ACC5AAS - La Trobe: AMP Ltd Audit Tender, Financial Risk Analysis

This report assesses whether an auditing firm should accept AMP Ltd's audit engagement. It analyzes AMP Ltd's operations and financial performance for 2017, using its annual report to identify business risks and accounts prone to material misstatement. The report also examines issues raised by the Royal Commission on AMP Ltd and concludes with a recommendation on the audit tender, considering factors like increased business costs, decreased liquidity, and potential manipulation of investment accounts. This document is available on Desklib, a platform which provides all the necessary AI based study tools for students.

Running head: ADVANCED AUDITING AND ASSURANCE
Advanced Auditing and Assurance
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Operations of AMP ltd.................................................................................................................3
Laws and Regulations Applicable to AMP Ltd...........................................................................4
Analysis of Financial Performance of the Business....................................................................5
Identification of Business Risks..................................................................................................7
Accounts Subjected to Material Misstatement............................................................................9
Analysis of Scandal Related to AMP ltd...................................................................................10
Decision Regarding the Audit Tender.......................................................................................11
Reference.......................................................................................................................................12

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Executive Summary
The assessment focuses on analyzing whether an auditing firm should take the audit engagement
of AMP ltd. The report provides an insight into the operations of the business and also discusses
in details about the financial performance of the business for the year 2017 considering the
annual reports which is prepared by the business during the year 2017. The assessment includes
identified businesses risks and accounts which have tendencies of showing material misstatement
for the business of AMP ltd after analyzing the financial reports of the business. The assessment
also covers the issues which was highlighted by Royal Commission on AMP ltd.

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Introduction
The objective of this report is to develop a decision for an audit tender for AMP ltd which
is engaged in the business in financial sector. The annual report of the company for the year 2017
is to be considered to identify the risks and appropriateness of disclosures which are shown in the
financial statement of the business. In the coming paragraphs, business risk which are associated
with the business are to be identified and also their respective accounts are also to be considered
for this report. Moreover, the assessment will also be analyzing the case of AMP ltd and how the
same has an impact on the decisions of the auditor whether to take the audit or not.
Discussion
Operations of AMP ltd
The company AMP Ltd is engaged in the business of providing financial products and
financial services to the clients. The company mainly serves in Australia and New Zealand
gathering maximum customers which can generate the income of the consumer. The company
came into being in 1949 in Australia with another name for the company.
The main activities which are undertaken by the management of the company for day to
day operations of the business includes superannuation, insurance scheme, financial
advertisement and investment product. The profit and loss statement which is prepared by the
management of the company shows that a major portion of expenses of the business is due to this
time (Annualreports.com. 2018). The business is also engaged in providing loan services and
also provides an option to the clients for savings account. The company belongs to financial
sector and therefore offers financial products to the customers.

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Laws and Regulations Applicable to AMP Ltd
The laws and regulations which are applicable on a business affects the overall operation
of the business (Business.gov.au. 2018). The most common regulation which every business is
required to follow are taxation rules which are maintained by ATO and Corporation Act 2001. In
the case of AMP ltd, there are certain rules and regulations which are applicable on the business
and the same are discussed below in details:
 Superannuation Regulations: The superannuation legislation is applicable to the business
of AMP Ltd as the management of the company provides superannuation products to the
customers of the business. The regulations require the business engaged in providing
superannuation products to register under the act and follow all the rules and regulations
which are cited under the act (Austrac.gov.au. 2018). Superannuation Industry
(Supervision) Act 1993 clearly sets out the payment regulations and also the audit and
reporting obligations of Superannuation entities. In addition to this, all revisions and
amendments which are issued under Australian Prudential Regulation Authority (APRA).
 General Insurance Regulations: The business of AMP ltd also provides general insurance
products to the clients of the business and therefore the different acts which are issued and
regulated by Australian Prudential Regulation Authority (APRA) needs to be followed. As
per Insurance Regulations 2002, the contracts which are insurance contracts and the
businesses on which insurance contracts are not applicable are clearly specified in the
regulations (Legislation.gov.au. 2018). In addition to this, regulations there are several other
regulations and legislations which needs to be followed by the management of AMP ltd in
order to ensure that business is conducted as per the rules and regulations of the business.

