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ACC5AAS Advanced Auditing And Assurance For AMP Limited

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ACC5AAS Advanced Auditing And Assurance For AMP Limited

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Course Code: ACC5AAS
University: La Trobe University

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Country: Australia

Questions:

In your report, you must address the following issues:
 
1. What are the areas in which AMP conducts its operations?2. Which particular laws/regulations (other than financial related categories which include legislation such as: Australian taxation laws, Corporation Act 2001 etc.) affect AMP’s operations? You need to identify and describe at least FOUR laws/regulations. 3. Identify and explain FOUR business risks that could have impact on the audit of AMP.4. Based on your business risk analysis and understanding of AMP group and its environment, list and explain FOUR accounts to be at risk of material misstatements. You also need to identify the key assertion at risk for each identified account. 5. The recent Royal Commission highlighted a number of internal control deficiencies and fraud perpetuated on AMP clients for an extended period of time. These findings have serious ramifications for AMP. How will these findings affect your tendering decision? 6. Based on your understanding of the client and assessment of the client’s business and audit risks, would you undertake the audit? Why?

Answer:
Introduction
AMP Ltd has been in the business of offering financial services like life insurance, management of capital, management of wealth, etc. In addition to this, since the company has been negligent in maintaining the effectiveness of its internal control measures, it has been tackling various types of legal issues. Besides, the frauds and errors on the part of executives of the company has deteriorated its goodwill and reputation. Further, this report has highlighted the audit and business risks of the company and offers a suggestion to the team of audit whether to undertake the audit process or whether not to undertake the same. 
Segments wherein the company has undertaken its affairs
The company’s operations are significantly from New Zealand and Australia and it is in the business of offering financial services that comprises of various products and services:

Banking- The company is involved in the provision of financial aid to the customers for investment and residential motives. Further, the company has also offered financial aid to its advice businesses.
Management of wealth- AMP is also engaged in the provision of superannuation strategies for retirement benefits that comprises of self-managed plan of superannuation as well. It has also facilitated in the provision of solutions related to investment and retirement income for the general people. Besides, it has also assisted many people in managing their additional resources that can pave a path for provision of future benefits (Moroney & Trotman, 2016).
Management of capital- AMP has also offered services of capital management to all customers that includes multi-asset resources, equity management, etc. In addition, it is also engaged in the management of infrastructure assets and real estate that comprises of trains, pipelines, shopping centres, etc.
Life Insurance services- The company has also offered solutions based on life insurance to the customers that includes solutions related to incapability insurance. Nevertheless, various other insurance services are also provided by the company to its customers.
Others- AMP also offers other type of services like financial assistance to the customers. It has also managed the closed policies of customers related to superannuation funds and insurance policies. 

Four crucial legislations that has influenced the company
The company has been functioning in various jurisdictions and functions throughout the world. Every jurisdiction has framed its own legislative and statutory necessities. Apart from various financially associated legislation aspects, others rules implemented by the company consists of the following:

Confidentiality and privacy maintenance

AMP has framed various rules and regulations for sustaining the information privacy of people including suppliers, colleagues, consumers, etc. This also includes associated parties and assures that ample confidentiality has been accounted by the company in relation to all transactions. Nevertheless, when there is misutilization of sensitive information, there are strict rules to mitigate the same. These comprise of non-sharing of all access cards and passwords with users who are not authorised, non-disclosure of all confidential data in the prevalence of written permission from the company, keeping all stakeholders’ data confidential and safeguarded, ensuring awareness betwixt the colleagues and employees in relation to policies of privacy undertaken by the company, etc.

Performing with proper integrity and ethics

AMP has been very effective in compliance with its rules and regulations in addition to the adherence with code of conduct. The reason behind this can be attributed to the fact that it has relied on the customers’ trust that can be attained if it has performed honestly, ethically, and with due integrity. Besides, these statutory rules and regulations are applicable to all the stakeholders like finance providers, auditors, related parties, customers, etc. For instance, there is no hiding of commissions and errors (Mock et. al, 2013). Further, if any individual is recognized that is caught doing any concealment, there must be no boundary to safeguard him based on the company’s rules and regulations.

