Auditing and Assurance 13: ASA 701, Mining Industry Analysis

This report focuses on Auditing Standard ASA 701, specifically addressing the communication of Key Audit Matters (KAM) in audit reports by independent auditors. The primary objective is to analyze the rationale behind ASA 701, considering its application within the mining industry and companies listed on the Australian Stock Exchange (ASX). The report examines KAM for several mining companies, including Alumina Limited, BHP Group Limited, Bluescope Steel Limited, Evolution Mining Limited, Fortescue Metals Group, Newcrest Mining, Orica Limited, and OZ Minerals. It delves into the specific key audit matters identified for each company, such as equity valuation, asset impairment, and closure provisions, offering insights into the complex accounting judgements and financial reporting considerations within the sector. The report highlights how auditors assess and communicate significant matters to stakeholders, ensuring transparency and providing investors with crucial information regarding the financial health and operational risks of these mining entities.

Running head: AUDITING AND ASSURANCE
Auditing and assurance
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Executive summary
Purpose of the task is concentrating on ASA 701 regarding communication of key audit matter
(KAM) under the audit report provided by independent auditor. Major purpose of this is the calls
made by the shareholders for gaining more information regarding they entities they are intended
to invest. The task will hence, research on the rationale in context of ASA 701. It will consider
mining industry and the entities under this those are listed under ASX. The primary objective of
KAM is addressing the resultant factor of the auditor from audit that has been done. It also refers
what is content and communicating indicators. The auditor must determine the all the relevant
information which has communicated during the year.

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Table of Contents
Introduction......................................................................................................................................3
ASA 701..........................................................................................................................................3
Analysis of Key audit matter (KAM) for the selected mining companies......................................3
Alumina Limited..........................................................................................................................3
BHP Group Limited.....................................................................................................................4
Bluescope Steel Limited..............................................................................................................4
Evolution Mining Limited...........................................................................................................5
Fortescue Metals group................................................................................................................5
Newcrest mining..........................................................................................................................6
Orica Limited...............................................................................................................................6
OZ Minerals.................................................................................................................................6
Rio Tinto......................................................................................................................................7
Conclusion.......................................................................................................................................8
Reference.........................................................................................................................................9

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Introduction
For a long while, the investor has been encompassing that they want an audit file to adopt
the technicality about the audit process. Hence, consequently, the paper of KAM was created. In
this concern, the auditor needs to clarify a separate segment of the audit report, which contains
the auditors' professional judgement. It is the most justified section in the audit of the financial
statement for the current period (Legislation.gov.au 2020).
ASA 701
The AUASB provide auditing standard ASA 701 regulating KAM in the independent
auditor’s section. It requires legislative provision and strategic decision-making. Introduction of
ASA 701 represents commitment of AUASB towards conformity with recent enhancement to the
auditor reporting that is established by IAASB. Major features of new standards include (i)
commanding communication for KAM under the report of auditors for the audit of listed firms
(ii) allowing the auditors from other organisations for deciding whether to add up KAM under
the auditor’s report (Legislation.gov.au 2020) (iii) the way in which the KAM is determined for
determining communicated matters with those charged with the governance in context of the
matters those require noteworthy attention from the auditors, determining notable matters to
include the same under reports of auditor (iii) documentation required for audit associated with
KAM (iv) circumstances under which the matters determined to be regarded as KAM is not
conversed under report of audit.
Analysis of Key audit matter (KAM) for the selected mining companies
This study describes the key audit matters for some of the Australian stock exchange
listed mining companies as follows:
Alumina Limited
 Describing the equity, the investment of Alumina Limited in AWAC is valued of $2.1
billion. In addition to the share of profit during the current year is $653.5 million by
approaching the equity accounting technique. The equity accounting method, which
project a similar accounting standard. As per the rules of Alcoa of Australia Limited
(AWAC entity) already prepares financial information hence no confirmation is required.
The financial information of AWAC entities, which follows US Generally Accepted
Accounting Principles (US GAAP), require a conversion to comply with AAS
(Aluminalimited.com 2020)
 The valuation of equity accounting is a fundamental audit matter because of the
expansion of the investment in the balance of associates. The adjustments, which is
reconcile by the group to convert into amounts that would be accounted for under US
GAAP to AAS. The equity-related investment of Alumina in AWAC is the most essential
in the balance sheet item in the consolidated financial report.
 The assessment of impairment indicator for Alumina Limited’s owners’ capital related
allocation in AWAC 2.1 billion. It is very essential factor for the balance sheet item at the
financial report in a consolidated manner. The financial measurement, which was
performed by Alumina to calculate whether there, was any objective indicators in equity
related investment in AWAC (Aluminalimited.com 2020)

