Auditing Issues

Executive Summary

The goal of this research is to reveal the field of concern associated with system
misrepresentation in the financial statement of the Commonwealth Bank of Australia. It
recognizes the danger in the planning of the ASA 315 financial statement report. The auditors
need to ensure that all dealings are reported acceptably and responsibly and therefore there is no
mistake or deception when monitoring the company's dealings regularly. The cumulative
probability will rise as the likelihood of content misrepresentation rises and leads to false
reporting by the company. The majority of auditors also recommend that the content account
should be duly reported in the firm's published financial reports. The audit committee's decision
on the material misstatement in the CBA financial report was stated in this review. This study
suggests that a rigorous auditing procedure is required to make the financial statement presented
by the organization is correct and credible.

Introduction

Auditing is the process of evaluating the government agencies (or people's personal) financial
records to determine if they are accurate and conform with the applicable rules (such as financial
accounting standards), regulations, and rules. Among the different types of audits, financial
audits are the most common, followed by organizational and strategic audits, as well as evolving
IT (Information Technology) audits. Besides that, auditing as a procedure has become so
commonplace and necessary globally that companies expend a substantial amount of time having
their reports and procedures audited by both internal and external auditors. Internal auditors
come from outside the business and study finance and accounting records and to provide an
unbiased opinion on such papers. The Act requires all public companies to have their financial
records audited separately. External auditors collaborate with executive teams to review findings
and help improve internal processes such as recruitment, financial management, risk evaluation,
and leadership.1

This research analyses the Commonwealth Bank of Australia’s (CBA) financial statements and
evaluates the highly calculated probability of factual misstatement and threat recognized under
ASA 315. The Australian Commonwealth Bank (CBA) is an Australian international corporation
that offers a range of financial services comprising private, corporate, and corporate finance,
asset administration, pension contributions, pension, brokerage, and brokerage. Commonwealth
Bank is the Southern Hemisphere's biggest branch, too. 2 The role of the Audit Committee is to
support and advise the Board in fulfilling its responsibilities in reviewing the accuracy and
quality in quarterly and full financial results and reports, as well as the identification and
managing of key challenges, economic hazards, and business issues.3

The company contains numerous hazards involved with the content misstatement found in
compliance with ASA 315. It is an accounting and reporting framework that lays out basic
standards and directs the documentation of a company budgetary records, including internal
reporting, and evaluates the possibility of a material error in the company's financial statements.

The Risk of material misstatement

The risk of material misstatement can be described as a situation by which the financial records
of the company may be substantially misrepresented which is deficient in the collection of true
and reliable information on the financial status of the entity. The risks involved with content
misrepresentation can be divided into two distinct categories. These are the basis of the financial
reports and the extent of expectations. The substantive misstatement is explicitly related to the
facts and information reflected in the financial records of the company.

1
https://www.accountingedu.org/what-is-auditing/

2
https://en.wikipedia.org/wiki/Commonwealth_Bank

3
https://www.commbank.com.au/about-us.html?ei=CB-footer_about-commbank
The misstatement of facts causes holders of the financial statements to incur significant
economic consequences. The danger associated with content misstatement raises the likelihood
of other causes such as intrinsic danger, management risk, systematic risk, etc. To avoid an
escalation in liability, auditors should develop various procedures and standards that should be
adopted by companies when compiling a financial report. The cumulative probability will rise as
the likelihood of content misstatement rises and leads to an inaccurate claim by the company.

Furthermore, most accountants recommend that the content account should be reported
separately in terms of value. Shares that occupy greater than 0.05 of the gross assets can be
counted individually in the book of accounts. By implementing this approach, the transparency
and acceptance of the company's financial statements would increase.4

Procedure for risk management and associated practices

The auditors use the information gathered by conducting risk management exercises and
associated operations as audit-proof to justify risk assessments of content misstatement. In
conjunction, the auditor may collect audit information on the types of expenditures, current
accounts, or reports and related statements and the operational efficacy of the regulations, even if
those procedures have not been expressly designed as practical procedures or as control
measures. The auditor can also opt to perform practical procedures or control tests at the same
time as risk management procedures if they are useful in doing so.5

The auditor shall use the best judgment to assess the degree of the comprehension necessary. The
main concern of the auditor will be whether the interpretation gained is adequate to satisfy the

4
https://www.accountingtools.com/articles/2017/5/13/risk-of-material-misstatement#:~:text=The%20risk%20of
%20material%20misstatement,at%20the%20following%20two%20levels%3A&text=Relates%20to%20the
%20financial%20statements,is%20a%20possibility%20of%20fraud.

