National Australia Bank

Executive summary

Banking like in any other nation is a vital part of Australia. Australia has a complicated, profitable and competitive financial sector. National Australia Bank (NAB) is one among the top ten banks in Australia. In line with the NAB’s vision, the Group’s values and practices, and corporate governance focus on nurturing a strong culture that propels the Group’s team in delivering industry leading and sustainable outcomes for the customers. In the subsequent paragraphs, the document will seek to answer several questions related to NAB in line with the 2018 Annual Report.

NAB’s scale of operations

The National Australia Bank Ltd. (NAB) is publicly listed in Australia. It operates in more than 900 locations, has approximately 33,000 employees and close to 600,000 shareholders and can brag about serving around 9 million customers. The bank’s vision is to be the leading bank in Australia, winning the trust of its customers in providing exceptional services. According to NAB’s 2018 Annual report for the period ended 30th June 2018, the bank conducts a number of principal operations which are services of banking, leasing, credit & and access card facilities, general finance and housing, leasing, investment banking, international banking, services regarding management of wealth, management of funds and custodians, trustee, and nominee services. All these are under the broad umbrellas of Business and private banking, Customer banking and wealth, and Corporate and Institutional banking (Seltzer, 2018).

Business risks that could impact the audit of NAB

Forward-looking statements using terminologies such as “expect,” “believe,” “may,” “likely,” and “plan” that could pose variations or business risks might impact the audit of NAB. Such statements are subject to numerous risks inclusive of but not limited to; first, in-depth business plans aren’t well formulated for the entirety of the “program” (the strategic agenda of the Group) with the full scope and Program’s cost may vary as development of the program takes place when it comes to involving third parties (Montesi & Papiro, 2018). This could pose a business risk as it might prejudice the independence of the auditing process having in mind that a third party will be involved in considering tendering for the audit of NAB. Inasmuch as the Group works towards ensuring integrity is observed in external reporting, a lot has to be undertaken by NAB in proper review and monitoring of the financial reporting to shareholders and regulators.

Secondly, there is the uncertainty in the ability of the Group in execution and management of the strategic agenda in a controlled, sequenced and effective manner also in line with the business plan and relevant project. This then means that the stipulated rules and guidelines that any firms in the banking industry should follow will most probably not fully be adhered to by NAB. This uncertainty could translate into the presentation of a vague and less detailed audit report of NAB thus compromising the entire tendering process and final results (Reed, 2019). The market in which the Group operates is a bit competitive in which high levels of such a scenario could lead to profit margins’ compression or market share loss. NAB faces competition from other well-established providers of financial services in addition to new market entrants. This calls for care and expertise the in overall overseeing of adequate quality of credit in addition to careful scrutiny of business results.

Thirdly, there isn’t material adjustment to law and regulations or adjustments to the regulatory policies or interpretations that include the capital and liquidity needs of NAB. Therefore, a business risk could be involved in reporting critical estimates and judgments. Undoubtedly, professional judgment is at the core of any financial reporting, and with the rising levels of technical standards of reporting, lots of areas maintain the essence in making sound judgments in providing true and fair opinions. The information provided should be factual, comprehensive, objective and timely. However, this might be compromised due to the rough estimates and judgments that might be used in conducting the auditing process. Considering the Group in the past has been involved with several corruption scandals, chances are high the necessary reports needed for auditing will not be availed by the bank for fear of exposure of the fraudulent activities.

Probable accounts at significant risk- NAB’s 2018 Annual Report

There are risks that are certain to the banking and industry dealing with financial services; NAB is no exception. Under this section, three accounts that could be at significant risk and the key assertion on each account will be highlighted. First, NAB might be greatly influenced by macro-economic and geopolitical risks not forgetting of conditions of the market. Most of the financial services offered by the Group operate in Australia and New Zealand, with branches in the US, Asia, and the UK. The Group’s business activities are heavily dependent on the extent and banking nature, and the degree of financial services and products the customers require worldwide ("Internal Audit Risk & Compliance Services," 2019).

Generally, the degree by which the customers are willing to borrow lies on the overall customer confidence, trends in employment, rate of interests in the markets in addition to other financial and economic forecasts and market conditions. The key assertion under this risk is that a decline in any of the above mentioned could mean deterioration in liquidity asset’s value. In the case of NAB, continued global growth way above the trend translated into lower rates of unemployment and decreasing levels of spare capacity of productivity with flows of capital back to the US likely to translate into lower rates of exchange elsewhere (Montesi & Papiro, 2018).

NAB is subject to detailed regulation in which adjustments in regulations could negatively impact the brand image of the Group, operations, and financial outcomes. Extensive regulations vary across the numerous jurisdictions that the Group operates in, and their changes are very unpredictable and way above the control by the Group. Extensive regulations bring with them significant compliance and capital costs, adjustments to the structure of the firm and rising demands on management. For instance, in late 2017 the government of Australia brought about the Royal Commission (an official public inquiry that can only be scrutinized by the executive branch of the government of Australia and only under direct terms of reference). There are a number of questions that have arisen regarding the soundness as noted by the Commissioner with the questions intending to provoke the issues in prior conduct alongside the adjustments that might be made in the financial service industry. This will be in the bid to prevent any further misconduct in the later days which will force the Group to abide by the stipulated rules in ensuring its success.