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BHP Group Limited
Key audit matters addressed result based on a certain performance which has been
undertaken in the matter of financial statement audit, which derives: Assets held for sale $11.9
billion, Liabilities held for sale $1.2 billion, Loss after taxation from discontinued operation $2.9
billion. The KAM of the selected company are as follows:
 Samarco dam failure: Loss allocated to the dam failure of $1.0 billion and the provision
of $1.9 billion. It gives some numbers of complex accounting judgements, which
includes ddetermine the valid status of claims against Samarco. Determine the extent of
the organization, which has obligations to provide funding, and the dimension of that
obligation in line. It mostly requires Government agreement, Framework Agreement and
preliminary agreement, Contingent liabilities provides some disclosure which is
associated with the different types of claims and other stance that represent exposures to
Samarco and BHP, which was not be determined (Bhp.com 2020).
 Impairment charges of the non-current assets: The property, plant and equipment valued
$68.0 billion, impairment of property, plant and equipment that was pre-tax valued $0.3
billion. Group’s fixed assets were $3.1 billion. It represents to perform the test of
impairment of all assets including BHP group and its all subsidiaries, where there is an
indication of assets impairment. The company evaluate an estimated cash flow for the
near term for each of its cash regulating units. The organization has determined that there
was a projector of impairment for the Jansen CGU and thus it is calculated the
recoverable value comparing with its carrying value (Bhp.com 2020)
 Closure and rehabilitation provision was $7.0 billion. The maximum of the company’s
assets are extended life, which determines the uncertainty related to cash flow in future.
The size of the termination and rehabilitation provisions that are very justified related to
the financial position.
 The company’s income tax expenses $5.5 billion, non-current deferred tax assets $3.8
billion and the current tax payable $1.5 billion. The company has operated in various
countries with its indigenous tax regime The US tax reforms significantly change US
corporate tax law by degrading the corporate income tax rate to 21%, following a
regional tax system, Broadening the tax base, Income tax expenses $7.0 billion, Current
tax payable: $1.8 billion (Bhp.com 2020)
Bluescope Steel Limited
Key audit matters of the above selected company prepared by the auditors are as follows:
 Holding values of property, plant, equipment and intangible assets are needs to be audited
as per Australian Accounting Standards. The company evaluates its goodwill value for
impairment and evaluates other non-current assets for its impairment as well. To
determine the recoverable value by the discounted cash flow model is to be estimated.
The group has recorded a changing impairment charges to the property, plant and
equipment value of the cash-generating unit (CGU) of Australian steel products totaling
of $216 million as at 30thjune 2018. The carrying value of PPE and intangible assets is
very significance in the matter of audit. The impairment assessment process such as
forecast foreign exchange rates, steel products coal pricing and iron ore that are affected
by the future market and economic manifesto (Amazonaws.com 2020).

