Auditing Report: Comprehensive Analysis of Medibank Private Limited

This report provides a comprehensive business risk analysis of Medibank Private Limited, examining various aspects including business operations, industry dynamics, and the legal environment. The report delves into the company's financial reporting practices, investment activities, and financing strategies. It explores the industry size, growth, major players, and market shares within the private health insurance sector. External environmental factors are assessed using PEST, SWOT, and Porter's Five Forces analyses. The report further investigates Medibank's objectives, strategies, and potential business risks, including industry developments, new products, and regulatory requirements. Analytical procedures are performed to evaluate the company's performance, comparing it to QBE Insurance Group using profitability, liquidity, and leverage ratios. The study also considers management and governance structures, concluding with an overview of key findings and recommendations. The report is a student contribution, available on Desklib, a platform offering AI-based study tools.

Running head: AUDITING
Auditing
Name of Student:
Name of University:
Author’s Note:

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Table of Contents
Part 1- Understanding Nature of the entity......................................................................................4
a) Business operations..............................................................................................................4
b) Investments and investment activities...............................................................................5
c) Financing and financing activities........................................................................................5
d) Financial reporting practices.............................................................................................5
Part 2 - Understanding the Industry.................................................................................................6
a) Industry size..........................................................................................................................6
b) Industry growth.................................................................................................................6
c) Industry supply chain............................................................................................................7
d) Major players....................................................................................................................7
e) Market shares of Industry players.........................................................................................7
f) Critical success factors.........................................................................................................8
g) Major threats.....................................................................................................................8
Part 3 – Understanding the legal environment................................................................................8
Part 4 – Understanding external environmental factors..................................................................8
a) PEST analysis.......................................................................................................................8
b) SWOT analysis.................................................................................................................9
c) Porter’s five forces analysis................................................................................................10
d) Other external factors affecting the entity:.....................................................................10
Part 5 – Understand objectives, strategies and Assessing Business Risks....................................11
a) Industry developments:.......................................................................................................11
b) New products and services:.............................................................................................11
c) Expansion of the business:..................................................................................................11
d) New accounting requirements:........................................................................................11
e) Regulatory requirements:....................................................................................................11
f) Current and prospective financing requirements:...............................................................11
g) Use of IT:........................................................................................................................12
h) The effects of implementing a strategy:..........................................................................12
Part 6 – Performing Analytical Procedures to understand Entity’s Performance.........................12

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Part 7 – Understand management and Governance.......................................................................16
a) Communication and enforcement of integrity and ethical values:.....................................16
b) Commitment to competence:..........................................................................................17
c) Participation by those charged with governance................................................................17
d) Management’s philosophy and operating style:..............................................................18
e) Organisational structure......................................................................................................18
f) Assignment of authority and responsibility........................................................................19
g) Human resource policies and practices:..........................................................................19
Conclusion.....................................................................................................................................19
References......................................................................................................................................22

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Introduction
The report is intended to highlight the various aspects of the business risk analysis for
Medibank Private Limited. Some of main aspects of the research report have been seen in terms
of the use of the various types of the entities which has been seen in understanding of Industry,
Regulatory and External Factors. Some of the other aspects of the report have shown
management structure governance and nature of entity. The study has further discussed on the
different types of the aspect for the business risks, strategies along with the company objectives.
The various types of the understanding of the nature of entity of the corporation have
been studied with the use of business operations, investment activities and the financial reporting
practices. The second part of the report has discussed on the industry growth, industry supply
chain, issues pertaining to the critical success factors and the market share of the industry
players. The third section of the report has been further seen to discuss on the understanding of
the legal environment. Some of the various types of the other aspects of the report have been
seen with the understanding of external environmental factors, corporate governance structure
and management. The main focus of the report has been further seen to be given on the
conduction of the analytical procedure fir understanding the performance of the entity. The latter
part of the study has shown significant amount of the focus which has been seen to be related to
the understanding of the organisation structure, philosophy and operating style (Baicker,
Mullainathan and Schwartzstein 2015).

