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Executive Summery

This report is based on the factors in QBE which stimulates
the auditor of QBE to adopt ASA 701 in final audit report. First of all, this
report focuses on the QBE, their mission, vision, location of head office, and
type of operation currently involved in. Secondly the focus is on the business
risk in insurance businesses like QBE, and audit risk associated with it. This
report also encompasses the role of auditor in identification of assessed area
of risk of material misstatement and responding to those risks in according
with ASA 315.

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Then report focusses on areas in financial statement of QBE
which involve management judgement and assumption. All those areas are
discussed and then point of center is auditor’s judgement on assumption and
judgement of management including company’s ability to continue as a going
concern in conformity with ASA 570 used in preparation of financial statements.

This report then pay attention on significant event and
transection that capture the attention of auditor and same is considered by
highly risky areas. The auditor focuses on that areas and their recognition,
measurement criteria and disclosure. After that the center of attention is need
of user and investor and their decision-making capacity. In this regard, this
focal point of this report is ASA 701. This report focusses on the need and
importance of ASA 701 in auditor’s report and the benefit of this adoption on
the users and investor.

Table of contents

1.       Introduction

2.       Assessed Risk of material misstatement

2.1.  Material Misstatement and auditor’s

2.2.  Assessed risk of material misstatement of QBE

(a)    Strategic risk

(b)   Insurance risk

(c)    Credit risk

(d)   Claims

(e)   Hazards

(f)     Distribution of loss

(g)    Exclusions

(h)   Going Concern

(i)     Others

3.       Auditor’s judgement on judgement of

3.1.  Areas involving management judgement

claims outstanding liability

adequacy test

income tax



4.       Effect on audit of significant events and

5.       Recommendations

6.       References



QBE is one of the oldest and ranked
in world’s top 20 insurance companies operating worldwide. QBE is listed on
stock exchange of Australia and it’s headquarter is situated in Sydney.
Currently it is operating in 37 countries and has more than 14,500 employees on
its payroll.

Strategy of QBE is now focusing on
achieving transfiguration and market growth. In 2015 as an organization they
define their and mission and vision in order to get closer to their potential
customer and provide better services to meet the needs of their customer and
other stakeholders (shareholders, community groups etc.)

Marty, who has experience of more then
35 years in the vast field of insurance, investment banking and private equity,
was appointed as non-executive Director of QBE in 2013 and promoted as chairmen
in 2014.

QBE is one of the biggest Australian
insurance company operating worldwide and all the initiative taken by QBE makes
the company having one of the largest portfolio in the insurance sector of

The purpose of this report is to pay
attention on the adoption of Key Audit Matters (ASA 701) which includes
assessment of risk of material in accordance with ASA 315, Assessment of
company’s ability to continue as a going concern in conformity with ASA 570 and
judgement of auditors on judgement and assumption of management used in
preparation of financial reports. QBE, 2018

2.       Assessed risk of material misstatement:


2.1. Material Misstatement and auditor’s


stated in ASA 315 the risk of material misstatement refers to the risk that the
financial statement of the company is not presented in all material aspects or
the financial statements did not give true and fair view of the company’s
financial performance and financial position.


means that management is manipulating the records and data presented in
financial statements to misguide the user or to hide their worst performance. Material
misstatement affects the decision of users of the financial statements and
investment decision of investors which may result in economical loss.


accordance with ASA 315,the responsibility of auditor is to assessed the higher
risk of material misstatement by understanding their nature of business and
environment in which the company operates.


per ASA 315, the auditor need to assess high risky areas in order to develop
and implement their audit strategy and techniques to assure that proper audit
has been conducted and audit report is fully authentic for user of financial


there is some innate inhibition in audit but the auditor must assess high
jeopardous areas and need to respond those area of expected material
misstatement to assure that some unidentified material misstatement could not
affect the decision of users of financial verbal expression taken on the
substructure of audit report issued after due diligence. Ready Ratios, 2018&
ASA 315, 2013


2.2. Assessed areas of Material misstatement of


There are various types of risks associated
with insurance business like QBE in conformity of ASA 315:


(a)    Strategic Risks:


risks are the risk that has impact on company’s earning/revenue and capital or
equity on the basis of strategic business decision or failure to respond
properly to external environment affecting the company’s operations.

classified strategic risks into five broad categories.