Assuring effective utilization of company’s resources and in the business objectives only. In relation to this, there must be proper records and approval of the incurred expenses.
Not to make misleading and false depictions to the company’s customers and perform with dignity and ethics.
To offer effective suggestions to customers while offering them with various products and services of the company. Furthermore, the advices must be based upon the priorities of the consumers (Livne, 2015).
The company ensures that any unethical affairs like bribery, malpractice, etc must be immediately reported whether it is related to the company or not.
Affairs of corporate governance

AMP has primarily concentrated upon practices and affairs associated to corporate governance that also comprises of the following segments:

Corporate sustainability
Diversity and inclusion

Governance of life board

ESG reporting
Risk cultures
Customer advocate
Establishment of a safer and effective working environment for the company’s employees

AMP has encouraged a safer and healthier working scenario for all the employees so that they can operate or function with maximum concentration and effectiveness. Further, the company’s people also must follow all rules and regulations based on which there must be no unethical practices like harassment, discrimination, etc betwixt the employees and all workers as well (Goodstein, 2011). With these practices in control, the company has been able to ensure a healthier and safer working environment for all the people associated to it, thereby enabling in fuller satisfaction of customers on a whole.
Prime business risks that has influenced the company’s audit processes
The material business risks that can have an influence on the company’s audit procedures are as follows:

Threats associated to cyber security

This is one important area of concern for the company because such risk can result in loss of customer information or leakage of confidential and sensitive data from their servers. This means that the company is being vulnerable to cyber threats or hacks from undesired hackers. Nevertheless, prevalence of such risk can downgrade the company’s reputation in the entire industry and it may result in its disintegration process as well (Nicolaescu, 2013). Therefore, AMP must use the best available technologies from the market so that it can mitigate such risk and secure the confidential information of all parties, thereby sustaining its goodwill on a whole.

Employees, business, and conduct of business partners

AMP has always been facing this risk since its incorporation and this is because the employees or business partners may fail to function as per the requirements of the company on a whole, thereby resulting into various complications. Besides, if this happens, the same may result in failure to address the requirements of all regulators, customers, and other associated parties (Ghandhar & Tsahuridu, 2013). Hence, this is a major risk that the practices of business on the part of the company are not being accounted based on the company’s guidelines, thereby resulting in hampering the goodwill.

Organizational variations

In relation to any company, it must be noted that addressing the requirements of employees is a major concern to thrive in such competitive and complicated environment. Moreover, employees play a key role in balancing the management and customers collectively so that business objectives can be easily attained. Further, they are aware of all strategies and policies of the company and therefore, they must be effectively managed through the provision of proper remuneration so that financial and social requirements are considered. Besides, whenever there is any termination or exit of an important employee of the company, it facilitates in creation of a loophole at the level of organization (Geoffrey, Joleen, & David, 2016) In addition, this also results in a risk that the strategies and measures of the company have been leaked or shared with rival companies that can spoil all key policies and approaches.

Customer and competitive environment

One prime risk that makes the business of AMP vulnerable in nature is that the entire base of customers is immensely diversified in nature and therefore, catering to their needs and requirements are exposed to various risk factors such as income, age, working overview, preferences, etc. This sheds light on the fact that addressing the requirements of one customer may not cater to the requirements of another customer as well. For instance, any businessman may like to contribute or invest all his finds in any business but a serviceman may not opt for the same and instead, intend to believe on savings. This is the major issue that the company has been facing. In addition to this, it must also be taken into consideration that every company has been innovating in some or the other way and thereafter, introducing new polices and plans for the clients. Therefore, the company has also been encountering intense competition from its rivals so that maximum clients can be attracted and retained through the offering of attractive offers. Another major issue is the financial planning variations in relation to the requirements of customers and their preferences. For instance, in the prevalence of a medical emergency, any client of the company may withdraw all the funds, thereby resulting into a major financial burden on the company on a whole.
Accounts that are exposed to material risk of misstatement
Because of the company’s business risks, there are possibilities that material misstatements can incur in relation to its financials. Such material misstatements primarily happen because of frauds or errors that can be undertaken by any single person or group of persons whether collectively or individually (Rezaee & Kedia, 2012). There are some illustrations that can be considered in relation to understanding what can be materially misstated based on the business risks already prevalent in the company:

Costs of sales promotion

In relation to the company, there is a major feasibility that all the costs associated to promotion of sales are depicted at a higher value by the team of sales promotion. Besides, in the prevalence of immense competition from the rivals of the company, the managers and market are burdened with the risk of fulfilling all the desired targets and objectives in due course of time. Hence, this requirement of fulfilling the targets may force the managers to adopt window dressing as a tool in relation to such costs so that the costs of sales promotion can be concealed by them in the primary expenses, and their actual need and use cannot be ascertained as well. This sheds light on the fact that the company may be forced to spend extra costs on the required expenses that were not even supposed to be incurred in the first place (Shah, 2013). Besides, if there were no determined targets to be attained, such a negligence cannot incur. Nevertheless, the managers often attempt to mix their personal costs in the company’s costs under the head of sales promotion. For instance, food expenses can also be submerged in the primary costs and therefore, can be failed to be noted by the auditors.

