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ACC5AAS Advanced Auditing And Assurance

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ACC5AAS Advanced Auditing And Assurance

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Course Code: ACC5AAS
University: La Trobe University

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Country: Australia

Question:
You should conduct extensive research and perform an analysis of the annual report of AMP for the year 2017 and any other relevant information that you have obtained (Hint: company’s financial results, financial press and other business media). 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
This report has highlighted the business details of AMP Ltd that can assist in better understanding. AMP Ltd has been engaged in the business of providing several financial services such as wealth management, capital management, services associated to life insurance, and many more. The company has tackled various types of lawful problems and the reason is because it has not complied with measures of internal control. This is the reason why the company’s reputation has come at stake. Nevertheless, the audit risks of AMP Ltd have also been portrayed so that the auditors can scrutinize whether the audit procedure can be easily undertaken or not.
Different zones wherein AMP has conducted its operations
AMP Ltd primarily operates across Australia and New Zealand through the provision of different types of products and services for its customers. The zones wherein it has undertaken operations are as follows. Firstly, the company has been engaged in the offering of measures associated to superannuation plans so that retirement benefits can be offered including own-managed superannuation plan as well. Further, AMP has also offered solutions associated to retirement income and investment income for the common people. Moreover, to help these common people, the company has also provided help in managing their additional funds so that their future benefits can be achieved. Secondly, the company has been engaged in the offering of effective financial assistance to its consumers so that their residential and investment goals can be satisfied. Thirdly, the company has been involved in the provision of various solutions that are associated with customers’ life insurance and includes responses associated with inability insurance. In addition to this, the company has also played a key role in the offering of other kinds of insurance services as well. Fourthly, the company has also been actively involved in the capital management operations so that its entire base of customers can be addressed. These services comprise of management of equities, multi-asset resources, etc. Furthermore, AMP is also primarily involved in managing its assets infrastructure and businesses associated to real estate that consists of shopping centres, pipelines, railways, etc. Lastly, the company has also offered other kinds of services not associated to these previously mentioned services. For example, it has provided financial help to many customers and has helped them in terminating their insurance policies by actively managing them (Wood, 2011). Moreover, management of superannuation funds on the customers’ part has also been done by AMP.
Four significant legislations accounted for by the company
AMP Ltd has been primarily engaged in several operations and affairs across the globe and every place has their own scope and jurisdiction. Nevertheless, there are four prime legislations or statutory rules that have been complied by the company. The first legislation is undertaking all tasks with due integrity, honesty, and ethics wherein the company must be very efficient in its operations so that all the rules and regulations are being followed. Besides, there is a code of conduct that must also be adhered to because the trust and confidence of customers are vital for sustenance in such environment and compliance with integrity can facilitate in monitoring the same. Furthermore, such rules and regulations on the company’s part is very vital to be complied by every stakeholder that includes customers, auditors, associated parties, etc (Wood, 2011). For example, based on such code of conduct, if there is concealment of material information from any stakeholder, the company has ensured that there must be no scope of him to be safeguarded in the prevalence of such strict rules and regulations. Therefore, for such purpose, the company has ensured the following factors that is it assures proper and maximum utilization of resources so that business goals can be met. It also ensures that no misguiding or fraudulent reflections are being made to the customers and every individual is performing with ethics and integrity (Ruhnke & Schmidt, 2014). It also assures that illegal activities on the company’s part like malpractice, briber, or any other issue must be reported by any individual aware of such scenario. In addition, the company also ensures that proper assistance is offered to the customers in relation to choosing a wide variety of goods and services.
The second legislation is the compliance with measures of corporate governance so that there is smoother flow of operations within and outside the company. Therefore, for such purpose, it has focused on activities that consists of the following goals namely ESG reporting, corporate sustainability, governance of the board, risk factors and values, inclusion and diversity, and customer advocacy. The third legislation that has affected the company is maintenance of privacy and confidentiality within the company. In this legislation, the company has established several statutory rules that paves a path for fulfilment of information privacy of all stakeholders prevalent in the organization including colleagues, suppliers, etc (Roach, 2010). These group of stakeholders also comprise of related parties and the company makes sure that every transaction is safeguarded by confidentiality and trust factor and the same must not be hampered by anyone. Therefore, when the company witnesses leakage of misuse of confidential details, it ensures that stricter rules and punishment is being offered to the defaulting person. These leakages of confidential information comprise of sharing access cards to people who are not authorised, disclosing material information of the company to any undesired person without the prior consent from the company, etc. Therefore, AMP Ltd has ensured that all confidential or sensitive details are properly safeguarded by it and for such purpose, it has also assured proper awareness amongst its employees and colleagues so that rules associated to privacy policies are duly followed by it.