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 The organization’s income and deferred tax position is at the complexity and estimation
of risk around the utilization of tax losses and the calculation of tax balances in the
jurisdiction under the group.
 The group recorded an impairment charges during the financial year relating to the assets
of the buildings ASEAN CGU totaling $8 million. The asset values were written down to
its recoverable value because of the reduction in future forecast earnings and the Group’s
decision to close this business (Amazonaws.com 2020)
Evolution Mining Limited
Followings are the key audit matters to the Audit Committee:
 A current year balance sheet reflects $90.5 million from property, plant and equipment.
Current year recognize 2.9 million as the mine development amortization
(Evolutionmining.com 2020).
 Reduction income tax expenses $22.7 million for the current year has been accounted.
 During the year the group was adopted a new revenue accounting policy because of the
mandatory definition of AASB 15 Revenue for covenants with customers. This recent
policy was a matter of key audit because of the interpretation of the revenue in the
financial report, there is certain complexity involved in AASB15, which is required for
the bespoke nature of terms and condition.
 Assessment of the holding value of the assets is a matter of audit. At 30June 2019, the
company has constructed a mine up-gradation and exposing the assets of $1672 million
and property, plant and equipment of $557 million. As per the requirement of AASB 136,
the entity has evaluated whether there is a justification that the assets have to be impaired.
(Evolutionmining.com 2020)
Fortescue Metals group
The key Audit Matter from the individual audit reports are:
 The selling value of the Group included the shipping services, which may provide
provisional pricing of sales while the product to the vessel with the final determined
price. The group referred the revenue of $1087 million at the end of 30June 2019. It is
adjusted with the iron ore revenue and $37 million was adjusted with the shipping
revenue (Fmgl.com 2020)
 The final pricing adjustments draw a justified balance within the consolidated income
statement. The final settlement price is to be determined for the consideration of sales.
The revenue will be adjusted with tonnes. It is subjected to the price finalization at the
end of the period.
 Rehabilitation and restoration obligations – The Company has recognized some
provisions for restoration and rehabilitation charge of $706 million. This was a key audit
matter. The determination of these provisions, which requires a proper judgment by the
group to, justified the extension of the possible works, which requires removal of
infrastructure, future cost of performing and rehabilitation works. To determine the cost
the auditor’s judgment is required (Fmgl.com 2020)
Newcrest mining
Key Audit Matters related to matters contain in the individual audit report, which shows
for the selected company:

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 Group’s financial position including property, plant and equipment of $7,816 million and
other intangible assets valued of $33 million. The company policy assesses by the
indicators of impairment for every cash-generating unit (CGU) (Newcrest.com 2020)
 The carrying value of the Lihir and Telfer CGUs aggraded their fair values, it requires
further analysis. The company has performed an impairment test for this CGUs and the
Gosowong CGU. There is no impairment charges. It has to be also considered if earlier
impairment of the Lihir CGU assets, except goodwill, must be abolished, noting that the
impairment reversal was not required.
 The Group also referred if the impairment of the Lihir CGU assets, except than goodwill,
must be reversed, suggesting that an impairment reversal was not needed.
 The company has obligations to restore and rehabilitate land and environmental
disturbances by the some mine operations and exploration activities. It would be
determined through the regulatory and legislative requirements (Newcrest.com 2020)
Orica Limited
Key Audit Matters are as follows:
 The group has recognized a diminishing charge of $155.0 million within the financial
year. The group’s carrying value assessment of PPE associated with the Burrup Plant. It
is audited due to the size of the holding value of the plant, company’s quantification of
the $155.0 million write down of defective equipment. Costs to replace the defective
equipment like labor, contractors and materials. This is very complex to determine. The
timing and the rectification of the work needed some group’s strategy (Orica.Com 2020).
 A number of group’s tax positions are currently subjected to tax authorities. Accounting
of the uncertain tax matter is needed to be audited. The transitions of tax that was
undertaken by the jurisdiction.
 There should be a transparency of tax arrangements depending on the tax environment
development.
 Company used a justified judgment involving of the tax specialist to determine the
groups’ situation with the reference of the tax legislation, including the outcome of the
group’s defense (Orica.Com 2020)
OZ Minerals
The Key Audit Matters we identified are:
 Avaanco Resources Limited’s acquisition accounting for its purchasing event and its
holding entities- accounting evaluations of purchase of Avanco is a KAM due to the
impact of the financial report and the area of the organization, there should be clear
judgment composed by the consolidated entity to value the final real value of the
minerals contract (Ozminerals.com 2020)
 Valuation of Low Grade Gold Ore Stockpiles, which was $188.4 million- this is to be
important to exercise by the company to evaluate of the low category gold ore. The
valuation of that is a matter of key audit as there is need a significant judgment by the
company’s assessment of the value.
 Particularly follow those judgments, which affect the valuation model: The metal
production in future level are completely dependent on the quantity and the grade of
determining low grade, Future processing cost related to selling cost, Commodity in
future price and foreign exchange rates expected to prevail. (Ozminerals.com 2020)

