Analysis of Key Audit Matter in Independent Report of Auditor for Top 100 ASX Listed Mining Companies

This article provides an analysis of the key audit matter (KAM) reported in the independent reports of auditors for the top 100 ASX listed mining companies. It discusses the KAMs reported by companies such as Alumina Limited, BHP Group Limited, Bluescope Steel Limited, and more.

Running head: AUDITING AND ASSURANCE
Auditing and assurance
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Table of Contents
Introduction......................................................................................................................................2
Analysis of key audit matter (KAM) in independent report of auditor for top 100 ASX listed
mining companies............................................................................................................................2
Alumina Limited..........................................................................................................................2
BHP Group Limited.....................................................................................................................3
Bluescope Steel Limited..............................................................................................................3
Evolution Mining Limited...........................................................................................................4
Fortescue Metals group................................................................................................................5
Newcrest mining..........................................................................................................................5
Orica Limited...............................................................................................................................6
OZ Minerals.................................................................................................................................8
Rio Tinto......................................................................................................................................8
Conclusion.....................................................................................................................................10
Reference.......................................................................................................................................11

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Introduction
ASA 701 deals with auditor’s responsibility for communicating key audit matters in
auditor report. It intends to address auditor’s judgments regarding what need to communicate in
the report of the auditor and content as well as form of such communication. Major purpose of
key audit matter communication is enhancing communicative value of auditor’s report through
delivering greater transparency regarding the performed audit (Auasb.gov.au 2019).
Communication of key audit matter delivers additional information to the intended financial
report users for helping them to understand those matters those were of most significance as per
the judgment of the auditor. However, the key audit matter communication is not the substitute
for the disclosures in financial report that is required to make by the management or that is
required for achieving the fair presentation. Moreover, it is not substitute for auditor expressing
the modified opinion whenever required by circumstances of particular audit engagement in
compliance with ASA 705 (Auasb.gov.au 2019).
Analysis of key audit matter (KAM) in independent report of auditor for top 100 ASX
listed mining companies
Top ASX listed companies and KAM reported in their financial report are detailed below –
Alumina Limited
Key audit matter is represented under the heading of independent auditors report. Various KAM
reported by the auditors are as follows –
 Equity accounting for the company’s investment in AWAC – the company’s equity
accounted investment in AWAC is reported at $ 2.1 billion whereas the current year’s

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share for using the equity accounting method is only $ 653.5 million. The auditor
assesses equity accounting for the 40% investment of the entity in AWAC and the
appropriateness of equity accounting approach is considered (Edocumentview.com.au
2019).
 Impairment for equity accounted investment – the entity’s equity accounted investment in
AWAC amounted to $ 2.1 billion is having the maximum amount of balance sheet item
under the consolidated financial report. For this KAM the auditors developed the
understanding of procedure through which the entity conducted assessment for
impairment indicator (Edocumentview.com.au 2019).
BHP Group Limited
Key audit matter is represented under the heading of independent auditors report. Various
KAM reported by the auditors are as follows –
 Presentation classification and valuation of the Onshore US assets – the company taking
into consideration the divestment procedure at close of the year disclosed the Onshore US
assets as held for the purpose of sale and reported the result of business as the
discontinued operation. The auditor tested the key controls over valuation, presentation
and classification of Onshore US assets including the charges for impairment (Bhp.com
2019).
 Samarco – various complex judgments as well as disclosures made by the entity
regarding Samarco dam failure. Auditors tested the key controls over accounting as well
as disclosures related to dam failure (Bhp.com 2019).

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Bluescope Steel Limited
Key audit matters reported by the auditors are as follows –
 Carrying value of the equipment, plant and property – the company tests goodwill for
impairment on annual basis and other non-current assets are tested when there is
indication of impairment. The company performed testing for mathematical accuracy,
discounted cash flow model and the analysis of assumption as well as the methodologies
used by the entity (Bluescope.com 2019).
 Accounting for taxes – it was considered as KAM as the assessment procedure is
complicated including uncertainty estimation and involvement of significant amount.
Auditors performed the procedure including testing for mathematical accuracy of the
calculation done by the company (Bluescope.com 2019).
Evolution Mining Limited
Key audit matters reported by the auditors are as follows –
 Asset valuation for the assets held at Cowal and Mungari – the company reclassified $
90.5 million from the plant, property and equipment to the Mine development that
resulted into amortization of additional $ 2.9 million for mine development. The auditors
went through the valuation reports and considered the method applied by external valuer
(Evolutionmining.com.au 2019).
 Assessment of asset’s carrying value – dated on 30t June 2018 the company held the
mine development for the amount of $ 1,744 million and the plant, property and
equipment amounting to $ 572 million. The auditor compared current year gold price

