Analysis of Key Audit Matters in Australian Mining Companies (ASA 701)

This report examines the application of Auditing Standard ASA 701, focusing on the communication of Key Audit Matters (KAM) in independent auditor's reports. The report analyzes the rationale behind ASA 701, developed in response to the global financial crisis and investor demands for greater transparency. The study involves an analysis of the 2019 annual reports of several mining companies listed on the Australian Stock Exchange, including Altura Mining Limited, Aspire Mining Limited, and others, to identify and evaluate the KAM disclosed. The report explores the specific audit procedures applied, such as reviewing loan agreements, assessing capitalization costs, and evaluating exploration expenditure. The analysis highlights key audit matters like asset valuation, borrowings, convertible notes, and the auditor's responsibilities in addressing material misstatements. The report discusses how auditors determine KAM, considering factors like risk assessment, significant judgments, and the importance of audit evidence in forming an opinion, ultimately aiming to enhance the value and transparency of auditor's reports.

Running Head:AUDITING AND ASSURANCE IN AUSTRALIA
Auditing and assurance in Australia
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Executive summary
In this report it is discussed about the new auditing standards ASA 701 which is for
communicating the key Audit matters. Choosing the mining companies listed in the Australian
stock exchange and evaluating their annual report of 2019 to find the key audit matter analysis
made in it.

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Table of Contents
Introduction..........................................................................................................................3
Determination of the key audit matters...............................................................................5
Key audit matters.................................................................................................................6
Altura Mining limited......................................................................................................6
Aspire Mining limited......................................................................................................7
Auking Mining Limited...................................................................................................7
Aus Tin Mining Limited..................................................................................................8
Ausmex mining group limited.........................................................................................9
Australia United mining limited......................................................................................9
Axiom Mining Limited..................................................................................................10
Conclusion.........................................................................................................................10
Reference list.....................................................................................................................12

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Introduction
Auditing and Assurance Standard Board (AUASB) have issued the Auditing Standard
ASA 701 Communicating Key Audit Matters in the Independent Auditor’s Report. The AUASB
has been established as an independent statutory committee of the government of Australia under
the section 227A of the Australian Securities and Investments Commission Act 2001. The AUSB
has the right to make standards of Auditing for the purpose of legislations of corporations under
section 336 of the Companies Act 2001 (Auasb.gov.au. 2020). These standards of accounting
have been treated as the instruments of legislative under the Legislative Instruments Act 2003.
This Auditing Standard has been prepared to represent the equivalent of Australian ISA
701 Communicating Key Audit Matters in the Independent Auditor’s Report in the month of
January in the year 2015. Therefore, the differences which have been made in accordance with
the environment of Australian legislative in the ISA 701 are included in this Auditing Standard
701. The ISA 701 has been revises as ASA 701 in order to maintain the quality of audit
especially in the areas where it is mandatory to do so (Brunelli 2018). The application and the
other relevant materials related to the communication of the key audit matters (KAM) in the
independent auditor’s report are being established and provided by this auditing standard. The
commitment of the AUASB to maintain the conformity with the recent enhancements which
have been made for the purpose of reporting of audit by the International Auditing and
Assurance Standards Board is reflected in the introduction of ASA 701 (Simnett and Vanstraelen
2016).
Features of Auditing Standard ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report

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This new auditing standard has certain features which can be summed up as the
folloewing (Sánchez-Medina, Blázquez-Santana,and Alonso 2019)-
 The communication about the key audit matters (KAM) of the audit in the auditors’
report of listed entities is a mandatory task.
 This auditing standard also helps the auditors of other entities in the decision making
process to ascertain whether KAM should be included in the auditors’ report or not.
 It is also required to understand how the determination of KAM is being done by the
auditors. There are several ways of doing it like- determination of the matters which have
been which have been communicated earlier and requires attention of the auditors,
involvement of those matters which require significant management judgments affecting
significant transactions or events and which have been assessed with higher risks
according to the judgment of the auditors.
 The way of describing the individual KAM by the auditors.
 The determination of the cases in which the matter which have been described as KAM
but not included in the auditors’ report.
 The documentation related to the audit requirements related to KAM.
Application of Auditing Standard ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report
This Auditing Standard of ASA 701 has become operative for the financial reporting
period which was ended on or after 15th December 2016. This Auditing Standard is applied to the
audit of a financial report for a financial or for the audit of the financial report for a half year as
per the Companies Act 2001. On the other hand it is also applied to a proper and complete set of
the financial statements which have been prepared for some other purpose. It is to be noted that

