Advanced Auditing and Assurance: An Analysis of IOOF Holdings Limited

This report provides an evaluation of IOOF Holdings Limited's business operations, focusing on its 2018 annual report. It identifies the existence of a reporting framework which is deemed appropriate. The report highlights various business risks, including competitive, operational, and investment market alterations, which could significantly impact the company's profit generation. The analysis identifies potential material misstatements in financial instrument valuations, expenses, and impairment of trade receivables. Furthermore, the report assesses IOOF's adherence to the ASX Corporate Governance Principles, specifically Principle 4. Based on this analysis, the report recommends accepting the audit work of IOOF Holdings Limited, emphasizing the importance of proactive risk management and effective supervision to mitigate potential adverse impacts on business operations and ensure accurate financial reporting.

Running head: ADVANCED AUDITING AND ASSURANCE
Advanced Auditing and Assurance
Name of the Student:
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Executive Summary:
The report aims to evaluate the business operations of IOOF Holdings Limited owing to which
there is consideration of its latest annual report published in 2018. It has been found that the
management of the organisation has developed a reporting framework, which is appropriate from
the business context. However, different business risks have been identified, which is a crucial
aspect that the management has to take into consideration owing to the fact that they could have
adverse impact on business operations. It is possible for the management to avoid majority of the
business risks by staying proactive along with assuring adequate supervision. The above
discussion shows the identification of three major accounts that could be impacted largely owing
to the presence of material misstatements. Finally, it has been analysed that IOFF Holdings
Limited has maintained effective compliance with the fourth principle mentioned in the “Council
of ASX Corporate Governance Principles and Recommendations”. Therefore, it is recommended
to accept the audit work of IOFF Holdings Limited.

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Table of Contents
Introduction:....................................................................................................................................3
Areas of business operations of IOOF:............................................................................................3
Business risks that could impact on the audit of IOOF:..................................................................4
Material misstatements and key assertions at risk:..........................................................................5
Adherence to corporate governance principles:..............................................................................8
Audit decision:.................................................................................................................................9
Conclusion:......................................................................................................................................9
References:....................................................................................................................................11

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Introduction:
When the auditors finish review of the financial reports or conduct regulatory audit, they
provide assurance services as well. Assurance services could be defined as audit activities
providing objective and independent analysis of the financial statements or adherence efforts.
The primary goal of these audits are to assure that the financial statements depict fair and true
insight of the financial health of an organisation. The report aims to evaluate the business
operations of IOOF Holdings Limited owing to which there is consideration of its latest annual
report published in 2018. The risk identification of the organisation would be made related to
business operations. The next section would analyse the financial statements so that the accounts
affected mostly by the material misstatements could be detected. Furthermore, emphasis would
be placed on assessing whether the management of the organisation adheres to the Principle 4 of
ASX Corporate Governance. Based on the above analysis, decision regarding whether the audit
work of IOOF could be undertaken or not.
Areas of business operations of IOOF:
IOOF Holdings Limited is a financial service provider to the Australian residents. It is
listed in ASX and it is one of the largest organisations involved in providing financial products
and services to the clients. The main services provided by the organisation include
superannuation, financial advice, trustee services and investment management (Ioof.com.au). It
mainly conducts its operations via two segments, which include “Retail Funds Management and
Administration” and “Wholesale Funds Management”. The segment of “Retail Funds
Management and Administration” is involved in distributing and administering retail funds that
comprise of back office services and financial planning. On the other hand, the segment of

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“Wholesale Funds Management” is engaged in managing and investing money on behalf of
corporate, private, institutional and superannuation clients.
Business risks that could impact on the audit of IOOF:
Business risks could be defined as the risks, which could impact the profit generating
ability of the organisation (Arens et al.). Several factors are observed to affect business
operations and as a result, the impact would be on the profit generation ability of the
organisation. For detecting the business risks of IOOF, it is necessary to analyse the financial
statements of the organisations. The following business risks are identified for IOOF Holdings
Limited:
Competitive risk:
Since IOOF depends largely on information technology, the fierce market competition
would affect its business operations. There are a number of market participants entering the
Australian financial services sector and they are coming up with investment funds and as a result,
competition level is observed to be increasing over time (Cohen and Simnett). The competition
level in the market has considerable effect on the assets and profit generation ability of the
organisation. Thus, it is necessary for the management of IOOF in responding suitably for
managing business risks through continual investment in stakeholder relationships, improvement
initiatives and product design (Wong and Millington).
Operational risk:
Operational risk includes risk taking place from daily business operations. The nature of
any business needs particular operating exposures pertinent to the industry (DeFond and Zhang).

