BAC 305: Auditing Principles - Australian Royal Commission Report

This essay provides a detailed analysis of the Australian Royal Commission into misconduct within the banking and financial services sector. It begins with an introduction to the Royal Commission and its mandate to investigate misconduct and enforce banking regulations. Part A discusses corporate governance in business, highlighting its importance, objectives, and impact on share prices and economic growth. Part B delves into interim findings, revelations, conflicts of interest, and the impact of corporate culture within financial institutions, citing examples from the 2017 Royal Commission. It also addresses opposition to the commission and the cultural issues that led to misconduct. Part C examines rewards and punishments related to regulatory violations, and the role of bodies such as the Australian Prudential Regulation Authority (APRA) in identifying and addressing governance weaknesses. Desklib offers a range of resources, including past papers and solved assignments, to aid students in their studies.

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AUDITING PRINCIPLES ASSESSMENTS.
AUSTRALIAN ROYAL COMMISISON CONTEXT.
NAME OF STUDENT:
NAME OF INSTIITUTION:

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Brief introduction.
The Australian Royal commission was initially launched at a federal level under the royal
commission's Act in 1902 (Hutchens, 2018). The commission is mandated to investigate
misconduct by the Australian bank and other financial services entities. In case of any criminal
acts from their investigations, the commission is required to approve legal proceedings to the
tribunal for disciplinary. According to Hutchens, (2018) the commission is a public inquiry just
like in the United Kingdom, Canada and New Zealand formed to look into fishy financial issues
which are considered of public importance (Hutchens, 2018). In this analysis, we are going to
discuss the recent 2018 Australian royal commission against the misconduct of the financial
sector. According to Braddon & Hooper, 2018) through the existence of the commission, the
general public is able to understand the misconduct in the banking industries and the efficiency
of the sector in the Australian market. Further, the commission is fully mandated to investigate
on banks financial cruel behaviors that appear to contravene with the banking regulations
(Hutchens, 2018).
Part A.
Corporate governance in business.
According to Gericke, (2018) corporate governance in the public institutions is the
processes by which the corporations are controlled with a clear distribution of duties among the
different corporate participants. In the corporate governances the organization's objectives are
well pursued in a regulatory, social and good environmental context (Gericke, 2018). Corporates
governance involves balancing the too many organization's shareholders/stakeholders,
management and community interests. Further, good corporate governance is an ideal section of

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any business not only in the financial services sector. The ability of the corporations to manage
risks ultimately follows the st century board of directors are responsible for the appropriate
governance of the organizations they are overseeing. Corporate practices set by corporate
governance’s participant such as auditors, directors, and regulators. In a corporate governance,
the risk appetite and organizations culture will determine how such organizations will respond to
the rules and regulations set by the regulator such as the Australian royal commission (Gericke,
2018)
Importance of corporate governance.
Corporate governance ensures a positive impact on the company’s share price.
Corporate governance lowers the cost of capital of the organization.
In an environment with strong corporate governance, they are improved shareholders confidence.
Corporate governance ensures overall economic growth.
Improved corporate governance brings the organizations success
In Gericke, (2018) the success of the business depends on the intake of overall corporate
governance, weak corporate governance, especially in the financial sector, can result in failure of
risk management tactics which eventually can affect the entire financial system in the economy.
In case for instance the Australian financial institution boards of management lacks the well
understanding of the broader risks faced by the financial market in a current year, though an
absence of the robust corporate governances frameworks, a severe financial breakdown can be
caused which can even affect the share value of the institution in the market (Gericke, 2018).
The objectives of corporate governance.

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AUDITING PRINCIPLES ASSESSMENTS.
Corporate governance ensures the shareholder's wealth is increased.
Through corporate governance, the institution is able to lay down good transparency.
Through corporate governance, they are clear accountability in the firm.
An organization is able to do self-evolution through comparison in corporate governance.
Through corporate governance, firms are able to offer full disclosure.
It’s only through corporate governance equitable treatment of shareholders is embraced
(Meredith “et al” 2012).
The overall purpose of the Royal Commission.
Overall investigation of banks. The royal commission is mandated to investigate the
Australian banks on alleged misconduct. According to the Hutchens, (2018) two Australian
bank’s that is AMP and Commonwealth were investigated for client’s related offenses. The
Commonwealth bank management openly admitted to having been charging fees to clients’
accounts who have already died. On the other hand, the AMP bank admitted to having been lying
the regulator on its findings (Hutchens, 2018).
The commission is also mandated to investigate on banks financial behaviors that appear
to contravene with the banking regulations. Such behaviors include failure by the banking
lenders to verify customers living expenses before disbursing loans unto them. Bribery
allegations by the banking sector have also been a major issue since the inception of the royal
commission. In this cases, the Royal Commission is directed to fine where appropriate and
compensate the victims (Chau & Clark, 2018).