Business, product and market distribution

Capital structure and management,

Acquisition, decisions and negotiations

Tax risks management;

Investment strategy. financial report, QBE,


(b)   Insurance risks:


risks are the risk of variations or inconsistency in timing and frequency of
insured items or events and settlement of claims.

risks can be classified into the following subcategories.



Reinsurance. financial report, QBE, 2017


(c)    Credit risks:


risks are the risks of non-recovery of money owe to QBE by their customer and
third parties, and the loss of value of assets due to downturn in credit

subcategorized the credit risks in the following manner;

Reinsurance counterparty credit,

Investment counterparty credit,

Premium and other counterparty
report, QBE, 2017


(d)   Claims:


primary objective of insurance companies is to earn profits and pay claims.
This can only be done by accepting certain types of companies that has very low
or medium probability of experiencing a loss that will result a claim.
Insurance companies will only settle those claims that are not excluded from their
offered policies.Cameron Easey, 2018


(e)   Hazard:


companies also has their concerns for hazards that can enhance the chances of
loss occurring or may result in more damage or loss then expected. While
determining cost and adequacy of a policy insurance companies also considered
existed hazards.Cameron Easey, 2018


(f)     Distribution of Loss:


of possible losses must be understood by insurance companies while calculating
the amount and type of risk to insure. Frequency of loss is the quantity or
value of expected loss with in a specified period. Insurance companies also has
concerns about severity of losses. Severity of losses is the monetary amount
that an insurer has to pay for a claim or benefit.Cameron Easey, 2018


(g)    Exclusions:


companies has various types to tactics to reduce or balance their risks while
providing Insurance coverage. They usually manage their risks by excluding
certain types of coverage from offered policies.Cameron Easey, 2018


(h)   Going Concern:


of the major problems is that companies like QBE did not provide sufficient
information of their operations and their ongoing litigation. As a result,
users cannot assess the company’s ability to continue as a going concern. Therefore,
as explained in ASA 570 the responsibility of auditor is to obtain sufficient
appropriate audit evidence regarding the reasonableness of management’s use of
going concern basis of accounting in preparation of financial statements.

on audit evidence obtained, conclude whether a material uncertainty exist that
raises doubt on ability of company to continue as a going concern and auditor
is also responsible to report in accordance with ASA 570.Caleb Newquist, 2017


(i)     Others


risks include;


The risk that QBE will manipulate their gross
premium and gross claimed expense in order to get better result on financial

There is a risk that company will understate
their outward reinsurance expense to manipulate the true and fair view of
financial statements.

There is a risk that company will manipulate
their current asset and current liabilities to get their ratio better to get
satisfaction of users., ASA 315, 2013


3.       Auditor’s Judgement on judgement of


In financial statements there are many areas
which is based on management’s judgement. Those areas cannot be calculated or
predicted with certainty due to some unforeseen circumstances therefore
management need to judge those figures to present in financial statements.


Auditor’s responsibility is to give their judgement
on those areas in the financial report that involved management judgement and
also check the reasonableness for the same. FRC, 2017


3.1. Areas involving management’s judgement:


areas in which management of QBE applied critical estimates, judgement and
assumption are as follow;financial report, QBE, 2017Annual report, QBE,


Net outstanding claims liability.

Liability adequacy test

Deferred income tax

Intangible assets


3.1.1.  Net outstanding claims liability:


net outstanding claim liability comprises the elements described below.


 • The gross telephone exchange estimate This
is the provision for expected time to come claim requital and includes claim
reported but not yet pay, call incurred but which have not yet been reported
(IBNR), claims incurred but not enough reported (known as IBNER) and estimated
claims handling costs.


 • Less sum of money recoverable from
reinsurers. Policy company may elect to purchase reinsurance cover to manage
their picture to any one claim or series of claims. When an insurance company
incurs a claim as a result of an insured loss, it may be able to recover some
of that claim from reinsurance.


Add a risk margin. A risk margin is added to reflect the inherent uncertainty
in the net discounted central estimate of outstanding report,
QBE, 2017Annual report, QBE, 2016


3.1.2.  Liability Adequacy Tests:


each year end, the company is required to evaluate the net premium liabilities
to ascertain whether the future claims could be paid or not.

difference between the net present value of expected future claims and net
premium liabilities will be recognized in profit and loss
report, QBE, 2017Annual report, QBE, 2016


3.1.3.  Deferred Income Tax:


difference between the accounting laws and tax laws upon recognition of income
would be recognized in balance sheet at each reporting
report, QBE, 2017Annual report, QBE, 2016







3.1.4.  Intangible assets:


assets are assets that have no physically existence. The significant categories
of QBE’s intangible assets are as follow;


Lloyd’s syndicate capacity

Customer relationship

Brand names

Insurance license


Goodwill. financial report, QBE, 2017Annual
report, QBE, 2016


3.1.5.   Others:

Management make judgement in the selection and
application of accounting policies that has very significant impact on the
amounts or figures presented or recognized in financial statements. Therefore,
accounting standards require disclosure of selected accounting policies and
auditors check the selection and application of that accounting policies in
that particular circumstances.


