NAB Audit Report: Financial Analysis, Risk Areas, and Assertions

This report presents a comprehensive audit analysis of a hypothetical case based on the National Australian Bank (NAB). It begins with an introduction to auditing and its objectives, followed by an examination of professional, ethical, and legal factors affecting the audit. The report delves into statutory and professional ethical requirements, highlighting potential breaches and major risk areas. A SWOT analysis and financial ratio calculations are employed to assess the bank's financial health and identify key risks. The report identifies five risk areas within key accounts and provides related assertions to mitigate these risks. The conclusion summarizes the findings, emphasizing the importance of ethical conduct and thorough risk assessment in auditing. Relevant references and appendices, including financial ratios, are included to support the analysis. The report underscores the importance of audit quality and adherence to regulations.

A Hypothetical Case
based on NAB

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
(a) Professional, ethical and legal factors...................................................................................1
(b) Statuary and professional ethical requirements.....................................................................1
(c) Major risk areas.....................................................................................................................2
(d) Five risk areas identified in key account and their assertion.................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
APPENDIX......................................................................................................................................6

INTRODUCTION
Auditing is a procedure of analysing an organization (or individual's) financial records to
evaluate if there are reliable and in accordance with any applicable rules, regulations and laws
(Cook, van Bommel and Turnhout, 2016). To conduct auditing appoint a persona who is
qualified for the job through statements, papers, information and comments received from the
authorities. The aim of the report to highlighted poor audit quality by Australian securities and
investment commission. This report based on the Hypothetical case on National Australian Bank.
In the report covers professional, legal and ethical factors, statuary and professional ethical
requirements. To identified the risk conduct SWOT and PEST of bank and calculate financial
ratio from the financial report.
TASK
(a) Professional, ethical and legal factors
To continue the appointment as an auditor for the current year focus on the different
factors like ethical, professional and legal factors such as Legal Factors – There are defined those factors that helps to conduct business activities
effectively and affect to cultural of company. Such as – Did not take legal action for
company due to mismatchment of accounts, provide freedom for develop financial
statements and conduct transactions. Professional factors – These factors important for conduct auditing of any company even
they have personal relation. Such as – Does not apply all auditing standards, create
personal relation and ignore irrelevant data.
 Ethical factors – In this factor fulfil all the requirements of auditing standards in
appropriate manner. Such as – integrity, public interest, objectivity & independence
After the analysis of all the factors it is understand that do not continue the appointment
as an auditor of EY for NAB.
(b) Statuary and professional ethical requirements
As per the media reports and financial reports it is identified that statutory and profession
ethical requirement become reason of breach. As per the revelation comes as leaked documents
presented that NAB had breached its own strategies on dealing with international sanctions on at
least three occasions (More and Chaudhari, 2016). Due to delayed of payment files leaked by a
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whistle-blower to the Sydney morning herald and the age breached the economic and trade
sanctions on at least three occasions. The speaker said that BNZ did not any laws or
international sanctions. The documents show that BNZ also processed a payment to recognised
to be for oil originating from Iran.
(c) Major risk areas
SWOT – It is a internal analysis which defined internal activities of the business. It carry
out strength, weakness, opportunity and threat.
 Strength – NAB is leading Australian bank which provide services to many companies.
The main strength of the bank is market strategies and easily track the record of
integrating complimentary firms with the help of merger & acquisition. They are
preparing strong brand portfolio, distribution network, reliable suppliers and highly
skilled workforce with the help of training and learning programs.
 Weakness – There are considering many business risk in the company that impact of the
cultural, brand image and other things. There is identified risk detention, inherent risk
that impact on the misstatement of financial statement. Into detection risk It is a kind of
audit risk that is identified through SWOT analysis. There is a chance an auditor will not
recognise and accurate a misstatement in time before the audit (Simnett, Carson and
Vanstraelen, 2016).
 Opportunity – The NAB have opportunity of new customers from online channel,
economic up stick and increase in customer spending after the recession and slow growth.
 Threat – After the SWOT analysis identified Credit risk in the company that impact in
negative manner and create other risks. Due to rising pay level and raw material increase
market risk. Into credit risk A decline in value of residential property has been covered in
a number of areas of Australia. The group may be focused on increase in credit losses
from lending secured by these assets. Due to changes in climate arise credit risk in NAB
and affect on property and business operations.
Appropriate Ratios – Herein calculate ratio of NAB to analysis the audit engagement
with companies. As per the ratio analysis it is getting that current ratio of NAB increase in 2018
as compare 2017 due to increase current assets. Net profit margin calculate through net profit by
