By: Steve Patterson
Submitted: 2010-06-29 10:26:03 | Word Count: 916
Financial information of any company is an important source of functional information not only to the company itself but also to all the other stakeholders. Financial data can always be used to develop a strategic plan for the company and appropriate allocation of resources. It is therefore important that the process of financial auditing is free of errors and of high quality. This case study seeks to analyze the various important aspects that should be considered critically when performing a financial audit in order to gain crucial and relevant information that will add value and knowledge on issues related to risks that might be encountered during the undertaking and which might affect the perception of an auditor. Bendigo bank provides a case study that is important both corporate wise and academically. The bank is one of the leading financial institutions in Australia operating 350 branches in Victoria and Queensland including more than 190 community branches thereby providing an exceptional case study that is important in evaluating risks that may arise when conducting a case study. This case study will utilize both analytical and evaluation tools in considering the audit planning state aspects of the financial year ending 30th June 2010.
The bank has over the years established itself as a brand offering various financial facilities to help in the process of development across Australia. There are many occurrences in the company that have had direct impact on auditing. Contained in this paper are various major events that occurred during the 2009 financial year most specifically the period from 1st July to 31st August.
A major occurrence is when Bendigo bank was compelled to source for extra equity in the tune of $300 million from shareholders and other institutional investors due to the reduction in both the net profit and the dividends which had dropped by 15% and 37% respectively. The sourcing of the extra equity was not done publicly but was sought from selected individuals, institutions and other investors who were expected to raise a total of $173. The extra equity was projected to raise the tier ratio capital by a tune of 8.63% in terms of pro former and which would lead to an overall increase of capital by about 12.11%. Although such a move is taken for the best interest of the company it would depict the bank in a negative perspective as far as auditing is concerned.
There has been a reduction in the level of the profits imputed to the fact of a declining economy accompanied by a global recession. There is also an unprecedented plummeting in the official rate of cash in Australia as well as a funding cost of significantly high magnitude. This has led to a declaration of a 15% final dividend based on each share for the period 2008/09. This is anticipated to be franked at the rate of 30% whose payment is set for 30th September for the part of the investors with a full registration with regard to the company the 2nd September.
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The current prevailing global recession has also compelled the bank to adopt certain strategies in order to cushion itself and ensure survival. The demand for credit from the bank has been favorable over the year and as a result the bank saw the need to increase the number of staff. However recently it has become apparent that there is need to come up with some way to tackle the issue without causing unemployment or closing down some branches. The bank decided that employees would be required to go for an unpaid leave of up to ten days. However the employees were not of the same feeling and threatened legal actions against the bank if they were forced to take the leave. They advised that the unpaid leave should be purely voluntary. The bank later opted for the voluntary programme in order to reduce expenditure.
After the release of the update for the financial year ended June 30, 2009 it was apparent that the bank had responded in various ways as a result of the global financial crisis. The efforts to stay in business in the face of the financial crisis have definitely impacted negatively on the bank. The bank experienced a reduction in funding in terms of both retail and wholesale. The continued down ward trend of the net interest margin has been as a result of the residential assets like mortgages where the prices have not been adjusted. Further worsening the situation is the fact that the official cash rate is also reducing with roughly the same trend as the net interest margin. The fixed term deposits are also proceeding at a very slow rate. The overall result has been the reduction in interest rates which has tremendously reduced the equity. In normal economy situation a reduction in interest rate would lead to increase in credit demand, however due to the financial crisis the bank experienced a reduction in demand from specialized lending, third party mortgages and business lending businesses. Group credit has also remained very low. Therefore the additional security in this case also remains low. Up to the end of March the quality of margin lending credit remained low with no allowances given o write-offs whatsoever. In terms of capital an increase of 8.12 % was recorded during the time, however the total capital was by 10.75 %. The bank retaliated by issuing new ordinary shares but it only presented a slight difference in the group’s earning share performance.