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AUDITING PRINCIPLES ASSESSMENTS.
Reasons why the Royal Commission was called into the banking sector.
According to Hutchens, (2018) the big four banks in Australia has embarked in selling
financial advice to clients contrarily to the baking regulations. In the reports, banks were found
to have adopted the vertical integration model of doing business where the banks were profiting
from charging their own financial advice. Through the existence of the commission, the general
public is able to understand the misconduct of the banking, financial services and superannuation
industries and the efficiency of the sector in the Australian financial systems (Hutchens, 2018).
Was there resistance to the Royal Commission?
According to Hutchens, (2018) the royal commission was embraced wholly especially by
the national leaders such as the national finance minister Mathias Cormann who was much
concerned on the little time the commission was given to unearth the wrongdoers in the financial
sector. Hutchens, (2018) states that the Australian national leader Barnaby Joyce sort for
forgiveness for he was initially against the commission. In conclusion, the national government
credited the royal commission by offering a redress by referring to the less robust terms of
reference just to pardon the wrongdoers (Hutchens, 2018).
Although the establishment of the royal commission was successful, it has faced years of
cruel opposition from politicians from the government side who felt the commission was
unnecessary to the growth of the industry (Hutchens, 2018).

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Part B.
Interim finding, revelations, conflicts of interests and corporate culture.
According to Peters & Handschin, (2012) conflict of interest has for decades emerged in
the implementation of policies and practice. Conflict is an inevitable part of the change process
which accelerates and enhance success through the speed bumps encountered which usually
gives the participants parties the chance to go into the drawing boards and relook on the initial
goal of achievement. In this case, delve into differentiated issues concludes into the formation of
deep cultural roots which oversee the success of the project (Peters & Handschin, 2012).
Through the various Royal commission held, different findings and revelations in the
financial sector have been found which has resulted in drastic changes in the corporate
governance of those banks. According to Hutchens, (2018), in the 2017 royal commission, the
Commonwealth Bank, a listed company in the ASX and the largest in the Australian market was
found culpable for using its financial planners to charge fees in dead clients’ accounts which
eventually was included in its $ 9.8 billion full-year profit. Further, in the finding, the bank was
also reported to have faulted the money laundering and counter-terrorism laws where the bank
had failed to account for over $ 77 million suspicious transactions found to have been deposited
through the ATMs (Hutchens, 2018).
In Hutchens, (2018), the AMP, BT financial, Westpac bank, National Australia Bank and
ANZ bank were also mentioned in the royal commission reports to have faulted the regulator's
regulations. Banks such as AMP admitted to having lied the regulator where its chief executive
officer was found to have dishonored the corporate governance of the institution and was forced

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to step down. Considering the largest deposit-taking institution in Australia were suspended by
the commission, the need to prevent the cultural values of the Australian banks and honesty
necessitated the though scrutiny to converse the economy. The seven largest deposit-taking
institutions controlled two and half times the Australian gross domestic product (GDP) economy
and therefore the quick interest to intervene and manage it.
Conflict of interests.
The royal commission as for years faced opposition from several leaders who may have
affiliated with the banking sector and would not wish the evils deeds of the banks are realized.
According to Hutchens, (2018), Politicians in the Labor, the Liberals, and the Nationals have
been opposing the Greens proposal to constitute the royal commission as at 2018 (Hutchens,
2018).
Impact of corporate culture.
In Miller, (2014) the organization's ability to compete, innovate and engage is hindered
by many factors among them been corporate culture. In his book, Miller, (2014) defines
corporate culture as the amalgamations of day to day aspects of communication and operational
goals that form the way people work. Corporate culture drives the organizations and any serious
corporate leader is ever thinking on how to create the most effective organizational culture that
will make a difference in employee’s development, overall performance in a fostering
environment. For culture is all about personality and character, the corporates culture becomes
effective if it’s applied originally as reflected in the mission statements. This makes the
organizations unique and well understanding of the vision and mission components such as
traditions, beliefs, attitudes, behaviors, and values towards their daily activity.