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this auditing standard is also applied to the audit of other historical financial information
(Auasb.gov.au., 2020).
Scope of this Auditing Standard ASA 701 Communicating Key Audit Matters in the
Independent Auditor’s Report
The responsibility of the auditors in order to communicate the key audit matters in
the report of the auditors is being dealt by the auditing standard ASA 701. Therefore, the aim of
forming this auditing standard is to address on the judgment of the auditors with respect to the
information which are to be communicated in the auditors’ report and also about the form and
content of the same information (Carson, Fargher and Zhang, 2016). The key audit matters are
being disclosed in the auditors’ report for the purpose of enhancing the value of communication
of the auditor’s report and also to provide transparency about the performance of the audit.
Therefore, the communication of the key audit matters in the auditor’s report helps to provide
additional information about the organization to the internal as well as the external users of the
financial report. This will help all the users to have an idea about the professional judgment of
the auditors and the significance of audit in the financial reports of the current financial year.
Similarly, the communication of the key audit matters also helps the intended users to take
decisions regarding management and investments and also to those who are in charge of
governance about the matters related to audited financial report, entity and the audit which have
been performed. The communication of the key audit matters in the auditor’s report also helps in
understanding of the opinion of the auditors with respect to the whole financial report
(Auasb.gov.au., 2020).

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Determination of the key audit matters
The auditor is responsible for the determination of the key audit matters of the
auditors’ report after communicating about the significant matters while performing the audit.
Therefore, for making such decision the auditor should keep in mind about the certain factors
which include the areas which have been assessed with a higher degree of risks of material
misstatement or any other significant risks which have been identified as per ASA 315. It also
includes determination of the significant judgments of the auditors with respect to accounting
estimations and this has been identified as an area of uncertainty (Auasb.gov.au., 2020).
The main aim with which the decision of implementing this auditing standard has
taken place is to present a better disclosure about the company so that the task of decision
making can be done in a better way. Therefore, this new auditing standard has been made with
the conformity of the international auditing standards of ISA 701. Thus it is the main motive
behind the initiation of this new auditing standard by the entities.
Key audit matters
Altura Mining limited
With significant to the Alturalimited mining assets of $278 million has been capitalized
and transferred to the depreciation asset. Its key audit matters have been recognized due to the
important balance which is 85 percent of the total assets and treatment for the expenditure in
according to the AASB 116 consisting of the property, equipment and plants. The audit
procedures applied while assessing the key audit matters are obtaining the project management
reports, obtaining capitalized cost schedule, obtaining evidence for the assessment, reviewing the
development expenses and performing the required impairment test. The most important matter
that the auditor has chosen analyze is the borrowings (Anon 2019). Altura limited has loan of

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$179.1 million which forms the 76 % of the total liabilities. To determine the correct treatment
auditors has made judgment based on AASB 132, AASB 9 and AASB 132.Complexity arise to
find the interest cost, foreign currency costs, transaction cost and repayment of the borrowing
amount. So the auditor applied different procedures by reviewing the loan agreement, obtaining
the cost of capitalization, getting the technical advice, reviewing the accounting policies and
reviewing the repayment of the forecasted plans.
Aspire Mining limited
The key audit matters that has been used to analyzed in the Aspire limited is
capitalization cost and evaluation expenditure in accordance to the AASB 6. Auditors are mainly
focused on the capitalization cost and the evaluation of assets. This two are considered as the key
audit matters as they are forming the most important group of assets. The procedures applied to
review the key audit matters are by understanding the process of evaluating the assets, directors’
assessment, obtaining evidence for the rate of interest, examining the budget required for the
activities and examining the disclosure of the financial statement (Aspire Mining Limited 2020).
Auditors identified the financial report to perform the audit procedure but still there is a risk of
material misstatement. Obtaining the internal control which will helps the auditor in the auditing
procedures. Therefore, while evaluating the accounting policies which are essential for the
accounting procedures and disclosures. Obtaining sufficient audit evidence regarding the
financial reports is also essential, as it will help in forming the audit opinion.
Auking Mining Limited
Auditors must view the financial report of the Auking mining limited in accordance with
the accounting standard and the corporation act 2001. It is the objective of the auditors to check
the financial report which is free from the any material misstatement and frauds. Auditor need