Management of QBE made estimation and
judgement about the expected claim to be settled in next financial year and
expected amount to be recovered from customer. Management also made judgements
about the fraud rate in which company will have to settle the fake claim.
Auditor need to judge and verify all the provisions made from the market
conditions, QBE’s past history and also from their potential of business

to Australian Accounting standards management will disclose all the estimation
made and assumption taken, to support their financial statements, for better
understanding of user and Australian Standards of Audit instruct auditor to
verify and check all the estimations and assumptions to give clear and fair
picture of financial position of the company to the users and other
stakeholders. Auditor’s judgement on specific areas involving management judgment
can have significant impact on the users and investor of the
report, QBE, 2017Annual report, QBE, 2016

4.       Effect on audit of significant event and


Events or transection that have very
significant impact on financial reports captures the attention of auditors and
auditors consider that events or transection areas of significant risks.

Usually auditors may have discussion with top
management or those charged with governance regarding those events or
transection during the course of audit.

These transactions may include transection
with related party, transection involving foreign currency, and transection
which are outside the normal course of business. The auditors pay attention on
the recognition criteria, measurement policy and disclosures of that events or
transection. Management have complex judgement on recognition, measurement,
presentation and disclosure of that events or transection that may alter
overall audit strategy and audit plan.




Detail of QBE’s related parties and dealings
with them are summarized below:


QBE operates a shared armed service center of
attention in the Philippines as a centralized business concern processing
center for the purposes of achieving operational effectualness and
standardization of operations and processes across the Group.


Since 2016, funding and Treasury Department
bodily function in the group have been managed via a Group treasury function
through the use of an Australian entity to manage kinship with the market.


The group of QBE is operating geographically
to get benefits from regional and global synergies. Head offices of group and
regions located in Sydney, London, Hong Kong operating on the basis of synergetic
to exploit the benefit of global scale, share knowledge and best conventions
for the interestof whole group.

Australian Standards of Accounting
requires disclosure of all related party, transection with related party, their
recognition and measurement criteria, significant assumption and estimates used
in preparation of financial statements in their final reports. Tax
transparency Report, QBE, 2016

5.       Recommendations:



Although Australian Accounting standards
instruct management of all companies to give appropriate disclosure regarding
every significant event, transections, assumptions, estimates in their final
report for the better understanding of users of financial statements and investors.
But many companies did not provide sufficient detail of required information
and hence effects the decision-making sense of users and investors.

In response of above scenario and due to lack
of disclosure by management on going concern as per ASA 570, Australian
Standard of Audit (ASA 701) counter the above problem. ASA 701 advice the
auditor to discuss the Key Audit Matters in their final audit report.

Key Audit Matters are those matters which are
in auditor’s opinion are of significant nature and should be in the knowledge
of users of financial statements. Audit report is considered as an authentic
report on company’s operations and financial position so auditor of QBE should
also adopt ASA 701 and bring important and significant matters in the attention
of users to strengthen their decision-making powers.

It will also enhance the degree of confidence
of users on the audit report and it will also exert pressure on auditors for
better execution of audit strategy and audit plan.

So due to significant matters in QBE’s
financial statements, judgement and assumption taken, and due to risk of
material misstatement and for better understanding of user, by Keeping all
these things in mind, the auditor of QBE should adopt ASA 701 in their audit
report for clear picture. ASA 701, 2015


















6.       References:


Our company QBE.2018. available at:


Financial reporting analysis and risk of
material misstatement available at:


Financial report of QBE is available at:


Australian Auditing Standard ASA 315 is
available at:


Detail of risk in insurance business like QBE
is available at:


Detail and concept about going concern is
available at:


Report of Financial Reporting Council about
significant assumptions is available at:


report of QBE for 2016 is available at:


Australian auditing standard ASA 701 is
available at:


(10)Detail of QBE’s related parties and
their dealing is available at:

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