Operations Of Westpac Banking Corporation: Industry And Company Analysis Essay.

Industry and Company Analysis

Question:

Discuss About The Operations Of The Company Westpac Operates?

The current report elucidates in detail the audit planning with special orientation to the operations of the firm Westpac. The current segment analyses the industry that is the banking industry in which the company Westpac operates and evaluates the operations of company. This study conducts an industry analysis and company analysis and audit planning of the firm. Thereafter, the study also detects the risks that might be faced by the company and carries out an analytical procedure.

The current report illustratively elucidates the sequential procedures for planning for carrying out audit of the firm. The present segment explains the successive steps that can be adopted for undertaking the planning of audit in the company Westpac. Audit planning thereby involves the following steps:

• Discussions with the client
• Review of documentation of audit of Westpac
• Analysis of financial assertions of the company Westpac
• Analysis of interim pecuniary assertions of the company Westpac
• Identification and consultation with diverse non-audit personnel of specifically the accounting corporation (Arens et al., 2012). 
• Staffing required for the purpose of audit of the firm Westpac
• Timing of different procedures of audit (Eilifsen et al., 2013). 
• Outside help essentially needs to be determined counting the utilization of a particular specialist as necessary and determination of the nature and extent of involvement of the internal assessors of the specific client (William Jr et al., 2016). 
• Pronouncements on different accounting principles as well as audit guidelines that need to be read and assessed (Louwers et al., 2015). This can help in the process of development of specifically complete audit programs aptly fitting the exclusive requirements of the business of the client as well as industry (Simnett et al., 2016).
• Scheduling with the client is required to coordinate actions. For example, schedule prepared by client necessarily need to be ready at the time when the assessor is anticipated to assess them (Arens et al., 2016). The client has the need to be informed regarding the dates at which they can be prohibited from accessing bank safe deposits in order to make certain that the integrity of different counts of security that is specifically held at banks (Arens et al., 2016).

Westpac Banking Corporation is the presently the client of the accounting firm NY. Westpac Banking Corporation also referred to as Westpac is essentially one of the big four Australian banks as well as financial service provider that is headquartered in Sydney. Westpac operates through four different core business divisions that include Consumer Bank, Business as well as Commercial Bank, Westpac Institutional Bank along with Westpac New Zealand as well as the BT Financial Group.  Essentially, consumer bank is accounting for necessarily sales as well as service of approximately 9 million consumers across the nation Australia and aids them in the regular banking needs of the consumers. Again, business bank division is accountable for both sales as well as service of diverse small along with medium sized enterprises, different commercial along with the agribusinesses in Australia together with the asset and tools/instruments finance and functions under the corporation Westpac. Particularly, BT Financial Group is essentially the wealth management division of the corporation Westpac Group that subsequent to the merger with the business entity St. George Bank Limited also takes into account the wealth division of the firm St. George. Furthermore, the Westpac Institutional Bank also offers a wide range of financial services to different commercial, corporate, institutional as well as government clientele.  

The financial results of the majority of the Australian banks emphasizes the fact that the growth in earnings of the companies are slowing down, representing the influence of enhanced regulatory needs and a downcast domestic economy. However, specific margins have continuously decreased across diverse majors in spite of asset re-pricing and enhanced financing from different customer deposits, stressing all the difficulties of the present low rate of interest as well as deposits of customers. The economic outlook in this case remains difficult and the majors continue to stress on the capital efficacy, overall productivity and added refinement of different business models. Unceasingly challenging conditions of market, increasing regulatory capital, enhancing loan impairments as well as margin compression exert downward pressure on the returns of the industry (Arens et al., 2016). Jointly, the majors operating in the banking industry of Australia declared a cash profit enumerated after tax of approximately $29.6 billion during the financial year 2016 that is necessarily down by around 2.5% recorded during 2015. The decrease in earnings mainly owes to decrease in net margin of interest, flatter non interest earning, increase in loan impairment alterations and greater cost of operations. In particular, these facets are also apparent from the decrease in the specific statutory net gains from continued operations of approximately $2.6 billion to nearly $28.8 billion. The challenging outlook for different majors is essentially set to continuously driven by poor growth in revenue, erosion of margin, enhanced charges of impairment, greater downward pressure on particularly return on equity as well as earnings per share. Consequently, the ability of the majors to detect cost eliminate chances that can be realised specifically in the short and medium terms without compromising with the prospects of the growth of the revenue.

Risk Assessment

Analysis of the operations of the business Westpac Banking helps in understanding the exposure to diverse business risks. Varying nature as well as scope of business operations also poses business risks. Essentially, Westpac has a diverse mix of specific financial market trading business to particularly St. George along with the important operations in institutional banking, underwriting along with general insurance all of these expose the shareholders of the firm St. George to diverse risks than normally they are exposed to (Westpac - Personal, Business and Corporate Banking, 2017).

In essence, St, George has no exposure to the market of New Zealand. In essentially, Westpac generates around 15% to 20% of the profit enumerated after tax from the business operations of the company in New Zealand (Westpac - Personal, Business and Corporate Banking, 2017). However, St. George has not got any kind of exposure to the market of New Zealand. In this case, it can be mentioned that the nation New Zealand is encountering slowdown in terms of growth of economy due to the outcome of the slowdown of the housing market, drought, higher rate of interest and increasing inflation that have eroded the overall consumer as well as business confidence (Westpac - Personal, Business and Corporate Banking, 2017). Essentially, these kinds of conditions can probably lead to low earnings and enhanced bad debts from specifically New Zealand wing of Westpac.

