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After acquiring the alias of Baba, you (as Ryu) are able to see Augus after defeating Dir. HR. He will tell you that fight with you and Kat is fix, that he will use poison barbs (and secretly you,) to take her (and you) down. His reason for this is to satisfy the coliseum's audience's entertainment, which would provided power for his God.
 
Depending on your actions, like having the timing to save Kat or not when the barbs start flying, you can have her in  your party, as well as Rand, when you confront Augus again,  who then transforms into a giant two-headed wolf demon, telling a vague description of his "master plan" before going into battle.  
 
After the battle, he tells the heroes that "It's too late. The seed is planted. Our God's world is coming, closer and closer..." and he then destroyed. Rand remarks that the reason he was so evil was because he was possessed by a demon.

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