Cash balance and accounts receivable

Since there is a material business risk of organizational variations in relation to employees’ turnover, there are feasibilities that the cash accounts and section of accounts receivable can be easily misstated. The reason behind this can be attributed to the fact that when an employee takes an exit from the company, it can be possible that they have already committed unethical means in the company’s accounts including mishandling, non-recording of petty expenses, etc (Arens, Best, Shailer & Loebbecker, 2013). Therefore, when it comes to finalization of books of accounts of the company, it can be very complicated or troublesome to determine these errors or frauds when the rate of employees’ turnover is extremely immense.

Accounts of creditors

Since the company has a weaker IT implementation within its framework, there are chances of compromise of all financial information associated with offers, discounts, rates, and schemes offered to the company by their creditors. Besides, the same may be acceptable or accessible by the superior authorities only. Moreover, the company may also lose negotiable deals and bulk discounts owing to such leak of sensitive information. Nevertheless, since the company has been prone to risk of cyber issues, creditors’ information possibilities are always there (Subramanyam & Wild, 2014). Therefore, there is a feasibility of material misstatements in the creditors’ closing account balances and it is the need of the hour that the company takes corrective actions or remedial measures to get rid of the same.

Revenue or receipts

When there is an intense market competition, there are feasibilities that the employees’ specially the company’s sales staff may be engaged in the utilization of unjust measures to enhance sales. This may be done as the target of sales are interconnected with the company’s incentives and bonuses. There is a feasibility that the figure of sales is depicted at exaggerated amounts by the department of accounts in assistance of the management of sales team (Wood, 2011). Therefore, there are feasibilities that the figure of sales might be materially misstated and that can prove to be very damaging for the company as its reputation and goodwill will be tampered on a whole.
Weaknesses of internal control that has been reflected by the royal commission
The Royal Commission has exerted various allegations upon the company owing to its inappropriateness in the field of superannuation, banking, and segment of financial services. Further, there has been various allegations that AMP Ltd has charged from their consumers for all services that have not been offered to them. Besides, the additional costs charged was because of administrative flaws. However, the same was not refunded to the respective clients even after such flaws had been discovered.
In relation to this, it can be observed that the outcome of such internal control ineffectiveness on the part of the company had played a key role in the devastating value of fraud, thereby serving as a negative indicator for future effectiveness. The major outcome because of such weaker internal control measures on the company’s part is that the company had to encounter serious and major repercussions that has degraded its goodwill on a whole. In addition to this, it can also be seen that the influence of all such errors, frauds, and transactions can be easily experienced or witnessed in the auditing processes of the company in the present year as well (Wright & Charles, 2012). The major reason behind this can be attributed to the fact that the auditor is under an obligation to judge every aspect and the transaction on a whole, and that too from the viewpoint of such errors or frauds committed by the company in the previous tenures.
Nevertheless, in viewpoint of these issues, it can be seen that there can be serious possibilities of material risk of misstatements that can spoil the goodwill and reputation of the company as a whole. Further, such fraudulent affairs undertaken by the company until now are also a major reason behind the prevalence of such material risk of misstatements. Overall, the company has been attempting to solve this matter and as a result, it has been compensating all the consumers because such fraud has come into the eyes of all people (Zhang, Zhou & Zhou, 2007). In addition, many customers of the company have sued it for such unethical practices and therefore, compensation processes have been undertaken so that the loss borne by these customers can be addressed. In relation to this, it can be viewed that the company had undertaken unethical practices to enhance its image and reputation in the industry and compensating for the same can be a major step to cover such negligence but the reputation and goodwill cannot be enhanced even though such step has been taken. Moreover, based on the report of Royal Commission, it can still be observed that there are various risks of errors and misstatements in the financials of the company that is altogether a negative indicator for future effectiveness. 
Conclusion in relation to undertaking the process of audit
