Introduction to Auditing Theory and Practice

Added on - 28 May 2020

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Running head: AUDITING THEORY AND PRACTICEAuditing Theory and PracticeName of Student:Name of University:Author’s Note:
AUDITING THEORY AND PRACTICE1Table of ContentsIntroduction......................................................................................................................................2Risk Analysis...................................................................................................................................2Evaluation of risks and control environment...................................................................................4Interest Coverage Ratio Analysis....................................................................................................7Conclusion.....................................................................................................................................11References......................................................................................................................................12
AUDITING THEORY AND PRACTICE2IntroductionRioTinto founded in 1873 is considered as one the leading multinational among theworld’s largest metal and mining industries. The primary focus of the company is identified interms of extraction of minerals. Some of the other activities performed by the company includesrefining of the bauxite and iron ore. The operations of the company are spread across continentswhich are mainly concentrated in areas of Australia and Canada however the mining operationsis distributed in holy and partly owned subsidiaries various other parts of the world. Thecompany has been further identified as a dual listed company which trades on both “Londonstock exchange” under the “FTSE 100 index” and “Australian securities exchange” under “S&P/ASX 200 index”. The study aims to analyse the inherent risk along with control measure of RioTinto and compare the same with BHP Billiton (Li, Simunic & Ye, 2017).Risk AnalysisInherent RiskControl MeasuresStrategic Risk-The company enforcescapital allocation as per the best suitedreturning opportunities. The ability tosecurely plan the values through successfuldivestments and acquisitions may varythereby affecting future performance,solvency, liquidity, group reputation andbusiness model.The group has encompassed complete detailsabout the material potential divestments andacquisition which includes commercialreview, functional sign-offs, technical review,and opinion of investment committee (Niemiet al., 2017). It has further supported thebusiness resource development team byexternal specialists. Rio Tinto has ensuredeffective stakeholder management via projectdevelopment and following a rigorousapproval process which includes “stage-gating process, monitoring and statusevaluation, as articulated in Project evaluationstandardand guidance”.HSEC Risks- As per the depiction of annualreport published in 2016 the operations at RioTinto is inherently dangerous and may facefailure to manage “health, safety, environmentor community risks” which may lead todetrimental effect in the long term. This mayalso question on the licence to operate andfinancial performance of the company. Someof the recognised risk factors includeThe mitigation of HSEC risks are identified asthe core priority all the operations which isoverseen by the sustainability committee(Chen et al., 2016). The company clearlydefines the groups HSEC performancestandards, strategy and policy as definedunder this committee. In addition to this, RioTinto regularly reviews the HSEC processesfor training, controlling, promoting, and
AUDITING THEORY AND PRACTICE3“undergroundoperations, aviation, pit slope instability,tailings facilities, vector-borne and pandemicdisease, chemicals, gases and vehicles”.improving the overall effectiveness of non-managed operations.Resources Risks-Rio Tinto is recognised tosubstantially invests in materially accurateoperations and projects. However, theestimates of ore reserves are completelyuncertain in nature (Cohen, Krishnamoorthy& Wright, 2017). The failure to identify newviable over bodies may be catastrophic to thefuture growth prospects. The risk that futureinformation comes to light or economicviability of the mine plans may be restateddownwards. Due to this the project may beless successful and have shorter duration thanit was initially forecasted thereby leading toasset impairment.The group is recognised to comply with theresource and reserve standards therebyrecruiting and retaining experienced personalfor the same (Contessotto & Moroney, 2014).Furthermore, the group has been able toprovide stable funding for differentexploration activities and therebycontinuously prioritise the portfolio. It hasfurther utilised new technologies whereverappropriate and manage third-partypartnerships. There has been substantialcoordination with the knowledge of ore bodythrough the active group wide leadershipForum of the company.Operations, projects and people risks- Thecompany aims to achieve commercial andoperational experience to bring in and retainsome of the most eminent people in theindustry (Ruhnke & Schmidt, 2014). Theoperational difficulties such as interruptionsto infrastructure for power, transportation,water, industrial dispute and several otherbottlenecks in the value chain is identified asthe main risk factor. Moreover, cyber breachincident in the operational and commercialsystem may lead to significant loss of data. Inaddition to this, operational incidents such asfailure of safety process or waterimpoundment can lead to adverse situations.Rio Tinto is responsible for preservinggeographically diverse portfolio therebyputting a limitation on the physical nature ofdisruptions such as logistical events or singleinfrastructure events (Miran, 2017). Thecompany is further able to comply withtailings management, underground miningprocess, safety standards and slopegeotechnical which are supported by subjectmatter experts reduce the overall risk impact.Rio Tinto is seen to comply with ITinfrastructure and security controls which aresuggested by dedicated cyber security team.Shareholder Risks -There may bepossibility that the joint venture partners mayaffect the growth aspect by not agreeing onthe investment decisions. The nonmanagedoperations and the controlling partners mayreact on contrary to the group’s interests,policy or standards which may have adverseimpact on health and “safety, performance,cyber integrity, reputation or legal liability”.In order to combat of the aforementionedrisk, the company has approached with long-term relationship in terms of investments andpartnership (Ghosh & Jarva, 2016). Rio Tintohas maintained a strong focus on the contractmanagement and undertaking rigorous third-party due diligence (Han et al., 2015).
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