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with the US$ gold prices at the time when impairment took place and compared present
forecast for gold prices at the time when impairment (Evolutionmining.com.au 2019).
Fortescue Metals group
Key audit matters reported by the auditors are as follows –
 Revenue generated from sales of iron ore – for the year closed on 30th June 2018 the
company reported revenue amounted to $ US$ 6,775 million from sales of iron ore. This
was considered as KAM as the revenue generated from the sales of iron ore is most
significant balance under the consolidated income statement. The auditor selected the
samples for sales contract that was open on the date of balance sheet and inspected the
same as well as assessed the key terms of sales including volume of duration and sales for
any provisional period. For the sample selected provisional adjustments for pricing were
recalculated to find out the consistency with the reported amount (Fmgl.com.au 2019).
 Carrying value of the evaluation and exploration assets – the company at 30th June 2018
reported US$ 857 million as evaluation and exploration assets it was considered as a key
audit matter as recognition this item as an asset on continuous basis requires judgment by
the company regarding likelihood of the recovery through sale of the asset or future
exploitation. The auditors assessed whether the accompany had right of the tenure to the
evaluation and exploration asset on sample basis and whether the ongoing evaluation and
exploration activities existed for supporting continued capitalization of the assets as per
the accounting policies of the company (Fmgl.com.au 2019).
Newcrest mining
Key audit matters reported by the auditors are as follows –

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 Assessment of the non-current assets carrying value – consolidated financial statement of
the entity dated 30th June 2018 reported $ 8,156 million for property, plant and equipment
and $ 42 million for other intangible assets. The company assess for impairment while
there is any indication of impairment for particular asset or for cash generating unit. The
auditor with regard to this analysed the assessment made by the company regarding
indication of impairment or regarding impairment reversal. Further the computation of
recoverable amount for each of the CGU is analysed. Further, with the involvement of the
valuation specialists the company assessed reasonableness of board regarding approval of
cash flow projections value prescribed to the unmined resources, potential exploration
and assumption regarding key macro economic factors used for the impairment purposes
(Newcrest.com.au 2019).
 Taxation – the company operates under multiple jurisdiction of taxation. Matters
regarding international income tax involved significant judgments owing to the complex
regulatory as well as legislation requirements. Auditor with regard to this examined tax
assessment and the relevant correspondence those are received from ITO. Further, the
auditor assessed additional tax payment made by the entity to ITO through examining
correspondence with ITO as well as with the tax returns (Newcrest.com.au 2019).
 Provision for mine rehabilitation – the entity has obligation towards rehabilitation for
restoring as well as rehabilitation of land and the disturbance of environments created
through mining operations including the development as well as exploration activities.
Regarding this mater the auditor analysed calculation of the entity for mine rehabilitation
provisions at each of the mine (Newcrest.com.au 2019).

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Orica Limited
Key audit matters reported by the auditors are as follows –
 Carrying value of the goodwill linked with Latam and Minova segments – this was
considered as the KAM considering its balance sizes and recent performances of
mentioned segments the auditor exercised the significant judgements for evaluation of
available audit evidence. Regarding this the auditor considered appropriateness of value
in use approach that is applied by the entity for performing annual impairment test for the
goodwill against requirement of accounting standards (Orica.com 2019).
 Provision for environmental as well as decommissioning – estimation regarding
environmental decommissioning as well as remediation provision is considered as KAM
due to inherent complexity related to estimation of remediation cost, specifically for the
potential contamination of the ground beneath that was established structures as well as
the long term matters related to legacy. Regarding this the auditors tested the controls
associated with completeness of the entity’s identification of the areas that contains
contamination and associated measurements and recognition provision including the
authorisation and review of cost estimates (Orica.com 2019).
 Uncertain position for tax – the entity operates under global tax environment and the
corporate structure reveals nature of the global operations that is driven by the
transaction, acquisition and execution of the global strategy of the entity. Regarding this
the auditors tested the control of the entity for assessment as well as identification of the
uncertain tax positions. Testing by the auditors included the challenging senior
management and taxation department of the entity as well as the inspection correspondent
with the tax authorities. It further included the external tax advisor of the entity regarding

