loan impairment provisions
The PWC has been the auditor of the enterprise and this issue was taken as a KAM
because there exists certain subjective judgements which were made by the group. The auditing
group in this context carried out various analyses and pertaining to this, they arrived at a
conclusion that, the disclosures need to be met with the overall standards.
Judgemental valuation of financial instruments
The financial assets were characterized under the distinct stages and pertaining to this, the
matter was taken to be an auditing issue because it required critical judgement requiring value.
Various measures were undertaken (Commbank.com.au ,2020).
Provision for customer remediation and project costs associated with regulatory compliance
matters
The issue has been raised regarding the various provisions about the customer
remediation fees, the legal procedures, associated tasks and costs. The appropriateness of the

6AUDITING ASA 701
information was determined in line with the events and inquiries used to determine the suitability
of the scenario.
Valuation of insurance policyholder’s liability
The issue was identified as a key audit matter regarding the Group`s capability to
evaluate the provisions which were considered for the specific agreement and related insurance
claims as well. The Group had previously undertaken various assumptions with consideration to
this, and in regard to the same (Macquarie.com ,2020). Methodologies were developed by the
auditing committee in regard to the same issue as identified.
Operation of financial reporting Information technology
The reason why this issue has been considered is because the financial reporting of the
enterprise is heavily reliant on the IT systems and direct tests were conducted by the auditors.
Westpac Bank
The KAM identified in this case can be stated to be as follows:
Provision for expected credit losses
The reason why this method was taken up is because, there was significant judgement
regarding the Group and parent and additionally, significant judgement was also taken in
consideration to the evaluation of auditing effort, use of professionals, nature of audit testing and
others. The auditing group resolved the matter by involvement of professionals with specialised
skills.
Valuation of Level 2 financial instruments at fair value
The reason why this issue was adopted as a key audit matter can be stated to be because
there existed significant judgement by the Group and the Parent to determine the value, there was
significant judgement in regard to the evidence obtained and lastly the extent of audit testing
related to the user access by making use of the IT systems has to be defined systematically. The
auditor group was able to do so by conducting various tests, evaluating controls and related
inputs are required to be made (Westpac.com.au ,2020).

7AUDITING ASA 701
Compliance, regulation and remediation provisions and contingent liabilities
The particular issue was highlighted and undertaken as key audit matter because
significant judgement was required by the group about the provision capability, the subjective
nature of assessing the audit was also considered and lastly, the extent of audit testing which is
generally related to the user access and other establishments have to be made. The procedures
which were involved in the control comprised of the control tests, contingent liabilities as a
procedure and evaluation of the evidence and related quantification of the assumptions applied.
Bank of Queensland
ECL for loans and advances at amortised cost
The method is taken to be a Key Auditing matter given the magnitude of the loans and
other advances which have been included. These transactions require judgement. Additionally,
evaluation and testing were undertaken with consideration to the same.
Valuation of goodwill
The valuation of the same is critical because of the subjectivity which has been made use
of in the Value mode. The auditing team was involved in the assessment of the entry, the
historical accuracy and the value specialists (Boq.com.au, 2020).
Valuation of intangible computer software
The estimation of the values had to be internally generated in consideration of the
expected life of the software. The auditing procedure to solve the matter required consolidated
entry and bank capitalism.
Fair value measurement of financial instruments
The reason why the fair cost of the measurement of the financial tools is critical because
their assessment and review must be considered.
Information Technology (IT) systems control

8AUDITING ASA 701
Banking activities are reliant on the IT and the review of similar has been judged as a
critical matter. The team endured the assessment and testing of the usefulness and related rights
in consideration with the same.
Australia and New Zealand Banking Group
For the particular banking group, the KAM which has been identified can be mentioned
to be as follows:
Allowance for expected credit losses
The enterprise undertook the provision for the credit damage and related disclosures for
the influence of the AASB 9 Financial instruments which are applicable on 1 October 2018. It
poses a considerate risk to the different parties and acts as a complex reason for which it has
been undertaken (Anz.com, 2020). The matter was addressed by the auditing team by
undertaking measures in regards to the specifications of the individual loans and other related
loans across the other boards.
Valuation of Financial Instruments held at Fair Value
The matter has been adopted as a KAM as the financial issues were have being held at
substantial significance and the derivatives which were held by the Group may be sensitive and
requires the involvement of valuation specialists as well as experts.
Provision for Customer Remediation
The customer remediation has been taken as a Key Audit matter as it tends to require the
judgement to assess the Group`s fortitude of estimates, the investigations, legal and proceedings
with other such matters. The auditing committee resolved this scenario by engaging in enquiry,
obtaining as well as understanding the data along with conducting testing.
Accounting for Divestments
The accounting for the disinvestments has been undertaken as a matter of significance
because of the estimation of various costs present and other related taxation implications. In
regards to this, the auditing team gave a response in this domain by undergoing relevant
transactions, checking the evaluation and related substances.

