Audit Report of Constellation Resources Ltd.

This report analyzes the financial report of Constellation Resources Ltd. from an auditing point of view. It identifies key business issues and risks, performs financial performance analysis, and determines material account balances. The report also provides steps for auditing and a sample plan for material account balance testing.

Running head: AUDIT REPORT OF CONSTELLATION RESOURCES LTD.
AUDIT REPORT OF CONSTELLATION RESOURCES LTD.
Name of the Student:
Name of the University:
Author Note

1AUDIT REPORT OF CONSTELLATION RESOURCES LTD.
Table of Contents
Introduction................................................................................................................................2
Constellation Resources Ltd and its industry.............................................................................2
Key Business Risk......................................................................................................................3
Risk of Material Misstatement...................................................................................................5
Financial Performance Analysis................................................................................................5
Materiality..................................................................................................................................6
Material account balances..........................................................................................................6
Financial Report Assertions.......................................................................................................7
Audit Work steps for material account balance.........................................................................8
Sample plan of the audit.............................................................................................................9
Conclusion................................................................................................................................10
References and Bibliography...................................................................................................11

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Introduction
This report titled “Audit Report of Constellation Resources Ltd.” is prepared to
analyse the chosen company that is Constellation Resources Ltd from auditing point of view.
Constellation Resources Ltd is Australia based material company. The head office of the firm
is situated at Perth, Australia. Mainly, the firm operates under the metals and mining industry.
The main business of the firm is to produce the metals by performing extensive mining. This
is one of the well - known mining and metal company of Australia. The firm was founded in
2017 and operates as a diversified mineral exploration company. The firm mines and
produces several metals including nickel, gold and copper. The firm is new in the industry
but reporting a potential growth and expected to be profitable in the near future though firm
reported loss in the last year. The main objective of the report is to analyse the disclosures
made by the firm in their financial report by the auditing point of view to frame the audit
program for the firm. This report is prepared in the basis of the annual report published by the
firm for the year 2019. To fulfil the objective of the report, the report analyse the financial
report of the firm to identify is there is any material misstatement or not. The report also
analyse the business of the chosen firm as well as its industry to identify the key business
issues for the firm. After this, the report performs analytical procedures of the financial
statement reported by the firm in its annual report for the financial performance of the firm as
well as to determine the different material account balances disclosed by the firm in the
annual report 2019. Finally, report states the steps for the auditing and sample for the material
account balance testing.
Constellation Resources Ltd and its industry
Constellation Resources Ltd is an Australian firm which operates under the metals
and mining industry. The head office of the firm is situated at Perth, Australia. Mainly, the

3AUDIT REPORT OF CONSTELLATION RESOURCES LTD.
firm operates under the metals and mining industry. The main business of the firm is to
produce the metals by performing extensive mining. The firm was founded in 2017 and
operates as a diversified mineral exploration company. The firm mines and produces several
metals including nickel, gold and copper (Investi 2019). As this is a new firm in this industry
although firm reported the good potential and expected to grow further in their future. Not
only that Constellation Resources Ltd is also listed in the Australian Stock Exchange.
As mentioned in the very first line that Constellation Resources Ltd operates its
business in the metals and mining industry. The mining industry of Australian is developing
day by day as the Australia is full of the mineral resources. Hence, the both the industry and
the firm have the potential to grow in the future as the demands for the mineral resources is
increasing globally. The value of the minerals and metals also increased globally in the recent
past and expected to grow further in the near future. Hence, this can be said, the industry in
which Constellation Resources Ltd is operating have potential to grow and become a
successful firm in financial terms.
Key Business Risk
Although, the metals and mining industry is on of potential and growing industry, it
have some key business risk. In the recent time, the metal and mining industry of Australia
faces several risks some of them are follows. This can be consider as the key risks of metal
and mining industry of Australia as well as of Constellation Resources Ltd. those are: -
 Disruption time
There is the clear indication of the disruption in the Australian metal and mining industry.
The change in science, technology and in the business models are the reason behind the
disruption in the mining industry of the world (Fuisz-Kehrbach 2015). Secondly, the less
technology and the automotive industry also increase disruption in this sector.

