Client Evaluation Essay For AMP Limited - Audit Tender

Assume that the audit for AMP Limited (AMP), a financial services company, will be coming up for tender. You and your colleagues are required to prepare a client evaluation report based on your research for the senior partners of your audit firm. Your report should provide preliminary information as to whether or not the audit firm should consider tendering for the audit of AMP.

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.

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. Basedonyourunderstandingoftheclientandassessmentoftheclient’sbusiness and audit risks, would you undertake the audit? Why?

Areas of Operation for AMP Limited

The major business that is carried out by AMP Limited is in relation to the financial services like Capital Management, Wealth Management, life insurances, etc. It has also been observed that the inefficiency of the organization in the maintenance of the internal control system has read it too face various legal issues. The goodwill and reputation of the company have fallen down because of the errors and frauds made by the executives of the organization (AMP Ltd., 2017). Hence, in this report, it has been suggested that how can the company undertake an audit process in order to protect itself from any kind of fraud in the future.

There are various Financial Services that are needed to be conducted by the company in Australia and New Zealand for conducting its business operations:

Banking- the organization has been involved in providing financial aid to the public for investment and residential motives. The organization also helps different businesses in making decisions by giving them proper advice (AMP Ltd, 2017).

Management of wealth- the organization also helps the company in order to take decisions on the superannuation funds and using them in a proper manner so that benefits can be acquired using them. It also helps the general public to make investment decisions and create a path for their better future.

Management of capital- AMP Limited also conducts the business of providing Capital Management techniques to its customer so that optimum utilization of its multi-asset resources and equity management structure can be established by the customer.

Life Insurance services- incapability insurances are being offered by the company to its customers as life insurances. There are various other insurance services that are conducted by the company (AMP Ltd, 2017).

Others- there are many various other financial services that are provided by the organization to the customers. The organization is said to help the customers in relation to any kind of insurance policies and superannuation funds for making a better investment for future

Four major factors that have influenced the company

The company AMP Limited spread worldwide because of which it faces various jurisdictions and functions. The company is regulated by the Corporation Act 2001. In relation to the financial legislation aspects of the organization, many rules were implemented by the company:

A system has been constructed by the organization in order to follow the rules and regulations of maintaining the privacy of all its customers. There should be secrecy with every transaction that has been disclosed by the organization in order to get help for financial decisions (AMP Ltd, 2017). If any type of underutilization of internal information of the organization takes place, strict actions were to be taken. Hence, the organization has been bound with confidentiality agreement with the customer so that all the data in relation to the shareholders can be kept preserved and safeguarded (Gay & Simnet, 2015).

It has been noticed that the organization has been continuously trying to work under the rules and regulations so that a code of conduct can be maintained in the management (AMP Ltd, 2017). The main reason behind this code of conduct is to when the customers trust so that the business can be increased. It is also important for the customers to provide every piece of information whether it is hiding of commissions or any types of errors so that this information can be used by the organization to make propriety decisions in relation to the finances (Geoffrey et. al, 2016). If any individual is found to break the trust of the customer, then he must be penalized according to the rules and regulations of the confidentiality agreement.

Laws and Regulations Affecting AMP Limited's Operations

•    It is very important for the organization to utilize all its resources in an effective manner which can help it to earn a profit after incurring all the expenses.

•    The organization should try and not make any false or misleading decisions for the company to show that dignity can be maintained in the working structure.

•    The company also looks after the fact that there is no act of bribery or any other behaviour affecting the business that may affect the reports of the company.

Various corporate governance affairs and practices have been concentrated upon by the organization in order to fulfil the following segments:

•    Corporate sustainability

•    Governance of life board

•    Risk cultures

•    Customer advocate

•    Diversity and inclusion

•    ESG reporting

Various methods have been used by the company in order to make the environment healthy and safe place so that maximum concentration and effectiveness can be achieved in the work. The company has also tried to make sure that no unethical practices like harassment, discrimination, and other malpractices are present between the employees of the organization. By conducting these control management systems, the organization has fulfilled its task of creating a healthy and safe environment for the employees (AMP Ltd, 2017).