5
https://www.legislation.gov.au/Details/F2016C00028
criteria set out in this internal audit Method. The scope of the overall comprehension needed by
the accountant is much less than held by the management of the organization.

The risks to be measured shall include both those due to mistake and those related to theft and
shall be protected by these international standards on auditing. However, the importance of fraud
is such that specific criteria and guidelines are provided in ASA 240 in regards to risk
management processes and associated practices to collect evidence that is used to classify
chances of factual misrepresentation due to corruption.

The auditor may implement the risk management protocol with the intent of supporting a
framework for the evaluation and detection of risks relevant to misrepresentation at the stage of
the annual report and the level of assumption. However, the risk appraisal process by them also
does not provide sufficient documentation of the report on which the report opinion is based.
Present risk evaluation techniques include proper compliance review within the framework of the
auditing system of relevant entities, examination, and review and research methods.6

Risk identification of CBA following ASA 315

There are some chances of factual misstatement in the Commonwealth Bank of Australia's
financial reports under ASA 315. The Public Governance, Performance, and Accountability Act
2013 justifies the risks. The Financial Reporting Document for Employee Remuneration of
Commonwealth Corporations (the Document) extends to all Commonwealth Entities needed to
file an annual report under the PGPA Act. The PGPA Rule does not, in conformity with the
appropriate of the Corporations Act 2001, impair the reporting of KMP information in the
company financial statements. The Guide provides material to help Commonwealth companies
satisfy the reporting standards for employee remuneration as specified in the PGPA Rule; and
details of the layout of the applicable tables and things to be included in the appropriate
remuneration reports.

6
https://www.ifac.org/system/files/downloads/a017-2010-iaasb-handbook-isa-315.pdf
The legislative structures regulating certain strategies and practices; and the criterion about
which their remuneration was set. Distribute aggregated details on remuneration for each person
who was a KMP during the reporting period. The PGPA Law does not define that details on
employee remuneration will be disclosed within the annual report.

Commonwealth Bank has the versatility to find the right location to divulge the details. As each
organization must handle the procedure of collecting and releasing the necessary reports in
compliance with their practice implementation, it should be assumed that the entities affected by
the reports will be properly informed of the reporting requirements of the business and will be
granted the chance to review the details submitted for reporting. The Commonwealth Bank is
subject to reporting standards but the quality of the disclosure can differ based on the type of the
company and the instruments used to assess KMP 's remuneration. The work done as such would
be up to standard.7

Significant auditor judgment that involves significant management judgment

There is a considerable obligation on the part of the auditors when auditing the firm's earnings
report. Auditors must demonstrate great discretion in the published financial reports and retain
professional skepticism during the audit process. They are also responsible for the outcome of
the important management assessment. The subsequent financial statements of the
Commonwealth Bank of Australia (the Bank) and its regulated entities (along with the Group)
complies with the Companies Act 2001, including offering accurate and realistic information
about the financial condition of the Bank and the Group as at 30 June 2019 and their financial
statements for the year then finished and in accordance with the universal accounting standards
of the public service and Regulations.8

Independent auditors give financial reports legitimacy by considering the evidence on which the
data provided is based and then monitoring those research results. The Public Sector Accounting
Oversight Board (PCAOB) is responsible for statutory enforcement of the regulations for this
7
https://www.annualreports.com/Company/Commonwealth-Bank-Australia

8
https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/CBA-
2019-Annual-Report.pdf
process when the audited corporation releases shares to the market and the Auditing Standards
Board (ASB) if not. The Securities and Exchange Commission (SEC)'s job is to ensure that this
monitoring mechanism operates as the Government intends. The intention of the daily review of
financial statements by the independent auditor is to have a viewpoint on the integrity with
which they discuss business results, the outcomes of operations, and their capital structure with a
line with generally accepted accounting practices in all performing areas. Those accounting
provisions enable him to say that, in his opinion, the financial accounts are prepared following
generally accepted accounting principles and to identify certain cases where such rules were not
explicitly enforced in the reporting of the financial results of the latest quarter relative to that of
the next year.

