Financial Auditing Report: National Australia Bank Financial Analysis

This report provides a detailed analysis of the National Australian Bank (NAB), focusing on the identification and assessment of material misstatements within its financial statements. The report begins with an executive summary and introduction, followed by an in-depth examination of the bank's nature, industry dynamics, and the legal and external environmental factors influencing its operations. The report also includes an analysis of the industry's size, growth, supply chain, major players, and critical success factors. Furthermore, it explores NAB's objectives, strategies, and business risks, including industry developments, new products, and regulatory requirements. The analysis extends to the bank's financial reporting practices, governance structure, and performance metrics through ratio analysis and SWOT and PESTLE analyses. The report concludes with an assessment of the overall risk levels impacting the company and its environment, drawing on information from various levels of its operations. This comprehensive report is a valuable resource for understanding the financial health and operational risks of NAB.

Auditing

Executive Summary
This report aims to explain the concept material misstatement and their influence on the
organization. In this report, it explores the different areas of the organization namely National
Australian Bank (NAB).In this report, it gives the detail explanation of the nature of the industry,
its operations, corporate governance and impact of the external environment that influence the
financial statements of the company. Moreover, it is also found from the compliances and
policies that would give the idea of the level of the material misstatement risk exists in their
financial records. Similarly, it is also found from the board structure and their working style
exhibits the transparency level in their operations that could assess the risk of misstatement in its
operations. Lastly, it finds that the overall aim of the company’s assessment is to identify the
information from the various levels of its operations and evaluate the level of risk that will
impact the company and its environment.

Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Part 1- Nature of Entity....................................................................................................................4
Part 2- Understanding the Industry..................................................................................................5
Part-3 Understanding legal environment.........................................................................................7
Part 4- Understanding external environmental factors....................................................................8
Part 5 – Objectives, strategies and business risks..........................................................................12
Part 6- Ratio analysis for entity performance................................................................................15
Part-7 Understand management and Governance..........................................................................17
Conclusion.....................................................................................................................................20
References......................................................................................................................................21

Introduction
The overall report is based upon the assessment of the bank namely National Australian Bank
(NAB) that assess the every aspect of the organization at several criteria’s like nature of the
entity, industry regulations and external factors that influence the organization. Similarly, it also
assesses the business risks and strategies arise in the operations. Furthermore, it also explains the
performance measures and monitoring of the activities of the board members. Lastly, this reports
depict the corporate governance structure is followed by the NAB in a precise manner.
Part 1- Nature of Entity
Business Operations
The operations of the business deals in financial services that operate in Australia and New
Zealand, the business operations are also spread into the Asia, the UK, and the US. The products
of the business committed to the customers with quality product and services with fair fees and
charges (NAB, 2017).
Investment and Investment activities
The bank invests in diverse sectors and investment activities. Presently the firm invests in
communities $48.8M in 2016 to the Australian communities and 1.8million in CSR activities.
Apart from that the business invests in Technological sectors to provide effective services to
their clients (Knechel and Salterio, 2016)
Financing and financing activities

The firm undertakes finance activities of A$18bn over the seven years to September 2022 to
address the climate change requirements in future and environmental activities. The bank fairly
supports the transition to a low-carbon economy in 2016 (NAB, 2017).
Financial reporting practices
The bank's financial reports were shown in the proper format and it discloses the clear
information to their shareholders. The firm makes the report under Banking Act
1959.Accounting standards and interpretations according to Australian Accounting Standards
Board (AASB) (Admati and Hellwig, 2014).
Part 2- Understanding the Industry
A) Industry Size
The present banking industry of Australia consists of a number of banks licensed to carry on the
business under the Banking Act 1959.The banking industry has grown at the rate of 13 percent in
the last decade. It indicates that a major number of players in the banking industry, holding the
major portion of financial assets.
B) Industry Growth
The strong growth in assets of the banking system has occurred at the same time the stock of the
household savings in banks increased significantly. The growth of the banking sector is 27% in
2016 as compared to previous year, due to increase in foreign funding and assets ownership
(Cohn, Fehr and Maréchal, 2014).