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There are number of risk tied up with financial advice errors and these could occur easily owing
to the dependence on market condition and judgements. The management of IOOF has framed
suitable policies so that it could be assured that such factors have no or minimal impact on
business operations. In addition, the organisation has encountered situations such as failure of
protection and security systems, which is necessary to be strengthened for better business
functions. Therefore, operational risk has impact on business profitability and the management
has to undertake necessary measures for minimising its effects. One such measure could be the
formulation of procedures and policies that have to be monitored effectively followed by
rigorous supervision (Hardy and Laslett).
Alterations in investment markets:
The management of IOOF Holdings Limited obtains considerable portion of income from
charges and fees. Any alteration in investment could have severe effect on the business
operations of the organisation; thereby, minimising its charges and fees. The alterations in
investment market could result in customer loss for IOOF as well. Certain changes are prevailing
in the investment market and thus, even a rise in interest rate of shares could have impact on
business operations (Griffiths).
Material misstatements and key assertions at risk:
The financial statements have to be depicted in a way so that they could represent a fair
and true depiction of the financial statements of an organisation. The material misstatements
could affect few key accounts, which are demonstrated below in details along with key assertions
associated with the same:
Financial instrument valuation and its key assertions:

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From the financial footnotes of the 2018 annual report of IOOF Holdings Limited, asset
and liability amounts are equivalent to their carrying amounts. It is observed that the
management of the organisation has conducted certain assumptions and estimations at the time
of conducting asset and liability valuation. This denotes the presence of risk associated with the
valuation of assets and liabilities, which might not be effective and the same could have
influence on the financial position of the organisation (Hayne and Salterio). It is necessary for
the auditor to determine the basis on which the management has made a number of assumptions
for assuring that the annual report of the organisation does not contain material misstatements. In
order to measure fair value, IOOF has used level 3 hierarchy, which is the significant reason
behind the presence of material misstatements (Ioof.com.au).
The accounts like liabilities, equity and assets are significant elements of the financial
statements (Knechel and Salterio). The management of IOOF is required to assure the
appropriateness of the valuation of such items. In case; the management has undertaken incorrect
estimations, there could be material misstatements in these accounts and hence, the financial
position of the organisation could be affected adversely. Hence, by combining all these aspects,
these accounts of IOOF are subject to material misstatements.
Expenses and their assertions:
The business expenses represented in the 2018 annual report of IOOF have increased
considerably in comparison to the previous year. More precisely, the overall expenses of the
organisation have increased from $724,745,000 in 2017 to $780,083,000 in 2018. In notes to the
financial statements, IOOF has recognised fair value of the consideration payable or paid for the
rendered services. The audit firm has to assess the expenses by the application of vouching

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practices for assuring that the annual report presents the actual overview of the financial
statements of the organisation (Messier Jr). The business expenses exercise direct impact on
profitability position, as they minimise net income generated by an organisation. Therefore, the
auditor needs to use effective vouching practices for assuring the fair representation of expenses
in the financial reports. Another reason of reporting increased expenses is to minimise tax
liability for retaining more profit (Messier Jr).
The expenses disclosed by IOOF in its annual report and the breakdown of the same
represented in notes to financial statements clearly reveals increase in expenses from 2017 to
2018. The auditor bears the responsibility to ensure the presence of all relevant expenses in notes
to financial statements for representing the actual financial performance of the organisation. In
addition, investigation needs to be made regarding increase in expenses, since they could affect
profit directly earned by the organisation (Simnett and Huggins). There is a chance that expenses
might be overvalued so that it could conceal the actual profit. This mandates the need for the
auditor of IOOF to be proactive along with applying vouching practices for assuring that the
disclosures made by the organisation are accurate.
Impairment of trade receivables and its key assertions:
In accordance with the annual report of IOOF Holdings Limited in 2018, impairment
testing for trade receivables has been conducted, in which the management of the organisation
has maintained provision for impairment. The trade receivables’ valuation is dependent on
management judgements and hence, there is greater chance of material misstatements in the
annual report of the organisation. Therefore, it is crucial for the auditor in reviewing the
provisions for impairment along with assuring the correct valuation of assets (Simnett et al.). In