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Part 1- Understanding Nature of the entity
a) Business operations
Medibank Private Bank is identified to be one of the pioneers in providing private
health insurance in Australia. Medibank has been further seen to be delivering various
types of occupational health services, telephone and online health management programs
and various types of the initiative for health coaching programs in Australia (Loewenstein
et al. 2013).
b) Investments and investment activities
The main form of the investment activities has been further seen to be based on
the various types of the consideration discerned in form of investing in the community
programs. This has been seen to support the health of all the Australians. Some of these
investments have been further seen to be discerned in form of Growing Healthy Kids,
which has been able to support the local programs to promote child healthcare (Brennan,
Anikeeva and Teusner 2013).
c) Financing and financing activities
The main form of the Cash flows from financing activities has been discerned in
with the payment of dividends. The outstanding dividend paid by the company in 2016
has been discerned to be $ (283.7) million in 2016 and $ (238.8) million in 2015. Hence it
can be discerned that the investing activities for the companies has increased (Liu 2016).
d) Financial reporting practices
The preparation of the financial report has been prepared in accordance with the
“Australian Accounting Standards Board (AASB)”, “International Financial Reporting

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Standards (IFRS)’, this has been further seen to be issued by the “International Accounting
Standards Board (IASB)” and the “Corporations Act 2001”.
Part 2 - Understanding the Industry
a) Industry size
Private health insurance in Australia is regulated by The “Private Health
Insurance Administration Council (PHIAC)”. This has been further identified that more
than 13.2 million Australians are covered under private health insurance. This has been
able to access 46500 health insurance products provided across 34 registered private
health insurers (Willis, Reynolds and Keleher 2016).
b) Industry growth
The main growth of the private health insurance has been seen with those
companies which are open not for profit. The next best growth of the company has been
further seen to be discerned with service providers who are restricted for profit.
Figure: Number of health insurers 1971-2015

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(Source: Apra.gov.au. 2017)
c) Industry supply chain
The main form of the industry supply chain has been viewed with the important determinants
responsible for the level of competition.
d) Major players
The main players in the market have been seen with Medibank Private. This has been seen to
establish a major network of the health solutions with significant medical workforce and seen to
deliver integrated health care service. The second largest major player in the private health
insurance industry has been further seen with BUPA (Hall 2015).
e) Market shares of Industry players
The main form of the market share accrued by the industry structure has been seen to be
68.5% in 2015 and 70.0% in 2010.
Figure: Industry market share 1990-2015
(Source: Apra.gov.au. 2017)

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f) Critical success factors
Some of the main success factor of the industry has been further seen to be based
on achieve the equity objectives and the identical to the objectives. The collaborative
planning with the stakeholders and a customer centric approach has been further seen to
conducive for the success (Eckermann, Sheridan and Ivers 2016).
g) Major threats
Some of the main threat has been identified with the issues concerning new market
entrants and material risks (Seah, Cheong and Anstey 2013).
Part 3 – Understanding the legal environment
The private health insurance business has been subject to various types of laws set under
the “Private Health Insurance Act 2007 (PHI Act)”.
Part 4 – Understanding external environmental factors
a) PEST analysis
Political
The common wealth of the country is identified as the constitutional monarchy
under parliamentary democracy.
Economic
The economic growth has been seen with 17 consecutive years before the GCF.

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Social
The social analysis has been seen with the influence of aborigines. English is seen
to be the most spoken language with 81%.
Technological
The development in terms of the research and development has been seen to be
evident $ 19.2 billion growth in 2014-2015.
b) SWOT analysis
Strength
The strength has been seen with the joint purchasing and the accessing contracts with the
sales intermediaries to support smaller insurers.
Weakness
The profit making insurance companies has been seen to include, higher premium pay up
plans. This may not be able to be afforded by the middle income group of consumers. Some of
the various types the operating insurance service has been seen to be subject to the market risk
and complicated claim procedure.
Opportunities
The opportunities are seen with the gaining better understanding of the benefits and
rebates as per the service level.

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Threats
The threat is identified with the new entrants in the insurance sector and policies set by
the existing companies such as BUPA.
c) Porter’s five forces analysis
 Threat of new entrants: The possibility of entrance of the new insurance companies has
been seen to be the main threat. This considered being relatively high.
 Threat of substitutes: The threat of substitutes is low.
 Bargaining power of customers: The customer bargaining power depends to the
premium which needs to be paid for the insurance policies. This is seen to be high.
 Bargaining power of suppliers: With several health insurance service provider, the
bargaining power of the suppliers has been seen to be considerable low.
 Industry rivalry: The main rivalry in the industry has been seen with companies such as
Grand United Corporate Health Limited, Mildura Health Fund and HCF Hurstville.
Hence, the industry rivalry has been seen to be considerably high (Brennan, Anikeeva
and Teusner 2013).
d) Other external factors affecting the entity:
External market pressure such as the cost of living pressure is seen as the main form of
the external factor affecting the industry.

