1.You were asked to analyse whether ANZ meets the requirements to be assessed as a going concern for the period ending 30th September 2022. As we have witnessed, the period 2020-22 has seen the world severely impacted by multiple factors on a world scale. These issues have impacted the financial services industry and as a result, the assessment of going concern of all entities.
Required:
To assist your audit manager, you have been asked to provide a brief report outlining the major factors affecting the assessment of going concern of entities in the Australian economy for the reporting year 2022. Your written report will focus on the period 1/7/21-30/6/22. (Your discussion should be on all entities on financial services industry. Your discussion can be expanded to the Australian economy as a whole.
2. Using the Inherent Risk Factors listed on pages 77-78 of ASA315, identify what you consider to be four (4) inherent risks that could have an impact on the audit of ANZ for the reporting period ending 30 th September 2022 (please refer to page 6 of the assignment booklet for a list of the inherent risk factors you will need to investigate). For specific requirements relating to identifying and discussing the inherent risks,. (Again, remember, we are focused on the period ending 30/9/22 for this question so it is assumed you are doing the audit for the period ending 30/9/22 and will focus on the period 1/10/21-30/9/22).
In the turbulent economic landscape of the period from 1st July 2021 to 30th June 2022, entities in the financial services industry, including the Australian economy as a whole, have faced a multitude of challenges that impact the assessment of their going concern status. This report outlines the major factors influencing the going concern assessment of entities within the Australian economy, with a focus on the financial services sector. Furthermore, it identifies four inherent risks that could affect the audit of ANZ for the reporting period ending 30th September 2022.
The reporting year 2022 has been marred by several significant factors that collectively influence the going concern assessment of entities. These factors extend their impact to the financial services industry, which includes ANZ, and ripple through the broader Australian economy. The following are key considerations:
Global Economic Uncertainty: The ongoing uncertainty stemming from the global impact of the COVID-19 pandemic has created a volatile economic environment. Fluctuating lockdowns, supply chain disruptions, and shifts in consumer behavior have hindered economic recovery. This uncertainty affects not only ANZ’s operations but also its clients’ ability to meet financial obligations.
Interest Rate Instability: The Australian economy witnessed fluctuations in interest rates during the reporting period. These changes directly impact ANZ’s profitability and risk exposure, as they affect both its lending and deposit activities. Interest rate variations can also influence customers’ borrowing decisions, potentially impacting the bank’s revenue streams.
Regulatory Changes: The financial services industry operates in a heavily regulated environment. Any changes in regulations can have far-reaching implications for ANZ’s operations, capital requirements, and compliance costs. Regulatory shifts could necessitate alterations in the bank’s business practices, impacting its financial stability.
Technological Disruptions: Rapid advancements in technology have disrupted traditional business models in the financial sector. ANZ faces the challenge of adapting its digital infrastructure to remain competitive while also ensuring data security and customer trust. Failure to do so could lead to reputational damage and financial losses.
The inherent risk factors listed in ASA315 provide a framework to identify potential challenges during ANZ’s audit for the period ending 30th September 2022. Four inherent risks that warrant careful consideration are as follows:
Industry-Specific Risks: The financial services industry is exposed to unique risks related to credit quality, interest rate fluctuations, and regulatory compliance. ANZ’s portfolio of loans and financial instruments makes it susceptible to changes in creditworthiness and market dynamics, necessitating rigorous assessment.
Complex Financial Instruments: ANZ’s engagement with complex financial instruments exposes it to valuation uncertainties and market risks. These instruments can be challenging to accurately value, leading to potential misstatements in the financial statements and, consequently, the need for in-depth audit scrutiny.
Geopolitical Risks: ANZ’s international operations expose it to geopolitical risks, including foreign exchange fluctuations, country-specific economic challenges, and political instability. These risks can impact the bank’s financial performance, warranting detailed assessment and risk mitigation strategies.
Technology and Data Security: ANZ’s digital transformation efforts make it reliant on technology for critical operations. However, technological vulnerabilities, cyberattacks, and data breaches pose significant risks. Ensuring the security and integrity of customer data and financial transactions is crucial to maintaining trust and regulatory compliance.
In the dynamic economic environment of 2021-2022, the going concern assessment of entities in the Australian financial services industry, such as ANZ, is influenced by global economic uncertainty, interest rate fluctuations, regulatory changes, and technological disruptions. These factors ripple through the broader economy, impacting business operations and financial stability. Additionally, ANZ’s audit for the period ending 30th September 2022 faces inherent risks including industry-specific challenges, complex financial instruments, geopolitical uncertainties, and technology-related vulnerabilities. Addressing these risks and challenges will be paramount in ensuring a comprehensive and accurate audit of ANZ’s financial statements.
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