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AUDITING PRINCIPLES ASSESSMENTS.
According to Morgan, (2015), a culture to a certain employee can mean to the
vibe/feeling they get when they get into that office door. While corporate culture may have
different preferences for different employees, the results and satisfaction also differ among the
different organizations. In the banking sector, most employees perceive for a high pay as they are
dealing with money. This culture is different when the level of employee rises up as employees
at the managerial level will be most concerned on reducing salaries expenses a reporting more
profits to the shareholders. Eventually, Abraham Maslow’s theories of satisfaction apply here,
where the need level moves to the next empty place after satisficing the earlier.
Through our review for the recent royal commission release, almost all the large financial
institution has been earmarked for investigation due to corrupt related charges. Anthony Regan,
the AMP executive openly admitted to having severally lied to the regulator despite him being
the head of one of the largest bank in Australia. The fact he lied has destroyed the reputation of
the bank and, the fact he has lied severally appears to be the culture of AMP bank. In this
government, through the treasurer, Scott Morrison recommended for the jailing of the
wrongdoers to completely stop this corrupted activities (Hutchens, 2018).
Part C Rewards/punishments, recommendations
In Nuttin & Greenwald, (2014) when a person has done something outrageous are
honored with a reward but when have done against the morals expectations, the rewards are
punishments. In the royal commission past interim and past final reports, we find many financial
institutions have flaunted the set banking regulation and government’s laws at several levels. The
Commonwealth bank inquiry as identified by the Australian Prudential Regulation Authority
(APRA) portrays a weakened governance (Braddon & Hooper, 2018). The oversight and
managerial role of the board of directors in quality decision making at different financial

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institutions have now turned to the scrutiny of the public. Taking the instance of commonwealth
bank which was originally identified in an audit report in 2013 with failure to comply with the
anti-money laundering and terrorist financing activities. In (Braddon & Hooper, 2018) the
second report released in 2015 implicated the unwillingness by the management to positively
take action on the report. Further, in 2016, an unambiguous report indicated a lack of concern to
time compliance (Braddon & Hooper, 2018).
Although accountability happens to be one of the key values of Commonwealth Bank, the
independent panel representing the APRA implicated a lack of urgency in holding the
management into account (Braddon & Hooper, 2018). Through the Australian Securities and
Investments Commission investigations report, it recommended the dismissal of some key staff
who were found involved and operated during the period (Braddon & Hooper, 2018). Ideally and
professionally the dismissal of such staff was not enough considering have been holding a public
listed company and professionally knowingly failed to comply with the set corporate culture.
Such staff should be recommended for delisting in the respective professional bodies together
with a non-employability recommendation to ensure such does not happen in the future through
another party(Braddon & Hooper, 2018).
Further the commissioner should recommend fines together with jail terms for these
directors found involved in the cult. Another recommendation is that all those holding such
managerial positions in the financial service sector should be required to be a full member of the
professional bodies at good standing. The commissioner should also recommend for a similar
corporate culture guideline for all financial banks as well as non-banks financial institution under
its jurisdiction (Braddon & Hooper, 2018).

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Likely reforms after the Royal Commission.
After the royal commission report, a two-sided benefit will come out. The report will be
beneficial the shareholders and the public as they will get the chance to understand the activities
of the bank management and hence make an informed decision in case need to invest. This is
will be a negative impact to the affected banks as will cause loss of customers hence reduced
profits (Chau & Clark, 2018).
Although the royal commission has been faced by opposition from some politician, the
chance will give a chance to recommend strict rules to the banking sector using the report as a
sample. This will also empower the independent bodies such as APRA and ASIC whose benefits
have not been seen due to the complicated structure of governance. The current status of the
banking sector will change to a more formal environment where rules and regulations will guide
each and every activity performed by the board of governance (Chau & Clark, 2018).
Part D.
At the 21st century globalization, cross-cultural awareness and global awareness can all
be referred to as synonyms. Through global awareness, we are able to understand the world in its
dynamic cultures with diversified people. In the globalization of the financial markets, we are
able to understand and analyze the new trends of financial means and methods coming up with
technology. In this technological era, almost all sectors have transformed and new ways of
solving problems have come up. Similarly, as similar the technology has simplified the financial
markets the challenges have increased as well.
Globally, the technology has continued to revolutionize the banking, finance and
accounting sectors despite the changes introduced here by the Royal Commission. Through the