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Part 5 – Understand objectives, strategies and Assessing Business Risks
a) Industry developments:
Vertical integration of suppliers, expansion programs in the costs of treatment and subsiding
health costs.
b) New products and services:
Cover Dental care, physiotherapy, optical care and general treatment.
c) Expansion of the business:
Expansionary activities in terms of the cost, rage of service and expansion of “Medical
Benefits Fund of Australia”.
d) New accounting requirements:
This includes Accounting for the absolute risk equalisation transfers and smaller insurers.
e) Regulatory requirements:
The main considerations for the regulatory requirement have been seen to be based on
promoting consumer uptake and shaping of the private health insurance products. Some of the
other regulatory requirements include portability, prudential standard regulation and risk
equalisation (Srivastava, Chen and Harris 2015).
f) Current and prospective financing requirements:
The various types of the financial requirement have been seen with the insurers who are
supported by the prudential requirements and variation of premium increase.

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g) Use of IT:
The use of the relevant IT tools has been seen to be conducive in maintaining various types
of the information associated to the maintaining the insurance policies.
h) The effects of implementing a strategy:
The implementation of various types of the corporate strategy has been seen to be
conducive for consistent growth in the health insurance sector and constant innovation in the
service delivery model (Einav et al. 2013).
Part 6 – Performing Analytical Procedures to understand Entity’s Performance
The 3 year comparison of the analytical procedure of Medibank has been compared with
QBE Insurance Group.
Profitability Ratio Analysis:-
Medibank QBE
Particulars 2016 2015 2014 2016 2015 2014
Revenue (A) 6741.8 5934.8 5648.7 14276 14922 16521
Net Profit/Loss (D) 417.6 285.3 130.8 844 687 742
Common Stock(H) 1579 1442 1394 10334 10560 11082
Net Profit Margin (D/A) 6.19% 4.81% 2.32% 5.91% 4.60% 4.49%
Return on Equity (A/H)) 26% 20% 9.38% 8% 7% 7%

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2016 2015 2014
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00% 6.19%
4.81%
2.32%
5.91%
4.60% 4.49%
Net Profit Margin
Medibank
QBE
Figure: Comparison of the net profit margin of Medibank and QBE
(Source: Medibank.com.au. 2017)
2016 2015 2014 2016 2015 2014
0%
5%
10%
15%
20%
25%
30% 26%
20%
9%
8% 7% 7%
Return on Equity
Medibank
QBE
Figure: Comparison of return on equity of Medibank and QBE
(Source: Medibank.com.au. 2017)

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c) Short-Term Liquidity Ratio Analysis:-
Medibank QBE
2016 2015 2014 2016 2015 2014
Total Current Assets (A) 2812.5 2726.6 2557.5 30103
3167
7 33336
Total Current Liabilities (F) 1518.5 1535 1463.9 31249
3161
6 33918
Current Ratio (A/F) 1.85 1.78 1.75 0.96 1.00 0.98
2016 2015 2014
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.96 1.00 0.98
1.85 1.78 1.75
Current Ratio
QBE
Medibank
Figure: Comparison of current ratio of Medibank and QBE
(Source: Medibank.com.au. 2017)
Ratio for leverage and operating margin Analysis:-
Medibank QBE
2016 2015 2014 2016 2015 2014
Revenue (C) 6,742 5,935 5,649 14,276 14,922 16,521
Net Profit/Loss (D) 418 285 131 844 687 742
Total Liablilities (K) 1,688 1,699 1,580 31,249 31,616 33,918
Shareholder's Equity (J) 1,579 1,442 1,394 10,334 10,560 11,082

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Operating Income (L) 352 377 313 559 -16 332
Total Current Assets (A) 2,813 2,727 2,558 30,103 31,677 33,336
Leverage Ratio (J/K) 1.07 1.18 1.13 3.02 2.99 3.06
Operating Margin (L/C) 5.23% 6.35% 5.54% 3.92%
-
0.11% 2.01%
2016 2015 2014
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1.07 1.18 1.13
3.02 2.99 3.06
Leverage Ratio
Medibank
QBE
Figure: Comparison of leverage ratio of Medibank and QBE
(Source: Medibank.com.au. 2017)