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 Legal License
The biggest risk in this industry for the firm is the legal operating license. The firm need
to take permission from the several areas to operate the mining which requires too much time
and fund. As well as this licenses can be cancelled by the firm anytime as per the new
government policy or any small mistake made by the firm.
 Cyber security
This is another risk with the metal and mining industry of the entire world. In today’s day, all
the metal and mining firm are digital from its initial stage but the security of the cyber is
decreasing day by day (Dwyer et al 2016). The cyber in which the entire system of mining
runs is not properly secure which is another important risk of this industry.
 Increasing cost
The input cost in this industry is mainly depended in the inflation. Hence, at the time of
the higher commodity prices, the input cost of this industry become higher like cost of wages,
cost of energy. Further, the incremental charges of the industry also increases the cost of
production. These charges includes the complexity of the mines, uses of the technology or
changing the workforce plan of the firm.
 Cost of energy
This industry or the production of this industry require the high amount of the energy
consumption as the one third of the total cost of this industry is for the energy. Hence, the
cost of the energy is also a major risk for the industry (Bice 2016).
 Fraud

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The fraud and corruption is also a major risk of this industry that is observed in the
mining sector in last few time. The ability to deal with this frauds which mainly includes
contractor and suppliers has become more sophisticated in the current time.
 Portfolio returns
The return of this industry is potation only for the long term business. In the short term of
the business any firm is able to generate the revenue and any firm can do so then the firm will
not be competitive in the future (Söderholm and Svahn 2015).
Risk of Material Misstatement
The followings are the areas of the financial report reported by the firm for the year
2019 that have high risk of material misstatement: -
 Capitalisation of the exploration costs related to the Orpheus project
 Application of Impairment
The both the risk of the material misstatement is inherent risk by nature as these risks are
highlighted by the auditors in the auditors reports (Mališ and Novak 2016). While the
capitalization of the exploration costs related to the Orpheus project does not involve the
nature of the business while the application of impairment risk is because of the nature of the
business.
Financial Performance Analysis
Ratios 2019 2018
Return on total assets -1.73 -0.65
Quick ratio 53.93 0.72
Debt to assets ratio 0.00 0.16

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Current ratio 53.93 0.72
In the basis of the financial report of the firm for the year 2019, the firm is suffered
loss in its initial year that is 2018 and 2019. There is nothing more in the financial report of
the firm as the firm is newly started operating. Although, in the basis of the figure of annual
report of the firm for the year 2019, the profitability ration of the firm cannot be determined
as the firm reported loss in both the years (Investi 2019). In term of liquidity, the current as
well as the quick ratio of the firm reported the growth as the firm does not have any long term
liability till now. That means firm has high liquid money to operate its business. While, the
efficiency ratio of the firm is also not consider as the key indicator of the firm’s performance
as firm does not have any long term or the short term borrowing in the current year. Hence,
financial performance of the firm cannot be determined as per the basis of the financial report
but as per the financial report of the firm suggests the firm shows the good growth rate in its
initial years.
Materiality
The materiality of the balance is calculated in the basis of the amount of the risk
associated with those financial items. Basically, the planning of the materiality for
Constellation Resources Ltd involves 2 % of borrowings as firm does not reported any
borrowings in the current accounting period, 1 % on total assets, 2 % of net loss because it is
second consecutive years of loss reported by the firm and 3 % of shareholders equity
(Bumgarner and Vasarhelyi 2018). As the there is more chances of risk in the shareholders
equity and the gross profit of the firm.

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Material account balances
The following table shows the five material accounts and their balances that is related
to the Asset of the Constellation Resources Ltd: -
Assets Value of material
Property, Plant and Equipment (Non -
Current Assets)
$ 2165
Exploration and Evaluation Asset ( Non –
Current Asset)
$ 350000
Cash and Cash Equivalents (Current Assets) $ 5589116
Other Receivables (Current Assets) $ 44519
Prepayments (Current Assets) $ - - - - -
The following table shows the five material accounts and their balances that is related
to the Liabilities of the Constellation Resources Ltd: -
Liabilities Value of Material
Trade and other payables (Current
Liabilities)
$ 100925
Provisions (Current Liabilities) $ 3531
Borrowings (Current Liability) $ - - - - -
Financial Report Assertions
The followings are the main assertion of the audit that is related with all the above
assets and liabilities of the Constellation Resources Ltd: -

