ASIC's Role in Mining Asset Impairment and Financial Reporting Review

This report provides an in-depth analysis of asset impairment within the Australian mining industry, focusing on the role of the Australian Securities and Investments Commission (ASIC) and its financial reporting surveillance program. It explores the key issues and complexities associated with impairment, including the estimation of cash flows, determination of discount rates, and the impact of foreign currency fluctuations. The report highlights ASIC's findings, such as the incorrect valuation of cash-generating units and the challenges of using the discounted cash flow model. It also discusses specific assets impaired and their values. Furthermore, it identifies five critical issues that need consideration, such as inappropriate assumptions, inaccurate cash flows, and mismatches in asset and cash flow values. The report concludes by emphasizing the importance of using appropriate approaches for asset impairment to ensure fair valuation and accurate financial reporting, recommending the use of varied valuation models. The report references relevant books, journals and online resources to support its findings and recommendations.

IMPAIRMENT IN THE MINING
INDUSTRY

EXECUTIVE SUMMARY
In the report discussion is carried out on the ASIC and its financial reporting surveillance
program. It is identified that mentioned authority is actively playing an important role in
ensuring that financial reporting is done in better way in the Australia. Analysis of facts
revealed that on moderate scale impairment of assets is done in proper manner in the mentioned
nation and there is need to improve the situation to great extent. There are certain areas like
projection and determination of discount rate where Directors needs to pay due attention. By
developing broad understanding about same Directors can ensure that assets are valued at fair
price by the firm.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
Role of ASIC in relation to financial reporting surveillance program and ASIC findings from
review of reports..........................................................................................................................4
(b) Key issues and complexity of impairment of mining assets..................................................5
© Assets impaired and value to written down.............................................................................6
(d) Five issued that need to be consider.......................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
In the current time period in most of developed and developing nation’s main emphasis is
given on improving reporting standards. In the current report detail discussion is carried out on
the ASIC and its financial reporting surveillance program. Apart from this, in the report key
issues in respect to mining impairment are discussed in detail. Along with this, assets that are
impaired up to specific value in context of financial reporting surveillance program are discussed
briefly. At end of the report, five issues that need to be consider in respect to valuation of assets
are discussed briefly. At last conclusion section is formed in the report.
Role of ASIC in relation to financial reporting surveillance program and ASIC findings from
review of reports
ASIC is known as the regulatory body of the stock market in the Australia. Role that
ASIC play in relation to financial reporting surveillance program is given below.
 ASIC is playing an important role in evaluating firm’s financial statements and reports.
ASIC is responsible for surveillance and doing investigation on the business firm (Huang
and Austin, 2011). Apart from this mentioned institute also conduct the audit under this
corporation act. It can be said that ASIC is playing an effective role in implementation of
the financial reporting surveillance program because it is doing audit of the firm
financial statements time to time and ensured that all things are presented to the investors
in the systematic manner.
 ASIC through its programs educate individuals which are the chartered accountant of any
company. Mentioned entity is educated about which accounting and reporting must be
done. Thus, it can be said that through financial reporting surveillance program ASIC
ensured that quality of reporting and accounting is improving on year on year’s basis in
respect to the business firms.
 ASIC also ensure that auditors of the business firms are working independently and there
is no pressure on same (Buddelmeyer, Jensen and Webster, 2010). It is also ensured
through these programs that audit quality of firms is excellent. All these things help ASIC
in ascertaining that correct facts and figures are available to the investors in the reports.
Findings of ASIC from financial reporting surveillance program

 In the research that is conducted by the ASIC it was identified that assets that comes in
the category of cash generating units (CGU) were not valued at fair value. These assets
were valued at high price despite cash inflows were largely independent. Cash flows were
revealed incorrectly to support enhancement in value of asset.
 In case of some firms liabilities were deducted from carrying value of cash generating
units (CGU) (Birt, Rankin and Song, 2013).
 Assumptions that were formed on the basis of analysis of external sources are not
assessed for consistency and relevance.
 The forecast that were prepared by the business firms were not appropriate in comparison
to previous year cash flows.
 Reasonable allocation of assets was not done to cash generating units by the business
firms.
 Most of the business firms use discounted cash flow model to measure the fair value of
the assets. Usually it is observed that assets are valued in different manner by different
approaches. In case of each method different value of asset is received as fair value. Due
to single use of the discounted cash flow model it is doubtful that firms valued their
assets in systematic way and at accurate value. It must be noted that in the discounted
cash flow model only management inputs are taken in to account. Thus, inputs may be
wrong or it is possible that management at its own discretion manipulate figures to show
higher value of assets. Thus, values computed on the basis of DCF model is doubtful.
(b) Key issues and complexity of impairment of mining assets
There are number of issues and complexity that are associated with the impairment of
mining assets. Some of them are explained below. Estimation of cash flows: It is the one of the difficult task to estimate the cash flows for
the discounted cash flow model. This is because it is the difficult to estimate growth rate
that may happened in the future time period. Economic conditions are uncertain and due
to this reason it is very difficult task to estimate cash flows for the future time period. Discount rate: Estimation of accurate discount rate is another challenging task for the
business firm (Taylor and et.al., 2012). In case debt is take at flexible interest rate by the
business firm it is very difficult to estimate the reliable rate at which cash flows can be