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2016 2015 2014
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
5.23%
6.35%
5.54%
3.92%
-0.11%
2.01%
Operating margin
Medibank
QBE
Figure: Comparison of operating margin of Medibank and QBE
(Source: Medibank.com.au. 2017)
Based on the ratio analysis it can be clearly discerned that Medibank has been seen to be
placed at a better position than its competitors in the industry.
Part 7 – Understand management and Governance
a) Communication and enforcement of integrity and ethical values:
The central to the board’s governance framework has been identified as the main ethical
behaviour of the company. The four ethical aspects have been seen in terms of customer focus,
accountability, integrity and respect. The Audit and Risk Management Committee is seen to
maintain the strong integrity and quality of the financial report (Loewenstein et al. 2013).

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b) Commitment to competence:
Some of the key roles and responsibilities of the company has been seen in terms of
maintaining an effective form of Appointment, remuneration, independence and competence of
external auditors.
c) Participation by those charged with governance
 Their independence from management:
The applicability independence from the management has been seen with the members
such as directors and independence of the internal auditors. The various types of the non-
audit service has been further seen with the independence of the auditor which has been
set as per the “APES 110 Code of Ethics for Professional Accountants”.
 Their experience and stature:
The directors of the company are expected to bring the various types of the consideration
which has been taken with the views of the nomination committee. It has been further
discerned that the internal audit process has been seen to depict various types of the
information related to the internal audit function has highlighted on the role and
responsibilities of committee.
 The extent of their involvement and the information they receive, and the scrutiny
of activities:
The main involvement of the auditors has been seen with the providing the assurance for
the various types of objectives set for the company. It has been also discerned that the
annual internal audit plan has been seen to be based on the various types of the
consideration which has shown the risk based approach.
 The appropriateness of their actions:

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The appropriateness of the various types of the actions has been seen in terms of
reporting the matters concerned to the corporate governance directly to the committee
chairman. This has been further seen to be done based on the direct communication
which has been taken with the CEO and CFO of the company.
d) Management’s philosophy and operating style:
 Approach to taking and managing business risks- Medibank is seen to measure the
various aspects of the risk by maintaining a system of risk oversight. The various types of
the business risks of the company have been further seen to be discussed in the
Medibank’s Risk Management Statement. This framework has described about the roles
and responsibilities of the risk management initiatives.
 Attitudes and actions toward financial reporting – The main form of the consideration
of the financial reporting of the company has been seen with meeting the effectiveness of
the Medibank’s financial reporting, framework for risk management.
 Attitudes toward information processing and accounting functions and personnel:
The main form of the key management of the personnel has been seen with the role of
board in remuneration and maintaining personnel management with executive
remuneration policy. The remuneration framework has been further discerned to create
value for the shareholders.
e) Organisational structure
The board of Medibank is seen to comprise of seven non-executive directors, this hasbeen
seen to be inclusive of non-executive chairman. The chairman of the board, has been identified
with Elizabeth Alexander as an independent and non-executive director. George Savvides has
been further seen with the role of Managing Director and Chief Executive Officer.

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f) Assignment of authority and responsibility
The assignment of the responsibility and authority is delegated to the Executive Committee
(ExCo). Some of the main hierarchies for this position have been seen in terms of Chief
Operating Officer and Acting Chief Executive Officer. It has been further seen to be based on
other key members such as Executive General Manager and managing director.
g) Human resource policies and practices:
The general manager of the human resources and the strategy for the global director has been
seen to be responsible for maintaining the operations of the global investors. Some of the other
human resource consideration made by the board has been seen in terms of diligence in
contributing to the teamwork, providing specialist advice to support Medibank and conduction of
training activities.

