Auditing IT audit
Question 2 IT Audit 10 Marks Your audit client Quantum is a major Australian Wealth Asset Management company based in the Melbourne CBD, with offices in all Australian states and parts of the Asia Pacific region including India, China and Indonesia. Quantum employs just over 12,000 employees and is involved in providing several services including retail banking, provision of superannuation, financial advice, investments strategies, life insurance and property investment solutions. Quantum operations rely heavily on 3,000 financial advisors (agents) selling their products for a high fee and commission. You and another senior auditor have been assigned the responsibility for undertaking all IT-related audit testing in this years' audit engagement. Quantum just last year moved from its incumbent NTBS core IT platform to Temenos, who now provide Quantum with specialist software for all their banking and financial services needs, both for internal operations and for customer interfaces. At last month's AGM, the Quantum CFO claimed the new Temenos platform is an investment to further strengthen customer experience, improve risk and controls over processing and is a direct response to the recent Banking Royal Commission (RBC) into banking misconduct. The RBC revealed Quantum's financial advisors were charging fees to customers without providing any services for these fees, in addition to investigating scandals around superannuation and life insurance mismanagement During your audit testing of the new Temenos IT platform and review of 2019 Financial performance and media releases, you discovered the following 4 concerns: Concern #1 2019 Financial Data Extract Mortgage growth underpins resilient performance - Residential Mortgages grew by 15% to A$20.2b; -Total Customer Deposits increased by A$1. 1b to A$14.4b Relaxed lending standards come amid falling house prices and expectations the Reserve Bank will cut interest rates again for the 5th time in 18 months. Audit Testing Outcome Initial audit testing revealed that over 400,000 customers did not receive the appropriate interest rate discounts or fee waivers on their mortgage loans. Concern #2 2019 Financial Data Extract Reverse Mortgage options are available to customers over the age of 60 allowing them to borrow up to 45% of their home's value -Total Customer Reverse Mortgages increased by A$1.3b to A$10.4b Media Release COVID-19 pandemic has curbed consumer spending, with households now likely to save and stockpile' indicating they feel pessimistic about the future Audit Testing Outcome Initial audit testing revealed several instances where Quantum was recorded as providing regular cash advances ("similar to a line of credit') to customers and charged fees for setting up the loan to customers under 60 years of age. Concern #3 2019 Financial Data Extract Quantum reveals a new renumeration package cutting commissions by up to 50% - Fees and Related Commission Expenses $1.604m Quantum reveals a new renumeration package cutting commissions by up to 50% - Fees and Related Commission Expenses $1,604m Media Release Quantum agents do not have confidence in the current management, as they refuse to sign an exclusive agency agreement to sell only Quantum products. Audit Testing Outcome Initial audit testing revealed several instances where Quantum agents sold life insurance policies to customers, but they were not paid their 20% commission on the sales, as the commission rate was omitted when then sales were processed. Concern #4 2019 Financial Data Extract Quantum employees anonymously express how they feel about their workplace - Staff and Related Expenses $1,434m Media Release Quantum's fees-for-no-service scandal, exposed by the Banking Royal Commission has already forced several executives to be dismissed Audit Testing Outcome Initial audit testing revealed that the Payroll Officer accidentally added an extra 'O' to one of the Executive Officer's termination payments. Required Required 1. For each concern #1, #2, #3, #4 above describe one (1) automated application control that could have prevented the error and describe how Test Data could provide you with audit evidence that the control is operating effectively. (you may find the attached Tables 1 & 2, Computer Fields useful in explaining your answer). 2. Outline an Exception Report that may be useful to the auditor in identifying a certain risk of material misstatement on which the auditor should focus their attention on, using any of the Quantum case facts provided. In your answer consider what other audit procedures should be undertaken in respect to the Exception Report (you may find the attached Tables 1 & 2, Computer Fields useful in explaining your answer). Sample Tables of Quantum Computer Fields found in Temenos software applications you may find these useful in explaining Application Controls and Exception Report Table 1: Mortgages and Loan Application Field Field Title 1 Mortgage Application Date 2 Loan Type 3 Loan ID 4 Occupancy Type 5 Loan Amount 6 Action Taken 7 Action Date 6 Action Taken 7 Action Date 8 Borrower Name 9 Borrower Ethnicity 10 Borrower Address 11 Age of Applicant Borrower Income 12 13 Lien Status 14 Credit Score of Applicant or Borrower 15 Interest Rate 16 Loan Term 17 Property Value 18 Reverse Mortgage 19 Open-End Line of Credit 20 Business or Commercial Purpose Table 2: Payroll and Commissions Application Field Field Title 31 Employee/Agent ID 32 Employee/Agent Name 33 Tax File Number 34 Employee/Agent Address 35 Employee/Agent Direct Bank Details 36 Employee/Agent Date of Birth 37 Employee/Agent Start Date 38 Employee/Agent Termination Date 39 Employee/Agent Type 40 Employee/Agent Job Specification 41 Yearly Gross Pay 42 PAYG Tax Deductions 42 PAYG Tax Deductions 43 Superannuation Contribution-Employee/ Agent 44 Annual Leave Balance 45 Long Service Leave Balance 46 Bonus/Commission Rate 47 Gross Pay Year to Date 48 Superannuation Deductions Year to Date 49 Tax Deductions Year to Date 50 Pay Period