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 Completeness
The completeness assertion is that the firm must fully report all balances of the assets and
liabilities in their balance sheet of the financial report (Chou 2015). This assertion is
applicable in the assets and liability because it is very important for the company to report the
complete balance of the assets and liability in the financial report.
 Existence
This assertions is for that all the assets and liabilities reported by the firm must exists its
balance in fair manners. The reason behind considering this audit assertions with the assets
and liabilities of the Constellation Resources Ltd is to ensure that all the assets as well as the
liabilities reported by the firm must care the exact value which is reported by the firm in the
financial report.
 Right and obligations
This is for the right to the assets and obligation of the liabilities must be with the firm.
This audio assertion is consider because it is important to audit that the right of the assets and
obligation of the liability is really with the firm (Christensen et al 2016). In simple words,
firm really owns the asset which firm reported in the financial report or not.
 Valuation
This assertion is that all the assets and liabilities reported by the firm in the financial
report must carry its real value. Hence, to test the real valuation of the asset and liabilities,
this audit assertion is taken into the consideration.
Audit Work steps for material account balance
As the substantive approach is adopted for the audit of the assertions related to the
assets and liabilities. Here, the substantive approach means the procedures of collecting the

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evidence regarding the assertion, so that auditor can frame their opinion regarding the
material misstatement (Dinwiddie et al 2019). Hence, the following are the steps of the audit
works for both the assets and liabilities of Constellation Resources Ltd: -
Step 1: - Testing the transactions, disclosure and the balances: -
This is the first step of the substantive audit procedure in which audit tests all the
related transaction, balance of the transaction and the disclosures of the balances. This helps
the auditor to understand the each transaction made by the firm as well as this also help in
determining the fair value of the each transaction that is disclosed by the firm in their
financial report.
Step 2: - Accompanying notes to the financial statement: -
This is the second step in the substantive audit procedure in this the auditor agrees
with the balance of the materiality shown by the firm in their financial report and focuses into
the notes to financial report. These notes to the financial statement helps the auditors to
understand whether firm full fill the each requirement of the relevant accounting standards
while reporting the balances in the financial report or not.
Step 3: - Analysing material related journal entries: -
This is third and last step of the substantive audit procedure, in this auditors examines
all the material related journal entries as well as the other adjustments regarding the materials
which is performed by the firm at the time of preparing the financial statement (Dritsas and
Petrakos 2018). In this step the auditor cross verify all the aspects which he or she audited as
well as the firm reported in its financial statement.
Sample plan of the audit
Constellation Resources Ltd

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Australia
September 2019
Dear manner of Audit Department
Audit plan for the Constellation Resources Ltd for the year ended 30 June 2017
This audit plan is developed for the Audit Department, in the basis of the Australian Auditing
Standards. This Audit Plan will help to understand the consequences of our audit works for
the materiality issue of the asset and liabilities of the Constellation Resources Ltd.
The content of this report is related only to the matters which is mentioned above that we
believe need to be reported to you as part of our audit planning process. The main objective
of the audit is to analyse the risk associated with the assets and liabilities of Constellation
Resources Ltd and work as per the identified audit assertions.
We look forward to working with you during the course of the audit.
Yours sincerely
Mr X
ABC Ltd.
Conclusion
Lastly the paper concludes that Constellation Resources Ltd and its industry has many
business risk like cost of the energy, portfolio return, higher input cost and likes. The
financial performance of the firm cannot be properly determine as the this is a new firm and
information reported by the firm in their financial report is not sufficient to frame any opinion
regarding the financial performance of the firm although potential for growth reported by the
firm can be consider as good as well as it can be estimated that the firm has a good future

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growth. The firm has two areas with high material misstatement those are Capitalisation of
the exploration costs related to the Orpheus project and Application of Impairment. Hence,
the audit planning along with the steps for audit work is chosen in the basis of the above risk.

12AUDIT REPORT OF CONSTELLATION RESOURCES LTD.
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