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case; there is any misstatement in trade receivables, the impact would be on the statement of
financial performance as well as on the statement of financial position. In 2018, IOOF has trade
receivables amounting to $2,671,000 and it has maintained provision amount of $607,000 for the
same.
The identified assertion for this account includes inability of the management of the
organisation in making appropriate disclosures resulting in understandability and classification
issues. The trade receivables have been represented in such a manner that it clearly reveals the
absence of accurate impairment testing on the same and thus, the impact is bound to be obvious
on the financial position of the organisation (Trotman et al.). In this case, it is noteworthy to
mention that there is relationship between sales and trade receivables and if material
misstatements are detected, it would influence both the cash flow statement and the income
statement. Therefore, these influential dynamics could result in significant business risks.
Adherence to corporate governance principles:
According to the “Principle 4 of ASX Corporate Governance Recommendations”,
organisations have to follow appropriate policies and processes so that they could verify and
safeguard the veracity of the framework of corporate reporting followed by the organisation
(Asx.com.au). It is necessary for an organisation to form an audit committee that needs to have a
minimum of three members and they have to be non-executive directors, while the committee an
independent director has to chair the committee.
In accordance with the annual report of IOOF Holdings Limited in 2018, the chair of the
committee is identified as Ms Jane Harvey and there are three non-executive directors including
Ms Jane Harvey, Mr John Selak and Mr Allan Griffiths (Ioff.com.au). This signifies that the

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organisation has adhered to the above-stated principle of ASX by presenting a charter. KPMG is
involved in conducting the audit work of IOFF Limited and it bears the responsibility of
ascertaining whether the financial statements represent the actual financial health of the
organisation (William Jr et al.). It has been further confirmed by the management of IOFF that
the financial reports of the organisation are prepared with adherence to the pertinent accounting
standards prevalent in Australia. By considering all the above-discussed aspects, it could be
inferred that the management of the organisation has maintained compliance with the corporate
governance provision and recommendations listed in ASX Corporate Governance Council
implying the adherence to the pertinent rules and regulations.
Audit decision:
From the evaluation of the performance of IOFF Holdings Limited supported by
additional disclosures related to financial information in its latest annual report, it could be said
that the organisation has appropriate operational structure. Along with this, the organisation has
developed an effective internal control system so that its business operations and functions could
be monitored with precision. Despite the presence of major risks identified in the earlier sections,
the management of IOFF could manage them effectively by deploying suitable strategies.
Therefore, by combining all the aspects, it is suggested to accept the audit work of IOOF
Limited, since consistency could be found in the reporting framework of the organisation. In
addition, the organisation has adhered to the necessary rules and regulations coupled with the
prevailing accounting standards, which are applicable to the organisation.

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Conclusion:
After critical analysis of the annual report of IOFF Holdings Limited in 2018, it has been
found that the management of the organisation has developed a reporting framework, which is
appropriate from the business context. However, different business risks have been identified,
which is a crucial aspect that the management has to take into consideration owing to the fact
that they could have adverse impact on business operations. It is possible for the management to
avoid majority of the business risks by staying proactive along with assuring adequate
supervision. The above discussion shows the identification of three major accounts that could be
impacted largely owing to the presence of material misstatements. Finally, it has been analysed
that IOFF Holdings Limited has maintained effective compliance with the fourth principle
mentioned in the “Council of ASX Corporate Governance Principles and Recommendations”.
Therefore, it is recommended to accept the audit work of IOFF Holdings Limited.

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References:
Arens, Alvin A., Randal J. Elder, and Mark S. Beasley. Auditing and Assurance Services, Global
Edition. Pearson Education Limited, 2016.
Asx.com.au. "Corporate Governance Council." N. p., 2013. Web. 29 Apr. 2019.
Cohen, Jeffrey R., and Roger Simnett. "CSR and assurance services: A research
agenda." Auditing: A Journal of Practice & Theory 34.1 (2014): 59-74.
DeFond, Mark, and Jieying Zhang. "A review of archival auditing research." Journal of
Accounting and Economics58.2-3 (2014): 275-326.
Griffiths, Phil. Risk-based auditing. Routledge, 2016.
Hardy, Catherine Anne, and Glen Laslett. "Continuous auditing and monitoring in practice:
Lessons from Metcash's business assurance group." Journal of Information Systems 29.2 (2014):
183-194.
Hayne, Christie, and Steven E. Salterio. "Accounting and auditing." The Oxford handbook of
public accountability(2014): 421-440.
Ioof.com.au. "2018 Annual Financial Report." IOOF - Helping Australians achieve financial
independence since 1846. N. p., 2019. Web. 29 Apr. 2019.
Ioof.com.au. "Helping Australians Achieve Financial Independence Since 1846." IOOF -
Helping Australians achieve financial independence since 1846. N. p., 2019. Web. 29 Apr. 2019.
Knechel, W. Robert, and Steven E. Salterio. Auditing: Assurance and risk. Routledge, 2016.