As per the auditor, substantial management judgment is needed to better determine the sum of
derivative instruments. The leadership team can define core expectations by offering guidance
for the potential cash flow anticipated from the company. Financial products should be
effectively controlled and used, including forecasting future prices, forecasting of long-term
growth rates, and applying discount rates. The aim of auditors is to obtain fair clarification as to
whether the financial statements as a whole are excluded from material misstatement, whether
due to fraud or omission and to generate an auditor's report expressing their views. Fair
assurance is a high degree of reliability, but it is not a certainty that audits performed in
compliance with the international standards on auditing can often find content misstatement
where it occurs. Misstatements can emerge as a result of fraud or negligence and are considered
relevant because, individually or as a whole, they can reasonably be believed to influence the
financial decisions taken by customers on the basis of the financial report.9

The effect on the audit of significant events or transactions that occurred during the period
(ASA 701)

9
https://www.ibisworld.com/au/company/commonwealth-bank-of-australia/11/
The implementation of ASA 701 represents the determination of the Auditing and Assurance
Standards Board (AUASB) to comply with recent changes to audit regulation by the
International Auditing and Assurance Standards Board. The core characteristics of the current
standard include:
(a) Required disclosure of Key Audit Matters (KAM) in the financial statements of the audits of
the listed organizations.
(b) Allowing auditors of other organizations to determine how to include KAM in their auditor's
findings;
(c) How KAM is decided by the auditor.
(d) The auditor's summary of the person KAM.
(e) specifications for audit reports about KAM10

The International Auditing and Assurance Standards Board (IAASB) has established key audit
matters (KAM) to react to stakeholders' task of enhancing the accuracy and consistency of audit
results. In Key Audit matters, the auditor describes the audit areas of main audit matters that pose
the greatest difficulty – and so take the most discretion – and outlines the audit method to those
areas. However, the new requirements rearrange the Audit report to bring the details forward for
users this is most important.

Key Audit Matters can be addressed as serious auditor focus areas also refer to fields of
uncertainty and serious financial statements compliance decision, which may therefore require
complicated or challenging auditor judgments. It, in effect, also influences the overall audit
policy of the auditor, budget distribution, and scope of the audit initiative concerning these
matters. Such findings may include, for instance, the extent about which senior personnel are
involved in the audit process, or the involvement of a professional auditor or individuals with
expertise in a particular of audit or monitoring, whether employed or recruited by the
organization to resolve those issues.

As a result, topics that hinder the accounting officer in gathering appropriate audit material or
cause problems for the auditor in forming an opinion on the financial report may be of

10
https://www.legislation.gov.au/Details/F2015L02016/Explanatory%20Statement/Text
considerable significance in assessing the key audit questions for the auditor. These standards
rely on the nature of topics discussed by those charged by monitoring and are often linked to
issues recorded in the financial records, which are designed to reflect areas of review of financial
accounts that may be of particular interest to potential consumers. The perfect primary audit
concerns ought to relate to and exploit specific reports in the financial report when describing
whether the auditor found the issue to be amongst the most important and how the auditor
resolved the problem. This can also be argued that the main audit considerations best explain
what an audit is and what an audit is doing by giving an overview into the audit cycle with the
things that are both relevant and unusual when conducting an audit, the organization's financial
statements.

Findings
The research demonstrates that there are different forms of risks involved with content
misrepresentation in the preparation and presentation of the annual report of financial reporting.
CBA's annual financial statements are also not exempt from those risks. The risks involved with
content misstatement can be divided into two distinct categories. They are the level of the
financial statements and the level of assumptions. The Financial Reporting Document for
Employee Remuneration of Commonwealth Corporations (the Document) extends to all
Commonwealth Entities needed to file an annual report under the PGPA Act. The PGPA Rule
does not, in conformity with the appropriate of the Corporations Act 2001, impair the reporting
of KMP information in the company financial statements.

Conclusion and Recommendation

After conducting the research, it can be inferred that a rigorous auditing procedure is required to
ensure that the financial statement prepared by the management is correct and credible. Various
risks can occur during the planning of the company's monetary statement. The possibility of
content misstatement is extremely significant to any organization. Danger involved with
misrepresentation raises the probability of other causes such as intrinsic danger, management
risk; financial reporting, etc. to remove the danger auditor of the company should closely observe
the risk evaluation process to determine which aspect of the financial activity needs adjustment.

It helps to monitor the liability involved with the misrepresentation of resources in the financial
statements of the company by promoting the different types of materials. The auditor may
implement the risk management protocol to provide a framework for the evaluation and
detection of risks relevant to material misstatement at the level of the earnings report and the
stage of assumption. To avoid an escalation in liability, the audit committee should develop
various procedures and standards that should be adopted by companies when compiling a
financial statement. The cumulative probability will increase as the likelihood of content
misrepresentation rises and leads to false reporting by the company.