Thirdly, there are chances of NAB suffering losses that could arise from exposure to operational risks which might negatively influence the brand image in addition to financial performance. Operational risk can be termed as the risk that arises from loss caused by failed or inadequate systems, people and processes or external occurrences. Operational could be disastrous in incidences where substantial losses arise from penalties, fines, loss of certain market segments, collapsing of the firm’s share price, and litigation (Kennedy, 2018). Additionally, the undesirable event adversely influences the Group’s perception held by the potential investors, shareholders and the public. The key assertion is unauthorized and fraudulent actions by contractors, employees and other third parties are the cause. However, this can be mitigated as per the Group’s strategy of investing in talent in a bid to attract, retain and develop a diversified work-force of exceptional leaders.

Effect of the Royal Commission’s findings on tendering decision

Owing to the fact that the Royal Commission’s main task is investigating misconduct in the Financial services industry, the highlighted deficiencies and fraud by NAB on its clients will mean that a lot of scrutinization is necessary for considering the potential audit tendering from the company before and during the task. The tendering decision shouldn’t be hurried for it is necessary for the Royal Commission first to conduct a public hearing on the matter more especially if it pertains consumer lending, the conduct of financial regulators and business lending. Even though the ramifications are quite serious, chances are high the Group will be working tirelessly so as to safeguard NAB’s reputation and public image which can be attained by engaging and respecting the people. Other than just focusing on the tendering decision, it will be critical for the auditors to first look at the work’s requirements, the amount of experience on such kind of projects and the level of competition for the tendering prospect (Dezuanni & Goldsmith, 2015).

Decision on why or not to undertake the audit

Based on the client’s business assessment and audit risks I wouldn’t advocate undertaking the audit tender. Reason being that NAB in the past and even recently has had lots of scandals pertaining to fraud and corruption. For instance, according to The Sydney Morning Herald posted on 1st of March 2019, Helen Rosamond, 43, was arrested over multiple extravagant bribes she conducted in a span of 4 years (2013-2017) . It is alleged that she was paying an executive at the bank for approval of bloated invoices. Not long ago, in December 2018, Andrew Thorburn’s (former chief of staff) was accused of several counts of fraud and corruption ("National Australia Bank : NAB 2018 Full Year Results – NAB Group CEO Andrew Thorburn | MarketScreener", 2019).

Due to these kinds of recurring fraudulent activities and many more others, it wouldn’t be advisable for the auditors to undertake the audit tendering. Reason being that there exist higher chances of the entire auditing process and presentation of the final report being compromised by the bank’s executives. They wouldn’t want their hidden scandals to be exposed, and thus there is the risk of the auditor issuing unqualified report caused by a failure in detecting material misstatement brought about by errors or fraud.

References

• Bierstaker J.L., Hunton J., Thibodeau J.C. (2017), Does Fraud Training Help Auditors Identify Fraud Risk Factors?, Advances in Accounting Behavioral Research, Volume 15, Emerald Group Publishing Limited, pp.85 – 100.
• Dezuanni, M., & Goldsmith, B. (2015). Disciplining the screen through education: the Royal Commission into the Moving Picture Industry in Australia. Studies In Australasian Cinema, 9(3), 298-311. doi: 10.1080/17503175.2015.1087133
• Fadipe-Joseph, O.A., Titiloye, E.O. (2012) Application of Continued Fractions in Controlling Bank fraud, International Journal of Business & Social Science, Vol. 3 Issue 9, pp.210.
• Kennedy, F. (2018). Sterling's Persistence as a Reserve Currency: Australia and Reserves Pooling, 1950-68. Australian Economic History Review. doi: 10.1111/aehr.12170
• Montesi, G., & Papiro, G. (2018). Bank Stress Testing: A Stochastic Simulation Framework to Assess Banks’ Financial Fragility. Risks, 6(3), 82. doi: 10.3390/risks6030082
• National Australia Bank : NAB 2018 Full Year Results – NAB Group CEO Andrew Thorburn | MarketScreener. (2019). Retrieved
• Reed, A. (2019). But I'm an American! A Text-Based Rationale for Dismissing F-Squared Securities Fraud Claims after Morrison v National Australia Bank. SSRN Electronic Journal. doi: 10.2139/ssrn.2327294
• Salameh R., Weshah G., Nsour M. (2017), Alternative Internal Audit Structures and Perceived Effectiveness of Internal Audit in Fraud Prevention: Evidence from Jordanian Banking Industry, Canadian Social Science, Vol. 7, No. 3, pp. 40-50.
• Seltzer, A. (2018). The Functions of Australian Banks’ Branch Networks: The Diversification of Risks and Spatial Allocation of Capital. Australian Economic History Review, 58(3), 338-361. doi: 10.1111/aehr.12151
• Vitale, M. (2018). National Australia Bank. SSRN Electronic Journal. doi: 10.2139/ssrn.317321.
• Waterlow and Sons Limited. (2014). Comparative banking in Asutralia ; Austria ; Belgium ; Canada, ... etc.. Dunstable (England).