From the previously mentioned analysis, it can be observed that there are various material risks and business risks present in the framework that has endangered it for the future. Besides, based on such audit risks, it has become very problematic and complicated for the company to undertake the processes of audit for overall effectiveness. Moreover, based on the report of the Royal Commission, seeking such material misstatements has become very complicated and since, these risks are prevalent in the revenue and other company accounts, finding the same is not at all easy for the auditors. The major reason behind this can be attributed to the fact that until a consumer does not file any legal claim or suit against the company, auditors cannot be capable of finding the contingencies that are associated to the reversals to be facilitated from the already recorded income in the financials. Therefore, it is very problematic to conclude on these hidden issues in the audit report. Further, if the auditor can pursue an effective and appropriate audit team and resources, it is recommended that they undertake such audit process. In contrast to this, if there are severe issues and defects in the audit report, it can play a key role in hampering the situation for the auditors and AMP Ltd on a whole. Nevertheless, since the audit report is a crucial feedback about the company’s financial performance, these recommendations must be duly considered. Overall, if the auditors have proper and ample ways to undertake the audit procedure and with effective due diligence procedures, then it is recommended to conduct the company’s audit. 
References 
Arens, A. A,  Best, P. J, Shailer, G. E. P & Loebbecke, J. K. (2013) Assurance Services and Ethics in Australia, 9th ed,  Australia: Pearson.
Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia, AFAANZ,
Dauber, N. (2009) Wiley The Complete Guide to Auditing Standards, and Other Professional Standards for Accountants. NY: John Wiley & Sons.
Elder, J. R, Beasley S. M.& Arens A. A. (2010)  Auditing and Assurance Services, Person
English, L., Guthrie, J., Broadbent, J. and Laughlin, R. (2010) Performance audit of the operational stage of long term partnerships for the private sector provision of public services. Australian Accounting Review. [online]. 20(1), pp. 64-75.   DOI: 10.1111/j.1835-2561.2010.00075.x
Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons. [online]. 30(1), p.143-156.  DOI:  https://doi.org/10.2308/acch-51309   
 Ghandar, A & Tsahuridu, E. (2013) The Auditing Handbook 2013. Australia: Pearson.
Goodstein, E. (2011)  Ethics and Economics, Economics and the Environment. Wiley
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies [online].  Available from: https://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full [Accessed 16 September 2018]
Messier, W & Emby, C. (2005) Auditing & Assurance Services: A systematic approach. McGraw-Hill.
Mock, T. J., Bedard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. (2013) The audit reporting model: Current research synthesis and implications.  Auditing: A Journal of Practice and Theory. [online]. 32, pp. 323-351. DOI: https://doi.org/10.2308/ajpt-50294
Moroney, R., and Trotman, K.T. (2016) Differences in Auditors’ Materiality Assessments When Auditing Financial Statements and Sustainability Reports. Contemporary Accounting Research. [online]. 33(2), p.551-575. Available from: https://doi.org/10.1111/1911-3846.12162 [Accessed 16 September 2018]
Nicolaescu, E. (2013)  Understanding Risk Factors for Weaknesses in Internal Controls over Financial Reporting’,  Psychosociological Issues in Human Resource Management, vol. 1, no. 3, pp.38-44. Available from: https://web.nacva.com/JFIA/Issues/JFIA-2013-2_3.pdf [Accessed 16 September 2018]
Rezaee, Z & Kedia, B. L. (2012) Role of Corporate Governance Participants in Preventing and Detecting Financial Statement Fraud.  Journal of Forensic & Investigative Accounting. [online]. 4(2), pp. 176-205. Available from: https://www.scirp.org/(S(351jmbntvnsjt1aadkposzje))/reference/ReferencesPapers.aspx?ReferenceID=779185 [Accessed 16 September 2018]
Shah, P. (2013) Financial Accounting. London: Oxford University Press
Subramanyam, K & Wild, J. (2014) Financial Statement Analysis. McGraw Hill
Wood, D A. (2011) The Effect of Using the Internal Audit Function as a Management Training Ground on the External Auditor’s Reliance Decision. The Accounting Review, 86(6), 2131-2154. Doi: https://doi.org/10.2308/accr-10136
Wright, M.K. & Charles, J. (2012) Auditor independence and internal information systems audit quality. Business Studies Journal 4(2), 63-84. Available from: https://scitecresearch.com/journals/index.php/jrbem/article/viewFile/284/230[Accessed 16 September 20118]
Zhang, Y.,  Zhou, J.,  & Zhou, N. (2007) Audit committee quality, auditor independence, and internal control weakness. Journal of Accounting and Public Policy. 26,  300-327. Availbale from: https://www.sciencedirect.com/science/article/pii/S0278-4254(07)00020-8 [Accessed 16 September 20118]

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