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Conclusion
The various types of the information discerned in terms of understanding Nature of the
entity has shown Medibank specialises in occupational health services, telephone and online
health management programs and various types of the initiative for health coaching programs in
Australia. The main form of the investment activities has been further seen to be based on the
various types of the consideration discerned in form of investing in the community programs.
The main investment made by the company has been discerned with investments have been
further seen to be discerned in form of Growing Healthy Kids, which has been able to support
the local programs to promote child healthcare. The outstanding dividend paid by the company
in 2016 has been discerned to be $ (283.7) million in 2016 and $ (238.8) million in 2015. This is
seen as the main form of the Cash flows from financing activities. The preparation of the
financial report has been prepared in accordance with the “Australian Accounting Standards
Board (AASB)”, “International Financial Reporting Standards (IFRS)". This has been further
seen to be issued by “Corporations Act 2001”. The industry analysis has been further able ti
discern Private health insurance in Australia is regulated by The “Private Health Insurance
Administration Council (PHIAC)”. The main growth of the private health insurance has been
seen with those companies which are open not for profit. The second largest major player in the
private health insurance industry has been further seen with BUPA. The main form of the market
share accrued by the industry structure has been seen to be 68.5% in 2015 and 70.0% in 2010.
Some of the main success factor of the industry has been further seen to be based on achieve the
equity objectives and the identical to the objectives. The private health insurance business has
been subject to various types of laws set under the “Private Health Insurance Act 2007 (PHI
Act)”.The main form of the strength of the industry has been viewed with strength has been seen

20AUDITING
with the joint purchasing and the accessing contracts with the sales intermediaries to support
smaller insurers. The opportunities of this industry are seen with the gaining better understanding
of the benefits and rebates as per the service level. The various types o the depictions from the
Porter’s five forces analysis has shown threat of new entrants is considered to be relatively high.
The threat of substitutes is low. Bargaining power of customers is high. The suppliers have a low
bargaining power and industry rivalry is considerably high.

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References
Apra.gov.au. (2017). [online] Available at:
http://www.apra.gov.au/PHI/PHIAC-Archive/Documents/Competition-in-the-Australian-PHI-
market_June-2015.pdf [Accessed 8 Sep. 2017].
Baicker, K., Mullainathan, S. and Schwartzstein, J. (2015) ‘Behavioral Hazard in health
insurance’, Quarterly Journal of Economics, 130(4), pp. 1623–1667. doi: 10.1093/qje/qjv029.
Brennan, D. S., Anikeeva, O. and Teusner, D. N. (2013) ‘Dental visiting by insurance and oral
health impact’, Australian Dental Journal, 58(3), pp. 344–349. doi: 10.1111/adj.12082.
Eckermann, S., Sheridan, L. and Ivers, R., 2016. Which direction should Australian health
system reform be heading?. Australian and New Zealand journal of public health, 40(1), pp.7-9.
Einav, L., Finkelstein, A., Ryan, S. P., Schrimpf, P. and Cullen, M. R. (2013) ‘Selection on
moral hazard in health insurance’, American Economic Review, 103(1), pp. 178–219. doi:
10.1257/aer.103.1.178.
Hall, J., 2015. Australian health care—The challenge of reform in a fragmented system. New
England Journal of Medicine, 373(6), pp.493-497.
Liu, K. (2016) ‘Insuring against health shocks: Health insurance and household choices’, Journal
of Health Economics, 46, pp. 16–32. doi: 10.1016/j.jhealeco.2016.01.002.
Loewenstein, G., Friedman, J. Y., McGill, B., Ahmad, S., Linck, S., Sinkula, S., Beshears, J.,
Choi, J. J., Kolstad, J., Laibson, D., Madrian, B. C., List, J. A. and Volpp, K. G. (2013)
‘Consumers’ misunderstanding of health insurance’, Journal of Health Economics, 32(5), pp.

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850–862. doi: 10.1016/j.jhealeco.2013.04.004.
Medibank.com.au. (2017). [online] Available at:
https://www.medibank.com.au/content/dam/medibank/About-Us/reporting-centre-2016/Annual
%20report/Medibank_Annual_Report_2016.pdf [Accessed 8 Sep. 2017].
Medibank.com.au. (2017). [online] Available at:
https://www.medibank.com.au/content/dam/medibank/About-Us/Reporting%20centre/Annual
%20report1/Medibank%20Annual%20Report%202015.pdf [Accessed 8 Sep. 2017].
Seah, D. S. E., Cheong, T. Z. and Anstey, M. H. R. (2013) ‘The hidden cost of private health
insurance in Australia.’, Australian health review : a publication of the Australian Hospital
Association, 37, pp. 1–3. doi: 10.1071/AH11126.
Srivastava, P., Chen, G. and Harris, A. (2015) ‘Oral Health, Dental Insurance and Dental Service
use in Australia.’, Health economics, 53(October 2015), pp. 35–53. doi: 10.1002/hec.3272.
Willis, E., Reynolds, L. and Keleher, H. eds., 2016. Understanding the Australian health care
system. Elsevier Health Sciences.