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global adoption of the IFRS and GAAPS, the Australian accounting profession stands a similar
challenge to any other accounting profession at any other country. The International accounting
reporting standards IFRS have recently balanced the mean of financial reporting at any financial
market despite the cross-cultural awareness adopted.
After the inauguration of the International Accounting Standards Boards (IASB) a body
that is mandated to the development and setting up of standards set up by the IFRS in 2001, the
world of accounting, finance and banking became similar. The IASB framework helps in the
preparation of similar formatted financial statements. Through the IASB the professional
members are provided with guidance on how to apply when dealing with issues of multicultural
natures. IASB has promoted the global awareness of the profession through its adaptability in all
nations including Australia. In this context, we are able to compare foreign bank located in a
foreign country in the context of the Australian understanding we have gained from the Royal
Commission (Meredith “et al” 2012).
According to Meredith “et al” (2012) culture is what makes your institution unique as
compared to any other organization. In this context, an institution can refer to a profession such
as the accounting profession, the nationality or the individual background. For our deep
understanding of the Royal Commission report, we tend to research further and we encountered
the Well Fargo bank located in California USA. Wells Fargo bank is the second largest bank in
the world by market capitalization (Tian, 2016).
Regulation versus deregulation. Wells Fargo bank is regulated and managed by the
American government under the Senate legislation. The bank's activities such as trading, board
management, and branch expansion are controlled and approved by the American government.

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Similar to the Australian banks, Wells Fargo has adopted the IFRS in its accounting processes
which eventually gives out to similar accounting methods been applied (Tian, 2016).
According to Cressy “et al” (2012, P, 1- 4) ethics refers to the codes of morals. In the
accounting profession, the practitioners are supposed to comply with set out ethics in their daily
activities. Through the cross-cultural environment of different believes, the codes of ethics in the
profession remain the drivers to guide the means of deliverance to ensure full compliance with
the specific International Accounting Standards (IAS). In the context of the banking management
the Royal commission's issues are unique to the Australian market but if analyzed in the
accounting and finance angle the challenges become similar to other challenge been encountered
by different companies from different sectors all over the world. In general, viewing in the
accounting profession angle, the issues exposed by the Royal commission are common in the
practice and have been recurrent for years due to the several external factors. Such factors
include; unwillingness to corporate by the managers in position, politicians intervention,
technology and weaknesses in the professional bodies (Cressy “et al” 2012)
Lastly, globalization on its own is a factor to the success of the whole profession Ritzer,
(2011). As the globe is composed of different countries with different capabilities, some areas
are moving too fast as compared to the other. In our case we can witness this as the first Royal
commission was launched in 1902 and still at the 21st century, the Australian government has
not managed to compose a full body of commissioners who will not depend on periodical
approval by politicians. As compared to the development of Wells Fargo bank which is an
international company, we find its settling is lied down in a well-developing platform with
enforced strong bodies supported by the American banking control sector (Ritzer, 2011).

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In conclusion, good corporate governance creates a platform for success today and
tomorrow. The organizational culture of an entity triggers a unique value, beliefs, and attitudes
which eventually complements the overall goals of the organizations. Through the review of the
interim royal commission report, there is a need to incorporate the accounting professional body
to the bank's management to enforce the regulator's power through membership guidelines. The
good culture strategy if adopted by the organization for success must supersede the productivity
appetite. The organization's culture is its sustaining value that offers its stability when
encountered with challenges. However, if the culture is not managed professionally the culture
consume the firm’s capability. Such constraints include “this is how we do things here”

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References.
Braddon A & Hooper N, (2018). We need to talk about the Royal Commission.
https://aicd.companydirectors.com.au/membership/company-director-magazine/2018-
back-editions/june/royal-commission
Chau D & Clark E, (2018). Banking Royal Commission: How did we get here?
http://www.abc.net.au/news/2017-11-30/banking-royal-commission-how-did-we-get-
here/9210248
Cressy R, Cumming D & Mallin C, (2012). Entrepreneurship, Governance and Ethics.
Gericke R, (2018). Corporate Governance and risk Management in Financials Institutions: An
International comparison between Brazil and Germany.
Hutchens G, (2018). Banking Royal Commission: All you need to know- so far. Retrieved
16/10/2018. https://www.theguardian.com/australia-news/2018/apr/20/banking-royal-
commission-all-you-need-to-know-so-far.
Meredith E, Halligan J & Horrigan B, (2012). Public Sector Governance in Australia.
Miller M, (2014). What is Corporate Culture and How it Affects Performance.
https://www.emergenetics.com/blog/corporate-culture-affect-performance/
Morgan J, (2015). How Corporate Culture Impacts The Employee Experience.
https://www.forbes.com/sites/jacobmorgan/2015/12/10/how-corporate-culture-impacts-
the-employee-experience/#3ed9a5dd787
Nuttin J & Greenwald A, (2014). Reward and Punishment in Human Learning: Elements of a
Behavior Theory

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Peters A & Handschin L, (2012). Conflict of Interest in Global, Public and Corporate
Governance.
Ritzer G, (2011). Globalization: The Essentials.
Tian W, (2016). Commercial Banking Risk Management: Regulation in the Wake of the
Financial Crisis.