margin multiply by 100 then result come that in 2018 reduce as compare 2017 due to decrease
net profit of company. Operating profit ratio calculation based on the operation profit and
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turnover then analysis that in 2018, 19% and in 2017, 33%. The asset turn over ratio calculate by
net sales and average total fixed assets then come outcomes 0.89 in 2018 and 0.90 in 2017. When
calculate fixed assets turn over ratio it is getting that in 2018, 1.25 and in 2017, 1.24 due to
minor changes into net sales. Debt to equity ratio calculate by total debt and equity then result
comes 0.15 in 2018 and 0.04 in 2017 (Parkinson, Somaraki and Ward, 2016).
(d) Five risk areas identified in key account and their assertion
There are providing assertions of risk areas that help to reduce risk in effective manner
and classify according to nature - Occurrence – All the transactions are identified in the financial statements have occurred
and connect to the entity. For example – In NAB salaries & wages expenses has been
occurred due to accounting period of time in order to personnel hired by the entity. There
are salaries and wages are not included as the payroll cost of any unauthorized personnel. Completeness – There are all assets, equity balances and liabilities that were supposed to
be rerecorded have been identified in the financial statements. For examples all inventory
units that should have been recorded in the financial statements in appropriate manner. If
inventory held by a third party on the basis of audit entity has been consisted in the stock
balance. Accuracy – All the transactions are recorded as per the accounting standards and
categorised in the heading with accurate amounts. For instance NAB categorised amount
of salary and wages in accurately manner Any adjustments like tax reduction at source
have been accurately reconciled and accounted for. Through this assertion reduce control
risk effectively (Mittelstadt, 2016). Valuation – There are calculate value of assets, liabilities and equity balances have been
valued suitably. Such as stock has been identified at the lower cost and net realizable
value in accordance with IAS 2 inventories. Any costs that could not be moderately
allotted to the production cost. There are analysing the value of inventory as per the
methods such as FIFO and AVCO etc.
 Classification – According to this assertion transactions have been categorised according
to their nature and performed fairly in the financial statements. Such as nature of the
transaction has been classified as per the nature of clients, party, balances and events in
the notes of financial statements.
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CONCLUSION
As per the above report it has been concluded that Auditing is a complex procedure that
is conducted by external person and examine every business activities. If there is finding any
problem so report to senior and instruct for changes things. There are analysing of legal, ethical
and professional factors that says these are not fulfilling all requirement so EY does not continue
as auditor. There are analysing ratio of company and conduct SWOT for analysis different risk
that occur in the business. After that apply assertions to reduce these risks.
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REFERENCES
Books and Journal
Cook, W., van Bommel, S. and Turnhout, E., 2016. Inside environmental auditing: effectiveness,
objectivity, and transparency. Current Opinion in Environmental Sustainability. 18.
pp.33-39.
More, S. and Chaudhari, S., 2016. Third party public auditing scheme for cloud
storage. Procedia Computer Science. 79. pp.69-76.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International archival auditing and assurance
research: Trends, methodological issues, and opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.
Parkinson, S., Somaraki, V. and Ward, R., 2016. Auditing file system permissions using
association rule mining. Expert Systems with Applications. 55. pp.274-283.
Mittelstadt, B., 2016. Automation, algorithms, and politics| Auditing for transparency in content
personalization systems. International Journal of Communication, 10, p.12.
Gepp, A., Linnenluecke, M. K., O’Neill, T. J. and Smith, T., 2018. Big data techniques in
auditing research and practice: Current trends and future opportunities. Journal of
Accounting Literature. 40. pp.102-115.
Rikhardsson, P. and Dull, R., 2016. An exploratory study of the adoption, application and
impacts of continuous auditing technologies in small businesses. International Journal
of Accounting Information Systems. 20. pp.26-37.
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APPENDIX
Current Ratio = All Current Assets / All Current Liabilities
Year 2018 2017
Current Assets 12125 8935
Current Liabilities 8480 6375
Current Ratio
1.4298349
057 1.4015686275
Current Ratio = (Current Assets – Inventory – Prepaid Expenses) / All Current
Liabilities
2018 2017
Quick Assets 5900 5060
Current Liabilities 8480 6375
Current Ratio
0.6957547
17 0.7937254902
5003.2 4080
Net Profit Margin= Net Profit/ Turnover *100
2018 2017
Net Profit 4895 7805
Turnover 38550 29950
Net Profit Margin
12.697795
0713 26.0601001669
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Operating Profit Margin= Operating Profit/ Turnover *100
2018 2017
Operating Profit 7485 10105
Turnover 38550 29950
Net Profit Margin
19.416342
4125 33.7395659432
Asset Turnover Ratio = Net Sales / Average Total A
2018 2017
Net Sales 38550 29950
Average Total Assets 42995 33065
Net Profit Margin
0.8966158
856 0.9057916226
0.8966158
856 0.9057916226
Fixed Asset Turnover Ratio = Net Sales / Average Total Fixed
Assets
2016 2017
Net Sales 38550 29950
Average Total Fixed Assets 30870 24130
Fixed Asset Turnover Ratio
1.2487852
284 1.241193535
30870 24130
1.2487852 1.241193535
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284
44059 44878.5 45357.5
Debt to Equity Ratio = Debt / Total Equity
2018 2017
Debt 4575 1250
Total Equity 29940 25440
Debt to Equity Ratio
0.1528056
112 0.0491352201
4575
0.1528056
112 0.0491352201
Financial Ratio = Total debt / Total Equity
2018 2017
Total Debts 13055 7625
Total Equity 29940 25440
Debt to Equity Ratio
0.4360387
442 0.2997248428
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