There are many material disclosures of risk that have to influence the audit services of the company:

Threats in relation to cyber security: it is very important for the organization to maintain cyber security because exploitation of the customer’s data can be made using the unethical measures used by hackers. This may for the lead to degradation of the company's reputation and disintegration processes as well. Hence, it is very important for the organization to use the best possible Technologies for protecting its customer’s information and maintaining the confidentiality of the relationship.

The conduct of business partners and the employees: there is always a risk in the organization if the organizational staffs are not working in a proper manner. If there is any misconduct of the organizational staff, then all the regulators, customers and associated parties will be affected (Hoffelder, 2012). Therefore, it has been tried that all the employees work in an effective manner so that the reputation and Goodwill of the company can be prioritized.

Organisational variations: it should always be kept in mind by the organization that the main objective of the companies should be to address the requirements of each and every employee so that it can survive in the competitive and complicated environment of the industry. Also, the need of employees in order to work effectively can be very important for the completion of the business objective as they help to balance the management and customers at the same time (Hoffelder, 2012). Hence proper remuneration to should be provided to the Employees so that we can gain trust in the organization's management structure and thus help it to become more efficient in nature. If one of the major employees of the organization resigns the company, then a huge loophole is created at the top level management structure of the organization (Kaplan, 2011). Risk management system should also be taken into consideration so that no leakage of data to the Rival companies is being made as all the key policies and approaches will be spoiled.

Business Risks Impacting the Audit of AMP Limited

Customer and competitive environment: one of the major risks that are foreseen by the organization is that the customer base can be exploited. all the tasks of the organization are based on the acceptance of customers and reviewing their income, age, working review, preferences, etc. in order to provide them with financial decisions. Fulfilling the requirements of a single customer will not be of any concern is the organizational goals are not being met with. Hence, the company shall keep on trying to implement new methods which can help to improve its policies and plans for clients and satisfy them in the best possible way. These policies will help the organization to divert the customers towards it. There are also exist major financial planning issues that are needed to be dealt with by the customers. For example, if any kind of medical emergency arises in the customer’s family, then he will have a need to withdraw his funds for investments and invest it into the treatment of is this medical emergency.

It has been observed that the risks faced by the company may have given rise to a material misstatement in the financial statements of the organization. Thence, there may be some financial documents which may be mistreated because of the heir relevancy of the business risks:

Cost of sales promotion: it has been noticed that a total cost of promotion and advertisement that have been conducted by the organization may be materially misstated. The management system of the organization has been pressured in order to gain the crust of the customers as soon as possible in order to survive in the competitive market (Lapsley, 2012). Hence, it is very important for the organization to use different tools which can be helpful in the determination of such costs. This also clearly states that the organization may have been forced in order to spend extra on the promotion and advertisement of the organization so that it can acquire the top level in the industry. Therefore, it should be made necessary for the organization to determine targets and costs before conducting any activities (Livne, 2015). There may be also an instance where the company staff may include the personal cost in the sales promotion budget, which may have arose the risk of exploitation of organizational resources.

Cash balance and accounts receivable: there may be a risk present in the organization in relation to the accounts receivable and cash accounts of the organization. There can be situations arising where an employee has resigned from the company but has already exploited the organizational resources before leaving (Matthew, 2015). Hence there can be mishandling and non-recording of petty expenses which can make the data of the organization vulnerable. Therefore, it is one of the major factors for the organization to determine the books of accounts in the most prominent manner so that determination of frauds and errors can be made and further corrections can be done.

Accounts of the creditors: the information technology framework of the organization is not very strong because of which exploitation of the financial information of the organization has been made easy. It should be made sure that this information is only provided to the superiors of the organization so that no further exploitation can take place. The organization has always been exploited to the cyber threats which she was the importance of a good its system for the proper functioning of a company.

Accounts at Risk of Material Misstatements and Their Key Assertions

Revenue and receipts: when there are intense market competitions present in the industry, some employees may try to exploit the organizational resources by using unjust and unfair means to enhance sales. These are just done in order to gain the incentive and bonuses that are the company given by the company for completion of the target of sales (Merchant, 2012). This leads to a problem of exaggeration of the amount in the sales because of which the financial documents of the firm will be affected which may further lead to damage to the company's reputation and goodwill.

It has been observed that the Royal Commission has presented various allegations in relation to the inappropriate field of superannuation, banking, and a segment of financial services of the company. The customers have also stated that not all services are being provided to them by the organization in an appropriate manner (Cappelleto, 2010).