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Rio Tinto
The KAM are as follows:
 Evaluation of reversal impairment or indicators impairment or - The Company has
intangible assets valuing of $1,095 million property, plant and equipment of $56,361
million. Impairment charges of the both the sections of the assets have been determined
in previous term. Management must be determined the recoverable amount of the
intangible assets and property. It is required to be determined that the recoverable amount
is higher value in use (VIU) (Riotinto.com 2020).
 Management observed an erosion by several internal and external aspects of valuing for
the Oyu Tolgoi CGU and hence it can be prepared a determination of the recoverable
amount.
 Provision for closedown, environmental obligations and restoration - the organization has
provisions for close down, environmental obligations and reclamation of $9,975 million.
It refers a matter of director’s concern to determine the quantum and timing of estimation
costs in the future for the calculation purpose. It needs appropriate rate to reduce future
cost to their ultimate present objective of KAM (Riotinto.com 2020).
The primary objective of KAM is addressing the resultant factor of the auditor from audit
that has been done. It also refers what is content and communicating indicators (Sirois, Bédard
and Bera 2018). Determination of KAM requires a professional comment by the auditors.
Auditors simply presents few matters to the audit committee on a quarterly basis or monthly
basis. As the standard suggests that key audit matters have to be selected from the reported
information to the audit committee throughout the current audit year. The auditor must determine
the all the relevant information which has communicated during the year. The determination of
KAM is limited even when the auditor’s comment suggests a comparative number, which is
usually presented in the financial statement. The matters that normally requires for the
determination of the significant audit are as:
 The area of significant risk, in which the auditor calculate the higher risk at the audit
planning stage.
 That area where a significant management as well as an auditor’s comment is required.
 The challenging portion at the time of auditing.
 Internal quality control
An impactful events or transaction that would influence the whole auditing strategy (Kikhia
2015)
Scope of the Key Audit Matter
As a part of the illustrating the audit report, it determines the objectivity, materiality and
calculated the proposed risk of misstatement in the financial statement and in the financial
performance report, particularly the directors made the subjective judgment. In drafting KAM, it
is very necessary to keep the users in mind in terms of financial benefit. This involved the user’s
knowledge and understanding of accounting and auditing scenario. The process of identifying
the KAM is timely engagement and discussion with the respective governance.

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Conclusion
Referring to the above illustrated discussion it draws such conclusion that KAM includes
the individual’s auditor’s report will develop the operating activity of the business concern and it
deliver transparent blueprint of the financial structure of the company which help to the investors
to take decision. This is the part of ethical business practice, can say shortly. More importantly,
the auditors must have to provide significant comment and share experience during the
preparation of audit paper, which has a positive reflection on the financial evaluation of the
entity. After properly analyzing, all of the above-mentioned listed mining companies (Top 100
ASX) it has been notified that in case of all business concern the auditors has to be reported Key
Audit Matters according to their judgments and experiences and reflects how that audit
addressed the KAM. Hence, while preparing the KAM the auditors in all circumstances follow
the requirement of ASA 701.
Reference
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