Semester 1 2019: ACC3AUD NAB Bank Audit and Risk Analysis

This report provides a comprehensive analysis of National Australia Bank (NAB), focusing on its operations, potential risks, and audit considerations. The report begins with an introduction to NAB, its market position, geographical presence, and key operational divisions, including business banking, consumer banking, and corporate banking. It then delves into the major risks impacting NAB, namely credit risk, compliance and conduct risk, and operational risk, elaborating on the factors contributing to each. Credit risk is discussed in terms of the potential for customer default, while compliance and conduct risk focuses on adherence to regulations and ethical behavior. Operational risk examines the impact of internal failures and system deficiencies. The report also acknowledges broader macroeconomic and geopolitical risks, as well as the impact of customer remediation costs. The report is based on NAB’s 2018 annual report and other business media, and the report is based on an assignment for the Auditing and Assurance course (ACC3AUD) at La Trobe University.

Introduction and operations of NAB
National Australia Bank is one of the largest banks operating in Australia. The bank was formed in 1982
as National Commercial Banking Corporation of Australia Limited and is listed on the Australian Stock
Exchange. The company operates in the geographies of Australia, New Zealand and Asia and employs
more than 35000 people. The bank was ranked 21st in terms of market capitalization and 49th in terms of
total assets in the entire world in the year 2016 (Alexander, 2016). The company is growing big and large
in its operations and has around 1600 branches and 4500 ATMs and serves around 13 Mn customers
worldwide. The main operations of the bank are divided into 8 divisions which are business banking,
personal banking, UBank, MLC & NAB Private Wealth, NZ Banking, Wholesale banking, specialized Group
Assets and other corporate functions. It mainly deals in
1. Business and private banking with priority customers being small and medium businesses and
the investors.
2. Consumer banking and the Wealth division which provides customers with the independent
advisors, mortgage brokers, etc.
3. Corporate and Institutional banking which deals in lending and transactional products and
services relating to financial and debt market, specialized capital, custody and alternative
investments (Arnott, et al., 2017).
4. New Zealand banking which further comprises of consumer banking, wealth, corporate and
insurance verticals.
Three major potential risks having impact on audit
In any organization or banks, there are risk involved even if the books of accounts are maintained
properly. We shall discuss the major risks involved in the NBA herewith.
Risks involved are:
Credit Risk:
This risk has a very negative impact on the financial position of the company. This risk even hampers the
reputation of the Group as a whole. Credit risk refers to the inability that a consumer will fail to repay
the debt and will not be able to fulfill the obligations with respect to the agreement and its terms
towards the Group. There are a lot of factors that may lead to the credit risk, i.e. decrease in the price of
the residential properties, decrease in the number of employees, loss of employment, etc. Climatic
changes also may lead to credit risk that because of severe climatic conditions, may affect the business
and its operations (Goldmann, 2016).
Compliance and Conduct Risk:
This risk refers to those involved due to lack of knowledge regarding the rules and regulations, laws,
compliances, industry codes of conducts, the specific policies as well as frameworks, etc. This risk leads
to a very bad impact on the monetary position as well as reputation of the Group. Whereas the conduct
risk refer to the risk occurring on the part of the management or those who are acting on behalf of the
management and taking decisions, that may lead to detriment results (Visinescu, et al., 2017). There
may be instances that there is undue advantage in the buying and selling of goods to the customers by

its staff and leads to fraudulent acts. Fiduciary relationships, and failing to solve the dispute and
problems of customers on time to time basis.
Operational Risk:
This risk refers to the lack of operational measures to be taken by the Group’s management towards its
operation. The failure to adhere to the operational measures leads to many fines, penalties, loss of
properties, share in the market, hamper to the reputation, decline in the price of the worth of the
company, monetary loss, customer dissatisfaction (Choy, 2018). There are other factors as well, like
fraud by employees, lack of internal control, failure of system and software, low maintenance of
documents, lack of documentations. The loss of proper knowledge transfer on the part of key
management may lead the Group to disastrous path. Proper measure and operational measure needs to
be adopted in order to pave the way for corporate growth.
Besides the above mentioned risks, there are some general risks as well which cannot be quantified –
some of which are macro-economic and geopolitical risks which may lead to increased cost of funding,
inability of pricing the assets, depletion in the value and the quality of the assets, lower growth in
revenue and net earnings, increased cost of insurance, etc. The company is also subject to a lot of risk
from rising arrears and bad debts. Recently, the company also had to pay the customer remediation cost
amounting to $ 525 Mn as identified by the banking royal commission and it is expected that further
cost of $ 500 Mn may also have to be paid (Sithole, et al., 2017). All these costs are not factored as
provision in the income statement and thus poses a major risk in the audit.

References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education,
71(4), pp. 411-431.
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in
organizations. Decision Support Systems, Volume 97, pp. 58-68.
Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous
Worldview Analysis. Ecological Economics, 3(1), p. 145.
Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish
Business. Financial Environment and Business Development, 4(3), pp. 103-112.
Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management
of attention on learning accounting. Journal of Educational Psychology, 109(2), p. 220.
Visinescu, L., Jones, M. & Sidorova, A., 2017. Improving Decision Quality: The Role of Business
Intelligence. Journal of Computer Information Systems, 57(1), pp. 58-66.