discounted by the business firm. Thus, it is another issue that is associated with
impairment of asset. Foreign currency cash flows: Cash flows that can be generated from the foreign also
need to be estimated in calculation of impartment. By estimating foreign currency
exchange rate cash flows are converted in to domestic value (16-294MR Evolution
Mining writes down Pajingo mine, 2017). One cannot estimate accurate value of
exchange rate because same is heavily affected by the changes that happened in the
economic condition of nation and global economy. Thus, it is major issue associated with
impairment of mining assets.
© Assets impaired and value to written down
Relevant non-current assets were impaired by the business firm same were valued at
77330. Goodwill are impaired at 35270. In order to impair non-current assets estimate of
recoverable amount from CGU was made by the business firm. Each and every mine that
business firm have is assumed as separate unit. Due to decline in the gold price in international
market value of mines reduced substantially. In the FY2016 Pajingo asset was impaired to
specific value. Entire details are obtained from the annual report of 9th disclosure critical
estimates, judgments and errors.
(d) Five issued that need to be consider Inappropriate assumptions: Mentioned issue is relevant to the Adelaide Brighton
Limited because if wrong assumptions are made projection will also be wrong. Thus, it is
the one of the main issue that need to be consider. Inaccurate cash flows: Mentioned issue is relevant to the Adelaide Brighton Limited and
it is considered as one of main issue because if cash flows are wrong then assets will be
valued wrong (Impairment of non-financial assets: Materials for directors, 2017). Mismatch in value of assets and cash flows: Sometimes assets and cash flows in terms
of value does not match to each other. Thus, according to value of assets cash flows
projected does not seems to be reasonable. It is another big issue that need consideration
by Adelaide Brighton Limited. Process of assessing impairment: If process of impairment will not be appropriate at
Adelaide Brighton Limited then its balance sheet will not reflect accurate financial
position. It is the one of the main issue.

 Use of discount rates for different CGU: Adelaide Brighton Limited sometimes use
same discount rate for each CGU which is not possible. Practice of same thing lead to
computation of wrong value of asset.
CONCLUSION
On the basis of above discussion it is concluded that it is very important to use
appropriate approach for impairment of asset. This is because if appropriate approach will be
used then in that case assets can be valued at fair price and true financial position will be
reflected by the balance sheet. It is recommended that management must use varied models to do
valuation of the asset. On the basis of output received from varied assets valuation model final
decision must be made by the managers.

REFERENCES
Books and journals
Birt, J., Rankin, M. and Song, C.L., 2013. Derivatives use and financial instrument disclosure in
the extractives industry. Accounting & Finance. 53(1). pp.55-83.
Buddelmeyer, H., Jensen, P.H. and Webster, E., 2010. Innovation and the determinants of
company survival. Oxford Economic Papers. 62(2). pp.261-285.
Huang, X. and Austin, I., 2011. Chinese investment in Australia: Unique insights from the
mining industry. Springer.
Taylor, G. and et.al., 2012. The determinants of reserves disclosure in the extractive industries:
evidence from Australian firms. Accounting & Finance. 52(s1). pp.373-402.
Online
16-294MR Evolution Mining writes down Pajingo mine, 2017. [Online]. Available through :<
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-294mr-
evolution-mining-writes-down-pajingo-mine/>. [Accessed on 1st May 2017].
Impairment of non-financial assets: Materials for directors, 2017. [Online]. Available through:<
http://asic.gov.au/regulatory-resources/financial-reporting-and-audit/directors-and-financial-
reporting/impairment-of-non-financial-assets-materials-for-directors/#common-issues>.
[Accessed on 1st May 2017].