Auditing Assests of Worth A$900

Question: Discuss about the Auditing for Assests of Worth A$900. Answer: Introduction: The banking industry in Australia is comprised of the forty-three banking groups and has assets of worth A$900 billion. Banks are the financial institutions and the regulatory authorities recognize them. The banking industry intends to promote the banking business, insurance, trading in the financial markets, and provide the platform to the consumers to manage the funds. The monetary policy in the country, issuing of the currency, and the financial system of the country is conducted by the banking industry. The other purpose of the banking industry is to control the risk in the financial system. The competition in the market for the payment of the services is promoted b y the bank and this has to be consistent with the financial system stability. The efficiency of the payment system is promoted by the banks. The system policy regarding the payment system of banks provides the greatest advantage to the citizens of Australia. The auditing of banks requires special consideration of audits because of the banking operation and the significant exposures for the short period, in order to process the transactions, the excessive dependence of banks on the computers. Another reason attributable to this is that there is banking practices and the continuous development of the new products that may not align with the concurrent development with the auditing practices (Carnegie, 2016). The main objective of performing the audit of banks is to render such opinion that is of the national standard or it is in accordance with the framework of financial applicable to the banks. The research has been conducted form the article published online. Discussion: Background of the banking industry: The background of banking industry of Australia has the four era that is the common wealth bank, private banks, reserve bank and the era of deregulation. The first bank opened in the Australia was intended to provide a sound currency. This bank was faced with the competition and this leads to the opening of the private banks. However there was no central bank. The emergence of the financial crisis led to the establishment of the common wealth bank and with the introduction of this, the issues concerning currency was solved and there emerged era when the power of the commonwealth bank was transferred to the Reserve bank. Many financial companies emerged with was introduced by the banks. The planning of audit covers several things such as performing the assessment of risk procedures, internal control and the operating environment of the banking industry. The procedure of risk assessment would require the auditor to have an in depth understanding of the banking industry and the environment of its operation. The market condition of the banking industry in which it operate has also to be well understood by the auditors. The auditors need to have a good working knowledge about the services and the products offered by the banks. In developing the audit plan, the auditors needs to have to seek insight into the materiality determination, assessing the risk related to the material misstatement, whether there is any related transactions with the party, representation of management and work of supervisors, the extent of EFT and CIS used by the banks (Bis.org.com, 2016). The portfolios of banks generally have high concentrations of credits to the specialized industries such as shipping, natural resources and the real estate. The auditors need to have knowledge about the reporting practice of these industries and business understanding in order to understand the nature of these businesses. The performance of audit depends upon the ability of the auditors to assess the business risks associated with the banking industry. This is regarded as fundamental because it would enable the auditors to assess the risk associate with the operations of the banks (Hay, 2015). Assessment of the risks associated with the banking industry: The assessment of risk is an important part of the auditing procedures and the auditor needs to include in the audit plan. The auditor has to assess several risks associated with the organization. The industry taken for which the auditor needs to prepare the audit plan is the banking industry. The risk associated with the banks is mainly attributable to the services and the products offered by them for which the auditors needs to prepare the audit plan to carry out the procedures. The risk, which is associated with the banks, is mainly related to the services and products offered by it and the operating risk. The banking industry is faced with some degree of inherent risk and the risk is mainly attributable to the services and the product that is offered by the bank, its entities and customers and the area of operation of the customer as well as the institution. The first step in the development of the audit plan is the identification of inherent risk. The assessment of such inherent risk of the banks is very essential for the planning of audit. The stability of the banking system is assessed form the probability of failure of individual banks due to the inherent risks associated with it (Khlif Achek, 2016). Some of the risks consider by the auditors in assessing the inherent risks of banks are as follows: A large portion of assessing the risk is contributed to the credit risk assessment. Such risk of banks is attached to commitments of off balance sheets, balances, investment