ASIC’s financial institution audit priorities

ASIC’s Audit inspection program report for 2011–12 specifically comments on financial institution audits.

ASIC’s review highlighted findings common to all industries, such as not obtaining sufficient appropriate evidence to support audit procedures conducted in relation to assessing impairment, the application of professional scepticism, the performance of substantive analytical reviews, and relying on the work of others.

Key findings specific to the audit of banks and credit unions include:
(a) insufficient and inappropriate audit evidence obtained to support the valuation of significant financial assets, such as trading derivatives, trading securities and available-for-sale securities. In particular, ASIC found instances where the auditor’s substantive procedures were inadequate and the auditor placed inappropriate reliance on controls and external confirmations to validate the valuation assertion;
(b) insufficient testing to assess the adequacy of provisions for loan losses. In designing a disaggregated substantive analytical procedure, one auditor used an aggregated threshold for testing, and did not clearly identify a threshold for investigating differences or sufficiently corroborate variations identified; and
(c) insufficient testing of the reported net interest margin, including the inappropriate application of substantive analytical procedures or reliance on the audited entity’s controls without detailed substantive testing where the balance was material.

ASIC says these findings do not necessarily mean that there were deficiencies in the systems of any of the regulated entities concerned.

ASIC says its reviews of audits of banks, credit unions and insurance companies found that sampling procedures were often inappropriate. For example, there was often insufficient evidence that the auditor considered whether the sample selected was representative of the whole population or whether sampling was undertaken in accordance with the firm’s policy.

ASIC also commented on the adequacy and timeliness of auditors reporting suspected contraventions under s311 and 601HG of the Corporations Act, reporting under s990K, and reporting under the national credit legislation.

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