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evidence of the considerable position for uncertain tax that is bot recognised by the
controls (Orica.com 2019).
OZ Minerals
Key audit matters reported by the auditors are as follows –
 Acquisition accounting with regard to purchase of the Avanco Resource Limited – during
the year 2018 the company purchased Avanco Resource Limited along with the entities
controlled by it. This is considered as KAM owing to the size of acquisition and its
impact on the financial report. Further, significant judgement required by the entity to
determine provisional fair value of the acquired rights of minerals on the basis of
information available. Regarding this the auditor read the bidders statement for getting an
idea regarding the used methodology for acquisition accounting against the requirements
accounting standards as well as the industry practice (Ozminerals.com 2019).
 Valuation for Low Grade Gold Ore Stockpiles – here significant judgments required to be
applied by the entity in assessing value of low grade gold ore that will be associated with
the copper ore that is to be mined in future for producing concentrates. Regarding this the
auditor tested the valuation procedure of the entity for valuing Low Grade Gold Ore
Stockpiles including price of commodity, rate of foreign exchange and grade of approval
(Ozminerals.com 2019).
Rio Tinto
Key audit matters reported by the auditors are as follows –
 Impairment – the entity has intangible assets with finite lives amounting to total US$
1095 million and the equipment, plant and property amounted to US$ 56,361 million

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dated at 31st December 2018. Charges of impairment to both of the categories of
mentioned assets have been reported in previous year. Determining whether the
impairment or the reversal of impairment exists is matter of judgement. Regarding this
the auditor satisfied themselves with the appropriateness of the identification made by the
management regarding CGU of the group and continued its operation of satisfaction
through analysing the key controls of the entity on the process of impairment assessment.
Further, the auditors evaluated the assessment made by the management regarding
indications of impairment along with indication of impairment reversal including the
conclusion that was reached upon (Riotinto.com 2019).
 Restoration, provision for the close down and environmental obligations – the entity
reported US$ 9,975 million as at 31st December 2018 for the Restoration, provision for
the close down and environmental obligations. Computation of the above mentioned
provisions requires the management in estimating timing and quantum of the future costs,
specifically with regard to unique nature of each of the site, association of long time scale
and potential for related obligations. Regarding this the auditors assessed the process
applied by management for reviewing the closure provisions and carried out the detailed
testing for the reporting units that reported the movement in the closure provision
(Riotinto.com 2019).
Main purpose of KAM is addressing both judgement of the auditor as well as what needs
to be communicated in the auditor report and content as well as form of such communication.
While determining the KAMs the auditors considers the areas for material misstatement,
identification of significant risks and identification and assessment of risks for material
misstatement though understanding the organisation as well as its environment. Hence, KAM

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provides additional users to the users regarding the involvement of key risks in audit of the
financial statements for the listed entities and how the matters are addressed by the auditors
during the course of audit. The investors expect continuous updates regarding the key financial
issues of the entity that will help them in taking investment related decisions (Auasb.gov.au
2019). Hence, suck KAMs those are available through the company’s annual report will
definitely provide the users with more clear and transparent information.
Conclusion
From the above discussion it can be concluded that inclusion of KAM in the auditor’s
report will improve the reporting on the going concern assumptions and will provide more
transparent information to the users that will help them to take better and informed decisions.
However, the auditors are required to apply their professional judgments, experience in
identifying the KAM that have significant impact on the financial performance as well as
financial position of the entity. Analysing above mentioned all top 100 ASX listed mining
companies it is found that in case of all the entities the auditors mentioned the key audit matters
as per their judgments along with the procedures applied by them for addressing those issues.
Hence, the auditors in all the cases complied with the requirement of ASA 701 regarding
reporting KAMs.

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Reference
Auasb.gov.au. 2019. [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_701_2015.pdf [Accessed 14 May
2019].
Bhp.com. 2019. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 14 May 2019].
Bluescope.com. 2019. Suppliers - BlueScope Corporate. [online] Available at:
https://www.bluescope.com/suppliers/ [Accessed 14 May 2019].
Edocumentview.com.au. 2019. eBook Viewer. [online] Available at:
http://www.edocumentview.com.au/AWC_AGM_2019/2019/160419/index.html?
voting=false#d=3&p=99&m=1 [Accessed 14 May 2019].
Evolutionmining.com.au. 2019. [online] Available at: https://evolutionmining.com.au/wp-
content/uploads/2018/10/1858627.pdf [Accessed 14 May 2019].
Fmgl.com.au. 2019. [online] Available at: https://www.fmgl.com.au/docs/default-source/annual-
reporting-suite/fy18-annual-report.pdf [Accessed 14 May 2019].
Newcrest.com.au. 2019. [online] Available at:
https://www.newcrest.com.au/media/annual_reports/Newcrest_Annual_Report_2018_1.pdf
[Accessed 14 May 2019].

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Orica.com. 2019. Orica Company Reports. [online] Available at:
https://www.orica.com/Investors/company-reports#.XNphrhQzbIU [Accessed 14 May 2019].
Ozminerals.com. 2019. OZ Minerals | A modern mining company. [online] Available at:
https://www.ozminerals.com/ [Accessed 14 May 2019].
Riotinto.com. 2019. [online] Available at:
http://www.riotinto.com/documents/RT_2018_annual_report.pdf [Accessed 14 May 2019].