Auditing Theory and Practice: Financial Analysis of Advale Resources

This report provides a comprehensive analysis of Advale Resources Limited, an exploration company based in Sydney, Australia, with operations in Indonesia and Australia. The report begins with the company's background, detailing its focus on coal and mineral exploration, particularly urani...Read More

Running head: AUDITING THEORY AND PRACTICE
Auditing theory and practice
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1AUDITING THEORY AND PRACTICE
Table of Contents
Background................................................................................................................................2
Product and services...................................................................................................................2
Market competition....................................................................................................................2
Regulatory environment.............................................................................................................3
Reference....................................................................................................................................5

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Background
Advale resource limited is the exploration company that is based in Sydney, Australia
and is expanding its business to Indonesia. The company is focussed on development and
exploration of the coal projects in Indonesia as well as in Australia. It holds 90% share in
Tapan project that is located in Padang of Indonesia. Further, the company has 100% interest
in Lake Uranium project with the licences for 3 explorations in northern part of Lake Frome
Embayment in South Australia. Apart from this it holds 40% joint venture interest in Advale
Harner Resources that is based in Indonesia. However, recently the directors of the company
concluded that the interests from Indonesian coal assets are no longer the appropriate asset
for the company to go forward. They stated that there is the likely and potential risk
associated with the ongoing litigation. However, discussion is going on for negotiations to
divest the asset for aggregate positive return to company. The company’s strategic objective
is to focus on its activities related to mineral exploration particularly for the uranium
exploration in Lake Project in South Australia (Adavaleresources.com 2018).
Product and services
The company continued with the focus on the development and exploration of coal
and various other mineral projects in Indonesia and is interested about the South Australia’s
Lake Surprise Uranium Project. The company has following projects –
 Lake Surprise – South Australia – this project includes Jubilee and Mookwarinna
prospects locations and lie in structural, shallow downwarp that is known as Clayton
basin.
 Advale Harner resources – Indonesia – resources at this project are allocated for
maintaining the PPA assets with application of new license and exploration of new
opportunities beyond coal. The management reviewed various opportunities in
various other mineral sectors like tin where it can offer attractive return to the
shareholders on their investment (Goldman and Johnson 2017).
 Tapan – Sumatra – Indonesia – this project is located in 120 km south of capital of
Padong

3AUDITING THEORY AND PRACTICE
Market competition
The company operates in the gas and oil industry that is conserved through the
continued reduction in the oil prices since the year 2014. However, the analysts from energy
sector projected negative growth for the upcoming years and overall negative rate of growth
for next 2 years. The industry under which the company operates is exposed to global as well
as domestic competition. However, the company undertakes all the reasonable due diligence
with regard to the business operations and decisions. Through the company will not have any
control or influence over the actions or activities of the competitors and the actions or
activities of the competitor may negatively or positively have an impact on the financial or
operating performance of company’s business and projects. The collapse of oil prices drove
the negative growth near about 40% in energy sector in past 5 years. Large businesses in the
energy sectors reduced their expenditure growth by more than 40% from the collapse and
further reduced the headcount by approximately half million employees. Advale lags with the
sustained negative earnings since last 2 years and the company looked unstable with lack of
coverage by analysts that further lacked the confidence for the stock of the company. This
lack for transparency and growth forced the company to trade at cheaper rates as compared to
the competitors. The gas and oil industry was trading at the PE ratio of 11x lower as
compared to the broader of Australian stock market that was trading at the PE of 17x (Beck
and St 2017). It states that on an average the industry was undervalued than the wider market
that led to the potential of mispricing opportunity. The value of Advale was also assumed to
be in line with the industry.
Regulatory environment
The company complied with the company’s recommendation 4.2 of ASX
recommendation and the financial statements are complied with the requirements of
Corporation Act 2001 and Corporation regulations. In number of countries legal institutions
and framework are not enough robust for protecting the rights regarding the intellectual
property of the organization. Therefore, the company shall evaluate carefully before entering
the market as it may results into theft of the company’s secret and the overall edge for
competition (Orris et al. 2013). Some of legal factors that Advale resources considers before
entering the market are Discrimination law, Anti-trust law for the energy industry and the
overall law of the country, Safety and health law, Employment law, Protection of data, E-

4AUDITING THEORY AND PRACTICE
commerce and consumer protection and Intellectual property, patents and copyright law
(Gorton 2016).
Further the political factors have significant role for determining the factors that have
impact on the operation and long term profitability of Advale Resources Limited while
carrying on its business in some markets or countries (Expenditure and Price 2016). The
company is operating in the energy sectors in different countries and is exposed to various
types of political system and environment risks. However, the company shall closely analyze
the below mentioned factors before investing or entering in any particular market are
importance and political stability of the energy sector in that particular country, Military
invasion risk, Tariffs and trade regulations associated with energy sector, Incentives and tax
rates of that country, Regulations related to industrial safety in energy sectors, Labelling of
product and various other requirements for the energy sectors, Wage legislation that is
overtime and minimum wages, Favoured partners in trading, Work weak regulations in the
energy sector, Corruption level – particularly the regulation level in the energy sector, Legal
framework for the purpose of contract enforcement, Protection of intellectual property,
Mandatory benefits to the employees, Interference and bureaucracy in the energy industry by
the government (Haworth 2017).

5AUDITING THEORY AND PRACTICE
Reference
Adavaleresources.com., 2018. Adavale Resources. [online] Available at:
http://www.adavaleresources.com/ [Accessed 8 May 2018].
Beck, G. and St., S. (2017). Is Challenger Energy Limited (ASX:CEL) An Energy Industry
Laggard Or Leader?. [online] Finance.yahoo.com. Available at:
https://finance.yahoo.com/news/challenger-energy-limited-asx-cel-205510148.html
[Accessed 10 May 2018].
Expenditure, I. E., and Price, O., 2016. Bureau of Mining and Petroleum-Queensland
Department of Natural Resources and Mines.
Goldman, M. and Johnson, R.L., 2017. Methodology for assessing original gas in place and
estimated ultimate recovery from a tight marine formation using hydraulic fracture
stimulation modelling. The APPEA Journal, 57(1), pp.136-149.
Gorton, J. Australian onshore petroleum acreage release 2016. The APPEA Journal, 56(1),
495-504.
Haworth, J., 2017. Australian onshore petroleum acreage and releases 2017. The APPEA
Journal, 57(2), 345-352.
Orris, G.J., Dunlap, P., Cocker, M.D. and Wynn, J., 2013, October. Challenges and
Approaches to Assessing Industrial Minerals—The USGS Global Potash Assessment
Databases. In 2013 GSA Annual Meeting in Denver.