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 Competition and Consumer Act 2010: This is one of the regulations which are applicable
to most of the businesses in Australia and covers all of markets such as the suppliers,
wholesalers, distributers and final consumers. The act aims to provide assurances to the
businesses that the trade structure of Australia will be fair and without any anti-competitive
pressures thereby ensuring the survival of most of the businesses (Business.gov.au. 2018).
The act also covers consumer law in this legislation that deals with unfair practices towards
consumers, misleading of consumers, product safety and information and any kind of frauds
as well (Australia.gov.au. 2018). The provisions of this act are also applicable to the business
of AMP ltd which is engaged in financial sector.
 Environmental Regulations: The environmental regulations which are established in
Australia are applicable to most of the businesses and the management of AMP ltd needs to
ensure that such regulations are effectively followed. Some of the common regulations which
are set up in Australia relates to control over carbon emission, reduction of greenhouse gases,
reduction in waste generation and disposal (Amp.com.au. 2018). The management of AMP
ltd needs to adhere to such regulations in order to operate its business in Australia.
Analysis of Financial Performance of the Business
The financial statement is important aspect which shows the performance of the business
during the year. The financial statements are prepared by businesses following a general
accepted format showing all relevant items relevant to the business. As per the income statement
which is prepared by the business of AMP ltd clearly shows that items are different from the
usual items which are shown in income statement of a manufacturing concern. As per the income
statement which is prepared by AMP ltd, the primary income source of business is through life
insurance contract revenue and fees which is collected for services provided by the business. The

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revenue generated by the business for the year 2017 from life insurance contract is shown to be $
2,997 million and the same is shown to have increased significantly from previous year estimate
which is shown to be $ 2,883 million. The fees which is collected by the business for providing
services and financial advice to the clients have also increased which suggest that there is an
increase in the overall scale of operations of the business and thereby the revenue of the business
has also increased during the year. The profits generated by the business during the year as
shown in the income statement of the business is $ 873 million in comparison to previous year’s
profits of the business which is shown to be $ 192 million. The increase in the profits of the
business signifies that there have tremendous improvements in profit generating capacity of the
business and also the overall revenue of the business has also increased significantly during the
year (Ongore and Kusa 2013). The earning per share of the business during the year is also
shown to have in the income statement of the business is shown to be in positive which is a
favourable sign and the same indicates that the management of the company meets the
expectations of the shareholders effectively.
The balance sheet of the company shows the figures for total assets of the business for the
current year is shown to be $ 148,085 million and the same is shown to be higher than the assets
figures which is shown in previous years. The increase in the assets of the business is a positive
sign and suggest that the business is improving significantly (Ruozi and Ferrari 2013). The
liabilities of the business for the year 2017 is shown to be $ 140,802 million and the same has
also improved in relation to previous year figures. The assets of the business are shown to be
higher than the liabilities of the business which shows that the current positions of the business
are appropriate in financial terms. The capital structure of the business is shown to be made up of
both borrowed capital and equity capital. The borrowed capital is used in a much higher

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proportion by the management as shown in the balance sheet which suggest increase in the level
of borrowings of the business. The equity capital of the business is shown to have reduced
significantly during the year.
An analysis of the cash flow statement shows the cash position of the business and
consist of cash from operating activities, cash from investing activities and also cash from
financing activities of the business. The cash flow from operating activities and cash from
investing activities of the business is shown to be negative which shows that the cash outflows of
the business is more than the cash inflows of the business. The cash from financing activities of
the business is portrayed to be $ 2,771 million which has increased significantly in comparison to
previous year. The cash and cash equivalent of the business has reduced in relation to previous
year as shown in the cash flow statement of the business.
Identification of Business Risks
The risks which affect the earning capacity or revenue generating capacity of a business
is known as business risks which the auditor needs to consider while conducting an audit of the
business (Reason 2016). The businesses which can be identified from the analysis of the
financial statement are listed below in details:
 Increase in costs of the Business: The costs of the business are shown to have increased
significantly for the business of AMP ltd as per the annual report of 2017. The changes in
policyholder’s liabilities in relation to life insurance contracts and investments contracts are
demonstrated to be $ 1069 million and $ 7,158 million respectively and the figure has
significantly increased during the year (Johnstone, Gramling and Rittenberg 2013). This