C) Industry Supply Chain
Due to increase in competition in the banking industry, the supply chain is strong and diverse for
Australian Banking system. The reduction proportion of wholesale deposits, the capital adequacy
is maintained and major players focus on selected credit opportunities and reduce unsecured
retail portfolio.
D) Major players
Currently, the major banking players in the Australian market are Westpac Bank, Bendigo Bank,
ANZ Bank, Sun Corp Bank and AMP Bank Ltd which holds the major financial market
(Taleghani, Gilaninia and Mousavian, 2011).
E) Market Shares of Industry players
(Source: Australian Broker, 2017)

There are four leading players in the financial market in Australia. The growth of these firms is
indicates according to the financial years. It seems that ANZ bank share is increased from
$1600m to $2600m from the past years. Similarly, the growth of the CBA and NAB is not seen
such improvement in past years.WBC has grown significantly from the past recent years and
reach to $3000m (Goyal and Joshi, 2011).
f) Critical success factors
The critical success factors of NAB are product attributes, competitive capabilities, resources
competencies, technological advancement and low cost. These factors help firm to become
competitive in the long run.
g) Major Threats
The banking industry is under ‘oligopoly’ situation. As per the analysis of the Moody’s report,
there are new threats that can be faced by the banks i.e. longer period of low-interest rates, home
price risks, improper wage rate and unwinding global commodity cycle.
Part-3 Understanding legal environment
Banking regulations in Australia are beneficial for the housing market it provides low collateral
security on home loans. The regulations are split between the Australia Securities and Investment
Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA) played an
important role in regulating market conduct. The firm is regulated by APRA. The current
accounting standards are followed by the NAB under The Australian Accounting Standards
Board (AASB) and IFRS. The IFRS standards are beneficial for the banks to meet the

international financial requirements of the clients (Beatty and Liao, 2014). Moreover, the
political stability of the country is good that supports the policies of the government.
Part 4- Understanding external environmental factors
PEST analysis- As per the analysis, it depicts that banking industry is accountable by the
government. It provides good offer and services to the customers are the example of good
political systems and regulations. Proper systems reduce the risk of fraud and illegal activities in
the companies. Additionally, it can also analyze from the economic point of view banks are at
the whim of economy because inflation rates can be devastate banking prospects as it influences
the value of the currency. Technology is helping customers regarding spending and save money
with help of applications and online services that reduce the chances of illegal transactions, fraud
and risk in daily transactions due to digital records (Bhasin, 2015). Social factors indicate that
changing behavior and necessities influence how people use banking options that reduce the risk
of misstatement in their accounts and it will increase the trust between consumers and banks.
SWOT analysis

(Source: Dechow, 2011)
As per the above SWOT analysis, it summarizes that key strengths of the bank are the strong
brand name and leading financial player in the Australian banking that reduces the chances of
risk from the consumer point of view. Similarly, opportunities depict that bank has expanded in
other countries with a large number of portfolios. Similarly, weakness and threats increase the
chances of the risk of low revenues and government regulations that impact the operations of the
business.
Porter’s Five Forces Analysis

(Source: Dechow, et al., 2011)
As per the above picture, it can be analyzed from the factor ‘Rivalry among existing firms’
indicated that competition is high in the market due to other players i.e. Westpac, Sun Corp
Financials and ANZ Bank. As per level of high competition, the risk of material misstatement is
high to attract customers through low-interest rates with hidden terms and conditions. The threat
of new entrants is low because of trust and brand name among the customers (Haiss, 2013).
Similarly, the power of customers is low as a bank as large no of customers due to their quality
services and pricing strategies.
Other External Factors
Economic conditions: The economy of the country is strong and it is increased from last decade
2001-2011.It can be forecasted that Australian economy is grown by 1.93 trillion by 2017.The
banking sector contributes the major role in Australian economy that will be the positive signs of

development. The interest rate is competitive in the Australia for home loans. Below given figure
indicated the interest rates of the banks and financial institutions in Australia.
(Source: Munro and Stewart, 2011)
Above given picture indicated the interest rates application fees, maximum finance and EMI’s
for the different banks. It is identified that interest rate is 3.69% which is low as compared to
other banks that will positively impact on the business. The current inflation rate in the Australia
is 1.9% as it is increased from last year (Lau, et al., 2013).

(Source: Ongena, Popov and Udell, 2013)
The above given indicated the trend of inflation from last years, it identified that inflation rate
influence the spending and income of the consumers that will impact the transactions of the
business that reduce the cash flow in the economy.
Part 5 – Objectives, strategies, and business risks
Industry developments- The Australian financial sector is the major contributor to the country’s
GDP. The objective of the firm to attract 20% customers in the next quarter but there are risks
related to credit is high due to counterparty fail to meet its obligations according to the current
terms and conditions. The current human resources are not able to handle these types of risks
effectively (Uddin, and Suzuki, 2011).
New Products and Services
The firm introduces the new product and services that increase the risk of payments and
borrowings from the customers. Interbank transactions, swaps, and superannuation plans meet