The internal control system of the organization is not up to date because of which vulnerabilities have been present in the financial statement and a negative indicator of future effectiveness was shown after a devastating value of fraud. The problems in the internal control system may have arisen because of the fall in the company’s reputation and goodwill (Niemie & Sundgren, 2012). All these problems in the internal control system can be clearly identified by auditing the financial statements of the organization. Hence, it is very important for the organization to conduct the audit process in an elaborated manner show that any kind of misjudgement of the transactional data can be prevented (Church et. al, 2008).

Therefore, in relation to these issues, there may be many serious risks and misstatements that can spoil the reputation and Goodwill of the organization as a whole and may further harm the profit earned by the organization. All the model and affairs that have been taken up by the employees of the organization have resulted in a material list of misstatements present in the financial statements of the organization. The organization has been trying to cope up with this misstatements buy compensating the customers which have brought it into the eyes of the public. The Organisation was also used for the unethical and untrue measures adopted by it in order to conduct business by many of its customers because of which it was prone to borne all the losses incurred by them (Elder et. al, 2010).

Therefore, it can be clearly observed that the unethical means can provide small term profits to the organization but will definitely poser threat to the reputation and Goodwill of the firm which cannot be enhanced if is degraded once. The reports of the Royal Commission also stated that the various risks and errors that have been present in the financial statements of the company have been one of the major negative indicators for the future business of the organization. This shows the audacity or need of an audit statement in the organization so as to determine the hidden issues and problems in the financial statements of the company. Hence it is very important for each and every organization to carry out the audit processes in the best possible manner so that true and efficient information can be provided to the customers. Going by the

Effect of Recent Royal Commission Findings on Tendering Decision

Conclusion

It has been clearly mentioned in the previous analysis that the various types of material misstatement and business risk that are present in the managerial framework of the organization endanger the future business of an organization. It is very important for the organization to consider all the audit risks before undertaking any kind of decisions using the financial statements of the organization. The overall effectiveness of the financial statements of the organization will decrease if no audit process will be conducted. The reports of the Royal Commission have also stated that this material misstatement will make it hard for the customers to analyse the accounts which will further raise the risk of imperfect investments to be made by the customers. The best way that can be used by a customer to get the correct information is to file a legal suit against the organization for providing incorrect income statements. This will force the organization to provide true information towards customers which can be further used to invest in the firm and make decisions regarding Investments. However, if there are misconceptions created even in the auditing statement of the organization, huge problems may arise for the auditor and the AMP Limited as a whole. Therefore it can be concluded by saying that if the audit process is carried out effectively, the company will be able to provide the customers with the best possible data.

References

AMP Ltd. (2017) AMP Limited 2017 annual report & accounts. Available from: https://www.annualreports.com/HostedData/AnnualReports/PDF/OTC_AMLTY_2017.pdf [Accessed 19 September 2018]

Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ, Melbourne

Church, B., Davis, S & McCracken, S. (2008) The auditor’s reporting model: A literature overview and research synthesis.  Accounting Horizons. 22(1), 69-90. Doi: https://doi.org/10.2308/acch.2008.22.1.69

Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person Education, New Jersey: USA

Gay, G. and 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. Doi: https://doi.org/10.2308/acch-51309 [Accessed 19 September 2018]

Hoffelder, K. (2012)  New Audit Standard Encourages More Talking. Harvard Press.

Kaplan, R.S. (2011) Accounting scholarship that advances professional knowledge and practice. The Accounting Review [online]. 86(2), pp. 367–383. Available from https://doi.org/10.2308/accr.00000031

Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management. [online]. 9(3), pp. 291-292. Doi: https://doi.org/10.1111/1468-0408.00081

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 12 September 2018]

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 18 September 2018]

Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting  Review. [online]. 24(3), pp. 1-34. Doi: https://doi.org/10.1108/01140581211283904 [Accessed 18 September 2018]

Niemi, L. and Sundgren, S. (2012) Are modified audit opinions related to the availability of credit? Evidence from Finnish SMEs. European Accounting Review. [online]. 21(4), pp. 767-796. Doi: https://doi.org/10.1080/09638180.2012.671465 [Accessed 12 September 2018]