The last legislation that has affected the company is its measure of establishing a safe working scenario for the employees. In relation to this legislation, the company has made ways for proper motivation for its employees so that a healthy and safe environment can be easily built. Besides, with such motivation, the company makes sure that the employees can undertake activities with ease and flexibility so that smooth flow of operations can be attained. Nonetheless, the employees are also bound by the rules and regulations of the company so that they cannot act outside the scope of such rules and therefore, any unethical affair on their part can be easily prevented (Moroney & Trotman, 2016). On the company’s part, it has also made sure that discrimination betwixt employees, harassment, etc kind of activities are not taken place within its environment, thereby resulting in equality and harmony amongst the workforce. Nevertheless, with such legislation, AMP can easily address the requirements of its customers and achieve a better competitive position in the industry.
Material business risks impacting the audit measures of the company
The business risks of the company that can impact its audit approaches are as follows. The first business risk in relation to AMP ltd is the risk of business, employees, and business partners’ conduct. In relation to this, the company has been tackling such issue from its inception and the reason behind this can be attributed to the fact that the business partners or employees may be incapable of operating according to the company’s requirements and therefore, create an issue (Hoffelder, 2012). Moreover, if this happens, the company may in turn become incapable of addressing the necessary rules and regulations on the part of government authorities, related parties, and consumers. Therefore, this is the first business risk that the company’s activities or business have not been duly taken into consideration based on its necessary guidelines and rules, thereby facilitating in the deterioration of its reputation on a whole (Livne, 2015). The second business risk is the risk associated to cybersecurity wherein the company must scrutinize its IT framework in an effective way as it is exposed to cyber threats. Besides, such threats can altogether result in loss of material data or leakage of sensitive information that can have a significant impact on the company’s performance. Therefore, proper safeguard is crucial in the case of hackers who can hack into the system of the company and take advantage of the information obtained for their self-interests. Hence, in the presence of such risk factor, the company can easily lose its goodwill in the market and become incapable of thriving in such competitive environment. Further, it can also happen that the company may experience a major collapse in the future if such risk factors are not accounted for (Matthew,2015). Therefore, the company is bound to adopt the best available IT technologies that can assist it in safeguarding such risk and mitigating the leakage of sensitive information.
The next business risk encountered by the company is the risk from competitive environment and customers on a whole. In relation to this, it must be noted that the customers base of AMP is highly diversified and hence, resolving every concern and requirements cannot be feasible as they are subject to many factors like occupation, age, income, etc. Thus, this means that the company is already aware of the fact that catering to the requirements of one customer may be insufficient because the requirements of other customer may be altogether distinct in nature (Geoffrey et. al, 2016). This is one of the most significant issues or risk borne by the company in such competitive environment. In addition to this, it must be noted that every organization intends to adopt newer technologies and frameworks so that it can sustain amidst so many rivals and players in the market. Hence, AMP has been facing immense competition from its rivals and it has become problematic for it to thrive in the corporate world because newer companies have been arriving and rivals are implementing new technologies and measures to attract and retain the maximum number of clients. Hence, in the presence of such huge competition, the company may not prove itself capable of attracting and addressing the requirements of a maximum number of customers or clients (Gay & Simnet, 2015). Another prime complication is the financial planning changes when it comes to the customers’ requirements and preferences. In relation to this, the company has been facing issues because clients or customers may withdraw their investments from the company in the event of a medical emergency and exert additional burden or pressure upon the company.
The last risk affecting the matters of AMP Ltd is the risk of organizational variations wherein resolving the employees’ needs are crucial so that an organization can easily sustain in the environment. The reason behind this can be attributed to the fact that employees play a key role in balancing the requirements and wishes of customers and the management for attaining the business purposes. In addition to this, such employees are also aware of all the policies and measures that is prevalent within the company. Thus, the company must ensure provision of adequate remuneration in the form of wages or salaries to such employees because they play a key role in assisting the company consider its social and financial needs. Nevertheless, whenever any employee takes a leave from the company, it can create issues because they are aware of all prime and vital strategies that may be used by the rivals to outperform others. In other words, if the policies and approaches of the company have been leaked or shared by the employees to other organizations, it can witness a downfall or disintegration in the future.
Accounts that are vulnerable to material misstatements
Owing to the presence of various business risks, the company’s accounts have become vulnerable to material misstatements. There are various accounts wherein such material misstatements can occur. Firstly, in relation to accounts receivable and cash balance, there is a material risk of organizational changes in association with the turnover of employees, there are possibilities that these can be easily misstated, thereby resulting into future complications. This is because whenever employees resign or leave the company, it can be feasible that they have undertaken unlawful measures before leaving the company (Cooper & Coram, 2015). These unlawful measures consist of mishandling of funds, non-recording of petty costs, etc. Hence, in relation to final accounts of the company, it will become very problematic to ascertain and find these frauds and errors specially when the turnover rate of employees is extremely high in nature.