End Date Question 2 IT Audit 10 Marks Your audit client Quantum is a major Australian Wealth Asset Management company based in the Melbourne CBD, with offices in all Australian states and parts of the Asia Pacific region including India, China and Indonesia. Quantum employs just over 12,000 employees and is involved in providing several services including retail banking, provision of superannuation, financial advice, investments strategies, life insurance and property investment solutions. Quantum operations rely heavily on 3,000 financial advisors (agents) selling their products for a high fee and commission. You and another senior auditor have been assigned the responsibility for undertaking all IT-related audit testing in this years' audit engagement. Quantum just last year moved from its incumbent NTBS core IT platform to Temenos, who now provide Quantum with specialist software for all their banking and financial services needs, both for internal operations and for customer interfaces. At last month's AGM, the Quantum CFO claimed the new Temenos platform is an investment to further strengthen customer experience, improve risk and controls over processing and is a direct response to the recent Banking Royal Commission (RBC) into banking misconduct. The RBC revealed Quantum's financial advisors were charging fees to customers without providing any services for these fees, in addition to investigating scandals around superannuation and life insurance mismanagement During your audit testing of the new Temenos IT platform and review of 2019 Financial performance and media releases, you discovered the following 4 concerns: Concern #1 2019 Financial Data Extract Mortgage growth underpins resilient performance - Residential Mortgages grew by 15% to A$20.2b; -Total Customer Deposits increased by A$1. 1b to A$14.4b Relaxed lending standards come amid falling house prices and expectations the Reserve Bank will cut interest rates again for the 5th time in 18 months. Audit Testing Outcome Initial audit testing revealed that over 400,000 customers did not receive the appropriate interest rate discounts or fee waivers on their mortgage loans. Concern #2 2019 Financial Data Extract Reverse Mortgage options are available to customers over the age of 60 allowing them to borrow up to 45% of their home's value -Total Customer Reverse Mortgages increased by A$1.3b to A$10.4b Media Release COVID-19 pandemic has curbed consumer spending, with households now likely to save and stockpile' indicating they feel pessimistic about the future Audit Testing Outcome Initial audit testing revealed several instances where Quantum was recorded as providing regular cash advances ("similar to a line of credit') to customers and charged fees for setting up the loan to customers under 60 years of age. Concern #3 2019 Financial Data Extract Quantum reveals a new renumeration package cutting commissions by up to 50% - Fees and Related Commission Expenses $1.604m Quantum reveals a new renumeration package cutting commissions by up to 50% - Fees and Related Commission Expenses $1,604m Media Release Quantum agents do not have confidence in the current management, as they refuse to sign an exclusive agency agreement to sell only Quantum products. Audit Testing Outcome Initial audit testing revealed several instances where Quantum agents sold life insurance policies to customers, but they were not paid their 20% commission on the sales, as the commission rate was omitted when then sales were processed. Concern #4 2019 Financial Data Extract Quantum employees anonymously express how they feel about their workplace - Staff and Related Expenses $1,434m Media Release Quantum's fees-for-no-service scandal, exposed by the Banking Royal Commission has already forced several executives to be dismissed Audit Testing Outcome Initial audit testing revealed that the Payroll Officer accidentally added an extra 'O' to one of the Executive Officer's termination payments. Required Required 1. For each concern #1, #2, #3, #4 above describe one (1) automated application control that could have prevented the error and describe how Test Data could provide you with audit evidence that the control is operating effectively. (you may find the attached Tables 1 & 2, Computer Fields useful in explaining your answer). 2. Outline an Exception Report that may be useful to the auditor in identifying a certain risk of material misstatement on which the auditor should focus their attention on, using any of the Quantum case facts provided. In your answer consider what other audit procedures should be undertaken in respect to the Exception Report (you may find the attached Tables 1 & 2, Computer Fields useful in explaining your answer). Sample Tables of Quantum Computer Fields found in Temenos software applications you may find these useful in explaining Application Controls and Exception Report Table 1: Mortgages and Loan Application Field Field Title 1 Mortgage Application Date 2 Loan Type 3 Loan ID 4 Occupancy Type 5 Loan Amount 6 Action Taken 7 Action Date 6 Action Taken 7 Action Date 8 Borrower Name 9 Borrower Ethnicity 10 Borrower Address 11 Age of Applicant Borrower Income 12 13 Lien Status 14 Credit Score of Applicant or Borrower 15 Interest Rate 16 Loan Term 17 Property Value 18 Reverse Mortgage 19 Open-End Line of Credit 20 Business or Commercial Purpose Table 2: Payroll and Commissions Application Field Field Title 31 Employee/Agent ID 32 Employee/Agent Name 33 Tax File Number 34 Employee/Agent Address 35 Employee/Agent Direct Bank Details 36 Employee/Agent Date of Birth 37 Employee/Agent Start Date 38 Employee/Agent Termination Date 39 Employee/Agent Type 40 Employee/Agent Job Specification 41 Yearly Gross Pay 42 PAYG Tax Deductions 42 PAYG Tax Deductions 43 Superannuation Contribution-Employee/ Agent 44 Annual Leave Balance 45 Long Service Leave Balance 46 Bonus/Commission Rate 47 Gross Pay Year to Date 48 Superannuation Deductions Year to Date 49 Tax Deductions Year to Date 50 Pay Period End Date
