Topic: Research, critically analyse and evaluate key audit matters in independent Auditor’s report. Task detail: Auditor’s Report.

Executive Summary –
We have witnessed a massive slump in the stock markets during the turmoil of global financial crisis in 2008 and shareholder’s wealth was destroyed in the blink of an eye. Investors asked probing questions to understand the root cause for the same and that led to m
As we move forward, since now all the auditors need to show all the key audit matters where subjective judgements is needed by the firms and the management investors and shareholders lost trust in the financial industry will be restored and also they will be in a position to take better decisions as far as the investing in such companies are concerned.
The investors and shareholders need to also develop their own understanding of the possibilities where the firms might engage into managing the earnings to stabilize the performance and might want to get through to the checklist to make sure that they understand the nuances of the accounting treatments thoroughly and do not take the numbers presented by the management in the reports at face value if they do not want to see their wealth being eroded.
Contents
Executive Summary –    1
ASA 701 Communicating the key audit matters in the independent auditor’s report –    1
Banking Industry –    2
Examples Banking Industry –    2
ASA 570 –    3
Warnings signs of threat to the Going Concern9 –    3
Earnings Quality    4
Recommendations –    5
Conclusion –    5
References    5
ASA 701 Communicating the key audit matters in the independent auditor’s report –
Purpose –
In the wake of the global financial crisis in, that did not leave any company any country untouched, affected the global population severely due to missing out on the key measures that could impact the health of the company severely. The fall of the Lehmann Brothers in the United States sent all the financial industry and subsequently every industry in the turmoil. This contagion effect could have been avoided with a stringent set of norms that could have been followed by the global regulators. Shareholders lost a lot of wealth and hence they were not able to understand the reason behind the erosion that happened over the span of 6 months across the globe. Under this accounting standard, the firms need to disclose the key audit matters in the independent director’s report section with a 60 day comment period starting from April 2015.
Key features –
Under this new accounting standard, the firm needs to ensure that they describe all the key audit matters in the disclosures of the company quarterly and annually.
Identify the instances when the key audit matters might not be disclosed to the auditors
Identify what all information should be a part of the key audit matters
Identify how the key audit matters will impact the health of the firm and how the risk can be avoided if in case it happens to materialise
Banking Industry –
In the wake of the global crisis, we will analyse how these changes of disclosing the key audit matters have impacted the quality and the transparency in which the financial statements are being presented. Financial industry was affected the most and all the major players’ involvement in the malpractices followed, they lost trust among the wide majority of the stakeholders.
As far as the banking industry is concerned, they are being regulated by the stringent norms under BASEL III where he provisions around the capital and liquidity requirements are adequately stated2. These norms majorly deals around how the banks need to grow with ensuring that the adequate amount of capital is preserved based on the calculations of the risk weighted assets and how much liquidity is required to meet the adverse impact or shock in the macroeconomic environment liquidity requirements and outgoing cash flows.
Another industry related to the financial services is investment banking. Investment banking industry was able to create a very complex set of instrument including credit default swap, collatorised debt obligation, and Mortgage Backed security which played a significant role bring the housing industry down in the United States and which spread across the world. After this, these banks and insurance companies came under severe scrutiny, few top executives were prosecuted and fined for destroying the shareholders wealth and acting against their clients’ interests. This inherent conflict of interests in this environment led to catastrophic effects in the world. We will look into the annual reports to understand how these firms applied the accounting standards ASA 701 in their annual reports and disclosures.
Examples Banking Industry –
Commonwealth Bank Key Audit Matters 4–
1. Impairment of the assets possessed by the banks
2. Fair valuation by the assets owned by the banks
3. The compliance costs by the banks
4. Valuation of insurance policyholder liabilities
5. Operation of financial reporting Information...