Again, large bad debts also pose business risks to the operations of Westpac. In particular, Westpac also declared that it does not have the identical level of exposure to the specific kinds of loans that have compelled both NAB as well as ANZ to declare enhancement in the overall provisions  as well as write downs for the period ending on Sept 2008 (Westpac - Personal, Business and Corporate Banking, 2017). The company also have small collateralised obligations of debt, however, management of the firm has publicly declared that this specific portfolio has witnessed no significant measurable influence on earnings. Nevertheless, all banking corporations are essentially exposed to different degrees of rising level of bad debt and this firm Westpac also have exposure to the weak commercial property as well as marketing of New Zealand (Westpac - Personal, Business and Corporate Banking, 2017). Contrarily,rating organization Standard & Poor’s also substantiated the AA rating of Westpac after analysis of the probable credit loss during the short to the medium period of time.

Analytical Procedures

The company Westpac also faces business risk in the making huge investments for the process of reviewing the legacy information system. Essentially, this might possibly add to the overall level of complexity and risk to the procedure of assimilation (Westpac - Personal, Business and Corporate Banking, 2017).

In addition to this, association with the third parties of the corporation that is within RAMS businesses as well as BTIM (by means of license contracts) generate added risks since poor level of performance or else termination of specific agreements of franchise might influence the revenue adversely and cause damage to the brand.

The corporation Westpac also faces contingent liability risk. This is because the corporation Westpac is engaged in a number of actual or else potential claims as well as proceedings in diverse ordinary processes of business (counting tax liabilities) that are not determined and for that no specific provision is there in the balance sheet (Westpac - Personal, Business and Corporate Banking, 2017).

There are also certain unavoidable business risks faced by the firm Westpac. Westpac is necessarily subject to specific disclosure requirements of particularly ASX and compliance with the requirements poses risk to the business. Additionally, the assimilation of the system of information technology of both St. George and the company Westpac is also considered to be very intricate and risky and require considerable investment of both time as well as resources (Westpac - Personal, Business and Corporate Banking, 2017). Considerable amount of risk also remains in using two brand strategies that is essentially being attempted on a scale that is much larger than what is has been in other dealing.

Analytical processes can be considered to be one of financial audit procedures that assist the assessors to comprehend the business and alterations in the business of the firm Westpac. Essentially, this helps in the processes of identification of prospective risk areas to plan other procedures of audit in combination with other processes of audit testing with respect to specific financial declarations (Cohen & Simnett, 2014). Auditors might undertake analytical procedures for Westpac at three different phases that is at the beginning, in the middle as well as at the end of the process of audit. This process also includes application of financial ratio for assessment of financial information with respect to prior period.

Analysis of the financial assertions reveals that both the current ratio as well as quick ratio increased although by a very significant degree. This reveals that the liquidity condition of the firm remained constant during the time period. Debt to equity ratio indicating the solvency has increased although insignificantly. This reflects an unfavourable condition for the firm as debt has increased in comparison to equity over the two year period. However, equity ratio has improved reflecting desirable financial condition. Again, profitability has declined indicating undesirable financial health of the firm. Therefore, it can be said that audit test can help in analysing and detecting the issues that are affecting the financial health of the firm (Westpac - Personal, Business and Corporate Banking, 2017). 

Conclusion

The above mentioned study helps in understanding different steps involved in audit planning of the client company that is that of the Westpac. The study also analyzes financial results of the majority of the Australian banks and helps in gaining insight regarding the overall banking industry. The present segment also helps in gaining insight regarding the risks that the company encounters and thereafter carries out analytical procedure for audit.

References

Arens, A. A., Best, P., Shailer, G., Fiedler, B., Elder, R. J., & Beasley, M. (2016). Auditing and assurance services in Australia: an integrated approach. Pearson Education Australia.

Arens, A. A., Elder, R. J., & Beasley, M. S. (2016). Auditing and assurance services: An integrated approach. Prentice Hall.

Arens, A. A., Elder, R. J., & Mark, B. (2012). Auditing and assurance services: an integrated approach. Boston: Prentice Hall.

Arens, A. A., Elder, R. J., Beasley, M. S., & Jenkins, G. J. (2016). Essentials of Auditing and Assurance Services: An Integrated Approach. New Jersey: Prentice Hall.

Cohen, J. R., & Simnett, R. (2014). CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.

Eilifsen, A., Messier, W. F., Glover, S. M., & Prawitt, D. F. (2013). Auditing and assurance services. McGraw-Hill.

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services. McGraw-Hill Education.

Simnett, R., Carson, E., & Vanstraelen, A. (2016). International Archival Auditing and Assurance Research: Trends, Management Issues, and Opportunities. Auditing: A Journal of Practice & Theory, 35(3), 1-32.

Westpac - Personal, Business and Corporate Banking. (2017). Westpac.com.au. Retrieved 11 September 2017, from https://www.westpac.com.au

William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic approach. McGraw-Hill Education.