Risk Assessment Report Harvard Case Solution & Analysis

Risk Assessment Report Case Solution


Company’s Overview

Bank of Queensland, new audit client, was established in 1874, operations in Australia. The bank is among the three major banks in the region. The Bank of Queensland has branches in every state of Australia and has successful operations from 141 years. It has been doing business in Banking, Finance and Insurance. As compared to other banking corporate structure, the Bank of Queensland has unique and innovative business structure. It has adopted a policy of Owner-Manager, in its branch network. This implies that the branches are not only managed by the branch manager but it is owned by that manager. As per the bank, this will add value to the business as each branch manager with the local community information can run the setup more competently. In fact, few previous cases suggest that although this new idea is effective but due to lack of proper system and controls, this business structure provides opportunity to malpractice.

Risk assessment procedures

It is necessary to perform risk assessment procedures before the audit of the financial assessments of the potential client. The risk assessment procedure will help identifying the business and its environment, and the associated risks that effects the operations of the business. These risks will also affect how the financial statements are being prepared. In this context, risk can be defined as the adverse event or elements present which impact the achievement of the entity’s objectives and goals (ASA 315.4).

The risk assessment procedures will include (ASA 315.6):

  • Inquiries from the management
  • Observation and inspection
  • Analytical procedures

Using the guidelines provided by the standard, the risk assessment procedures for the Bank of Queensland are performed which is summarized in this report.

Inherent Risks

There are several inherent risks, not wholly in control of the auditor, which havegreat influence on the operating and business activities of the bank(Stuart Grimshaw, 2014). These risks are listed below:

General Risks:This type of risk includes risks conferring from the changes in the economic conditions. A change in the economic growth will lead to lower consumer income and will subsequently affect the sales of the products and services of the company. The consumer might withdraw money from the bank and use it to satisfy their needs. Economic conditions will affect the cost centers of the company including labor and operating costs. Decrease in public investment and lending will also be affected.

Change in government policies will also affect the business of the company. Here the compliance of the company with the related laws should be analyzed, along with the information about the prospect changes in the laws.

Interest rates are the main factor that place high risk on the business and profitability of the banking industry. Bank of Queensland should use the financial instruments such as interest rates swaps, limiting interest rates with floor or ceiling etc. to try to mitigate this risk. Exchange rate is also an important risk factor, since the bank uses hedges to minimize the effect of the exchange rates volatility...................

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