The second account that is prone to material misstatement risk is the expenses associated to sales promotion. In relation to the same, there is a significant possibility that every expense related to sales promotion can be reflected at a greater value than the actual value by the sales promotion group. Moreover, in the presence of extreme competition, market and managers are pressurized with the risk of catering to all objectives in lesser amount of time. Therefore, this need of catering to the goals may pressurize them in implementing a window dressing mechanism wherein sales promotion costs may be hidden by them in the company’s general expenses (Dauber, 2009). Besides, their actual requirement and utilization cannot be determined as well in such scenario. This highlights that the company can be pressurized to expend additional expenses to cover up such costs that were not supposed to accrue. Therefore, managers usually intend to admix their personal expenses with that of the company’s general expenses in the name of sales promotion.
The third account vulnerable to risk of material misstatement is the receipts of revenue account. In relation to this, it is notable that when there is immense competition in the market, there are possibilities that the employees can be involved in the adoption of unlawful approaches so that they can exaggerate the sales portion of the company. This can be undertaken to attain the rewards and bonus attached to such targets. Hence, the sales figure can be at inflated amounts by the accounts department and hence is vulnerable to material risk of misstatements that is very problematic for the company as it may result in deterioration of reputation (Cappelleto, 2010). The last account is the creditors account wherein the company may face issues owing to its improper and ineffective IT management that can result in the compromise of information related to rates, discounts, and other measures provided to the company by all creditors. Nevertheless, the same can be accessible by higher authorities only and the company may lose bulk discounts if such information gets leaked. Moreover, in the presence of inadequate IT infrastructure within the framework, the company is always posed with a risk of loss of creditors information to unwanted parties, thereby resulting in a material misstatement risk in the closing account balances of the creditors (Christensen, 2011).
Internal control issues highlighted by the Royal Commission
Various accusations have been exerted by the Royal Commission upon the company because of its ineffectiveness in financial services, superannuation programs, and banking segments. The commission has alleged that the company has charged for such services that was not even provided by it to the customers. Besides, the same extra costs were not even returned to the customers after discovery of administrative flaw in the management. The conclusion of these ineffectiveness is that the company experienced major repercussions that spoiled its reputation in the market. Nevertheless, the impact of such flaws, errors, and transactions can be noted in the present year’s auditing processes as well. This is because the auditor is bond to monitor every segment and transaction and from the viewpoint of these errors or flaws committed in the past years (Baldwin, 2010).
Therefore, there are serious issues of material misstatement risk prevalent in the company’s financials and that can hamper its smooth flow of operations. In addition, such unethical affairs undertaken by AMP Ltd has also played a role in the presence of such risks. Even though the company has been compensating its customers after discovery of such flaws, yet it does not mean that compensation can re-enhance their image in the industry. This is the reason why customers have sued the company for undertaking such illegal affairs on their part and creating losses for them on a whole.
Conclusion
As observable from the aforesaid discussion, there are various material risks prevalent in the company that has degraded its reputation in the entire industry. Besides, if such audit risks are already present in the company, the auditors must not agree to undertaking the audit process because they may face immense issues and problems in finding such flaws or errors in the statements. In addition, the Royal Commission has also exerted that finding such mistakes in the statements is very problematic and therefore, the auditors must not undertake this job. Moreover, when the auditors are not capable of seeking contingencies associated to the reversals that are to be undertaken from the recorded income, offering a valid opinion on such issues cannot be feasible for them. However, in the presence of an effective team of audit, such complications can be avoided as they can collectively seek any issue of material misstatement that can spoil the company’s image on a whole. Overall, these recommendations must be taken into consideration because audit report cannot be biased and valueless in nature and only if the auditors can attain the required resources and team to conduct the audit, then only they must agree to the same.
References
Baldwin, S. (2010) Doing a content audit or inventory. Pearson Press.
Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ, Melbourne
Christensen, J. (2011) Good analytical research. European Accounting Review. [online]. 20(1), p. 41-51. Available from: https://doi.org/10.1080/09638180.2011.559030 [Accessed 17 September 2018]
Cooper , B. & Coram, P. (2015) Modern Auditing & Assurance Services. 6th ed. Australia: Wiley.
Dauber, N. (2009) Wiley The Complete Guide to Auditing Standards, and Other Professional Standards for Accountants. NY: John Wiley & Sons.
Gay, G & Simnet, R. (2015)  Auditing and Assurance Services. McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli 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), pp. 143-156. Available from https://doi.org/10.2308/acch-51309  [Accessed 17 September 2018]
Hoffelder, K. (2012)  New Audit Standard Encourages More Talking. Harvard Press.
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
Matthew, S. E. (2015) Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review. [online]. 90(2), pp. 495-527. Available from https://doi.org/10.2308/accr-50871 [Accessed 17 September 2018]
Moroney, R., & 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 17 September 2018]
Roach, L. (2010) Auditor Liability: Liability Limitation Agreements. Pearson.
 Ruhnke, K., & Schmidt, M. (2014) Misstatements in financial statements: The relationship between inherent and control risk factors and audit adjustments. Auditing: A Journal of Practice & Theory. [online]. 33(4), p.247-269.  Available from: https://doi.org/10.2308/ajpt-50784 [Accessed 17 September 2018]
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. [online] 86(6), 2131-2154. DOI: https://doi.org/10.2308/accr-10136

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