9AUDITING ASA 701
IT Systems and Controls
This method has been undertaken as a matter of critical importance because, it differs
based on the effectiveness of the operations and in relation to this, requires the test control of the
environment in relation to the key IT applications as utilised in the project.
Macquarie Bank
The key audit matters identified can be mentioned to be:
Provision for expected credit losses on loan assets held at amortised cost
The particular transaction involved consolidated entity and related judgements which
made the matters complex and it is in consideration with this, that a review was undertaken. The
measures to deal with the same comprised of engagement, testing and analysis.
Valuation of financial assets and liabilities held at fair value
The valuation of financial assets was deemed a key issue because the matter can be stated
to be quite complex in nature and the auditing team was required to undertake a testing to bring
improved results (Macquarie.com ,2020).
Impairment of aviation assets
The reason was undertaken because of the extra judgement required in the domain of
impairment of the assets.
IT systems and controls over financial reporting
The procedures to deal with the same comprised of the evaluation and testing of the
various control’s methods and designs.
Provisions for tax payable and deferred tax liabilities
The tax decisions required the judgement and decisions which then involved evaluation
and analysis to motivate the scenario and to arrive at a conclusion.
Revenue recognition
This issue was taken as a KAM because the judgement requires critical reasoning. The
revenue for sample fees was evaluated and tests were undertaken.

10AUDITING ASA 701
Reversal of impairment on investment in subsidiary (Company only)
Due to the quantum of investment, these initiatives were undertaken and resolved by
evaluation of reversal assessments and impairment reversal.
National Australian Bank (NAB)
The various key auditing matters which will be assessed by the banking enterprise can be
mentioned to be as follows:
Provision for credit impairment on loans at amortised costs
The reason why the Key Auditing matter has been selected can be stated to be due to the
reason that, the credit impairment provision needs to be concerned and assessed critically. In line
with this, the interpretation of the requirements, the exposure requirements and assumptions
utilised for the credit loss model have been assessed. In association with this, this issue was then
resolved by assessing the control data methods, ensuring significant modelling and undertaking
relative exposures (Nab.com.au, 2020).
Customer-related remediation provisions
The matter has been selected as the Key audit matters because it is related to conduct
related issues. The judgement comprises of the detection of the developing comportment issues
which have not been identified by the specific group and are recognised on an appropriate basis.
The group then identified the relatively crucial measures and tested the procedure and assesses.
Information technology systems and control over the financial reporting
The issue was held as the Key Auditing matter because of the analysis of the Information
technology systems and related aspects. This then involved the testing of automated procedures,
testing alternatives and related aspects.
NAB Wealth classification and carrying value
The given Key auditing matter has been concerned because the calculation includes
consideration of aspects such as the future cash flows, discount rate and terminal growth rate.
Hence, this method was resolved by the auditor group by gaining an understanding of the status
of the disinvestment project, assessing the methodology used by the company, agreeing upon the

11AUDITING ASA 701
forecasted cash flows and involving the valuation specialists. The auditors concluded the case by
benchmarking the implied valuations.
Recommendations
Therefore, the KAMs have been stated down quite clearly in regard to the AASB 701. In
consideration of this, it can be effectively mentioned that:
1. The auditing is an integral part of any enterprise and hence requires playing a critical role
in maintaining the transparency of the statements (Sirois, Bédard and Bera, 2018).
2. Communication of the auditing information to company stakeholders is essential and
forms a major reason of KAM. All listed companies need to regulate this aspect.
3. Lastly, the enterprises being audited are required to provide assistance and freedom to
audit teams so that the quality of audits can be improved.