apart from any loans. The credit risk is the most significant risk. There are operating risks also which is because of the marker risk exposure because of the financial information which is not available in an up to date form. There might be an interference of unauthorized data in to the system. Due to the resultant geographic dispersion of the transactions of the banks and the internal control involved in the conduct of operations and due to this the exposure of the banks by the products and the customers comes with the risks that it may not be adequately monitored (Lodhia, 2015). Due to the physical separation between the management and the person who handle the transaction may lead to the control breakdown and this may result in not correcting and not detecting the errors. Banks have risk of intraday payment and such risk is mainly due to the exposures of the transactions of the counterparties and the customers. The employees of the banks to the other related parties face the banks with the risk of loss arising from fraud and theft. The high gearing ratios used by the banks also expose them to the risks such as due to the loss in the value of asset by a small percentage due to the significant capital resources erosions. Another risk is the failure of the banks to adhere to the newly framed regulations and rules. This leads to the restrictions on operating part of the banks due to the exposure to transactions (Moradi-Motlagh et al., 2015). The materiality in the financial statements of the banks also needs to be assessed by the auditors and he has to keep several things in mind while assessing such risks. The points to be noted by the auditor in this regard are: The statement of earnings may be affected with small errors due to high gearing, though the balance sheet would remain unaffected. The auditor needs to set materiality level which would help in identifying the audit differences and the audit errors. Therefore, in assessing the risk of the banks, the designs of the internal control of the bank are need to be evaluated and their implementation is to be determined by the auditors. However, the auditors cannot control the material misstatement and it exists independently (Tadesse, 2015). The audit ability of the financial statements of the bank would be doubtful because of the understanding of the internal control by the auditors. The internal controls of banks are needs to be placed with the significant reliance and this is because he cannot solely depend on the substantive procedures. The source of revenue and the exposure of the banks need to be reviewed by the auditors. There might be risks with the transactions of the related parties and such risks are to be considered by the auditors (Gooneratne et al., 2013). Control environment: The management control systems of banks are required to be submitted to the APRA. The controlling of the credit risk, measurement, monitoring of the policies and procedures needs to provided. The control environment of the banking business ha to commensurate with the business activities which are being undertaken by the banks. In order to ensure that the policies of the banks are adhering to the framework, the internal control mechanism of the Banks has to be in proper place. The banks need to develop the control system to recognize the impaired assets. The lending activities of the bank also need to be aligned with the control system. All the internal control system controlling the baking activities has to be in compliance with the established policies. Recommendations: In order to mitigate the risks there needs to be adequate internal control which ensures effective implementation of policies. This includes the appropriate governance which would monitor and control the staff integrity and would test the efficiency of banks to identify and assess the risks. Several inherent risks while carrying out an auditing of the banking industry have been identified and there is a need to mitigate those risks to carry out the auditing to form a correct opinion about the banks in Australia. Some of the recommendations are the banking industry needs to commit itself to the highest standards of the business conduct and such standard is maintained through all of its operations. The reporting and the fraudulent activities should be resolved using supporting group policies. The hierarchical reporting and the process of control of self assessment need to be established for a documented trail of accountability. Conclusion: Form the above discussion, it is very clear that the auditors are faced with several issues and risk in carrying out the auditing of the banking industry. Some of the risks associated with the banks are inherent in nature and some of the risks arise from its operations and the auditors faces these risks in carrying out the audit procedures which needs to be mitigated in order to form a fair audit opinion. Reference: Bis.org. (2016)Retrieved 9 September 2016, from https://www.bis.org/publ/bcbs06a.pdf Carnegie, G. (2016). The accounting professional project and bank failures: the case of the early 1890s Australian banking crisis.Journal of Management History,22(4). Gooneratne, T. N., Hoque, Z. (2013). Management control research in the banking sector: A critical review and directions for future research.Qualitative Research in Accounting Management,10(2), 144-171. Hay, D. (2015). The frontiers of auditing research.Meditari Accountancy Research,23(2), 158-174. 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