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increase in costs of business needs to be considered by the business for ensuring that the
profitability of the business stays intact.
 Decrease in Liquidity: The liquidity position of the business is an important consideration
as on the basis of this, it can be estimated whether the business is in the position to make
investments for different activities or not. In the case of AMP ltd, the liquidity position of the
business is shown by the cash flow statement results (Distinguin, Roulet and Tarazi 2013).
Both cash from operations and cash from investing activities are shown to be in negative
which suggest that the cash outflow of the business is significantly more than the cash
inflows of the business. Therefore, there is a serious risks of liquidity crisis which can affect
the business if the same is not improved as per the annual report which is shown for 2017.
 Investments of the business: The balance sheet which is prepared by the company for the
year 2017 shows that the management has invested significant amounts in financial assets. In
this case, there is a risk that the accounts of the business might be manipulated in order to
show a favourable asset balance of the business and thereby also show an ideal balance sheet.
The investments which is shown in the balance sheet of the company is of material amount
and therefore there is always a risk of presence of material misstatement in the same. In this
case, the auditor needs to apply audit procedures in order to confirm the balances which is
shown in the annual report of the business during the year (Earley 2015).
 Risk relating to External Environment: There are certain risks which the management of
the company faces such as the scandal which was discovered recently relating to AMP ltd
where the management of the company has misled regulators (Kagan, Thornton and
Cunningham 2017). Such incidents affect the reputation of the business and in such situations
the general public loses their confidence in the business which in turn results in decline in

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valuation of the share price of the business. Such risks directly affect the revenue generating
ability of the business.
Accounts Subjected to Material Misstatement
The annual reports which is prepared by the management for the year 2017 shows certain
balance which can eb materially misstated. The identification and assertions for such account
balances are shown in the discussions below:
 Revenue from Fees and Life Insurance Contract: The major source of revenue for the
business is shown to be revenue from fees and life insurance contracts. The figure of revenue
which is generated from operations seems to have improved in comparison to previous year
analysis. The balances of revenue generated can be materially misstated which needs to be
considered by the auditor of the business (Lobo and Zhao 2013). The scandal in which the
company was involved in related to the fees revenue which the company recorded without
providing any services for the same. Therefore, the revenues of the business can be impacted
by such an activity which in turns impact the profits of the business.
 Investments in Financial Assets and Investment Properties: The investments of the
business are depicted in the balance sheet of the company. There is a chance of material
misstatement in the valuation of investments which will have the affect of affecting the entire
financial position of the business. The investments of the business is shown to have increased
during the year which needs to be investigated by the auditor in order to ensure that the same
is showing true and fair view.
 Interest Bearing Liabilities: The borrowings amount which is shown in the balance sheet
has increased significantly during the year and therefore the same needs to be investigated as
most of the times businesses tend to manipulate the figure of borrowings in order to show

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appropriate annual reports. The auditor can confirm the value of debt by reviewing relevant
documents of the business. The figure not only affects the balance sheet of the company but
also the income statement due to the interest on borrowings which are shown in the annual
report of the business.
 Deferred Tax Assets and Liabilities: The deferred tax assets and liabilities are shown in the
balance sheet of AMP ltd and the same represent any past tax related payments which are
being carried forward until the same are set off. The nature and complexity of the items make
such items to be material and subjected to manipulations which needs to be considered by the
auditor of the business. Moreover, he auditor also needs to check whether the balances are
appropriately carried forward from previous year.
Analysis of Scandal Related to AMP ltd
AMP ltd is engaged in financial sector of Australia serving the needs of customers by
providing financial products such as superannuation, insurance and even provides access for
loans and saving bank account options. The company has been involved in a scandal which can
impact the overall reputation and operations of the business. Royal commission identified the
scandal and highlighted the same. Royal Commission is an association which was established for
the purpose supervising the businesses engaged in financial sector and ensure that there is no
misconduct.
As per the scandal, the management of AMP Ltd has systematically misled the regulators
and have been engaged in misconduct which relates to charging fees from the customers and not
providing services for the same. In addition to this, the company has reported the profits and
revenues of the business significantly lower than the actual figures. This misconduct has been
carried on by the business for a period of more than 2 years and has duped the regulators for

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almost 20 times since 2017 (Amp.com.au. 2018). The steps which have been taken against the
company is strict as the Royal Commission removed the executives of the business from the
company and has also imposed for criminal charges against the company.
Thus, considering the present situation of AMP ltd, the auditor should not accept the
audit engagement as the company is already convicted for unethical activity and fraud behaviour.
In addition to this, the possibility of misstatement is also high in the company.
Decision Regarding the Audit Tender
The auditor should not accept the audit tender as the company is involved in serious
misconduct and the auditor might not be able to carry out his duties as an auditor if the auditor
accepts the audit engagement. On the basis of nature of the company and the recent scandal
which is revealed for the business, the previous year’s financial statement might also not bee
appropriate and therefore the work of the auditor will be much more than conducting the audit
for the current as the auditor cannot rely on past year information and thereby making the scope
of audit difficult. In addition to this, the scandal which the company is related to will also affect
the integrity and reputation of the auditor in case any audit risks appear. Therefore, it would be a
good choice not to accept the audit engagement.