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high level of assurance during the audit process but it is not guaranteed that the material
misstatement can be detected. Material misstatement can arise due to fraud and errors and it can
influence the decision making of the user. Auditors need to identify while assessing the risk of
the material misstatement by performing audit procedure. Obtaining the audit evidence is
necessary to make an appropriate opinion while there is the risk for not detecting the material
misstatement resulting from a high fraud which may involves forgery, errors, omissions,
misrepresentation and other internal related problems. Thus obtaining of the internal control
report will help in preparing the audit procedures while evaluating the accounting policies which
are relevant for the accounting estimates. At the same time, obtaining the audit evidence is also
necessary to support the audit opinion. Evaluating the disclosure of the consolidated financial
statement which represents the transactions are true and fair.
Aus Tin Mining Limited
The key audit matters that auditors find in the annual report of the Aus Tin mining
Limited are the accounting policies and the evaluation of the assets. It is the part of the key audit
matters as it forms an important part of the key audit matters signifying the portion of total
balance. Application of AASB 6 has been done to evaluate the correct value and indicating the
impairment. Auditor used process to evaluate the key audit matters are obtaining the evidence by
exploring the key areas of the financial reporting. Obtaining the evaluation expenditure with the
supported document related to the organization. Other key audit matters consist of accounting for
convertible notes which involves complexity (Aus Tin Mining 2020). It assessment includes
significant judgment due to high degree of estimation while determining the fair value. So
auditors used the procedures to understand the terms and conditions of the convertible notes and
assessing of the convertible note agreement which are to be accounted for the equity as liability

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and also for providing the methods and assumptions to evaluate the work and for valuation. The
auditors also need to review the management report and financial report to determine the true
and fair view of the convertible notes while reviewing its adequacy and disclosures.
Ausmex mining group limited
The key audit matters in the Ausmex mining limited is the exploration and evaluation of
assets. Auditors applied the procedures to obtain the key audit matters are by obtaining the key
process of organization. Exploration assets are mainly held for the purpose of sales which are
considered as the key audit matters. Understanding the financial statement is also important for
the auditor to make any judgment. Understanding the management review of the exploration and
evaluation of asset is also necessary (Anon 2020). Obtaining evidence in the area of interest to
make the auditors opinion is also necessary. Reviewing the disclosures made in the financial
report is also necessary. So auditors uses the procedures to examine the key matters of audit
which are made by considering the terms and condition of agreements, reviewing the
management decisions and the treatment for the conversion of the debt or equity in accordance
with the AASB 132. Reviewing the valuation that is obtained from the management and ensuring
that the convertible notes are correctly recognized. Assessing the adequacy of the disclosures
made in the financial statements.
Australia United mining limited
The key audit matters that the auditors have recognized in the Australia united mining
limited is the carrying value of exploration and evaluation assets. Exploration and the evaluation
asset are capitalized in accordance with the AASB 6. This is considered as the key audit matter
as it signifies the 70 % of the total assets. Auditors need to make judgment while determining the
facts and circumstances which are carrying the amount of evaluation and exploration of the

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assets while making an impairment test to obtain any impairment loss. So the auditor uses the
procedure to evaluate the key audit matters are by obtaining the reconciliation statement while
capitalizing the exploration and evaluation of assets. There is also need of the reviewing the
management reports in accordance with the AASB 6. Assessing the management report will help
in determining the impairment loss. Auditor can also use valuation report to review as an
independent expert.
Axiom Mining Limited
The key audit matters that the auditors have examined in the annual report of the Axiom
Mining limited are the exploration asset and evaluation of the assets. It is considered as the key
audit matter as it consists of the value of assets in the financial statement. Auditors used the
procedure to review the key matters are by confirming the exploration assets (Asx.com.au 2020).
Examining the board’s minutes, cash flow forecast and management discussion is important.
Identifying the material misstatement and obtaining the internal control report is also important
in the auditor’s decision-making. Evaluating the accounting policies that has been used while
preparing the financial report is also important for the auditors. Obtaining the accurate audit
evidence is essential to make the accurate audit opinion.
Conclusion
The new auditing standard ASA 701 communication key audit matters in the audit report
has been developed due to the financial crisis in the whole world. It helps the shareholders or
stakeholders to know more about the company before they invest on them. The investors have
raised this issue as they are facing the risk of loss and this issue has been found in all going
concerns. So the existing ASA 570 has been revised to form the new standard which is ASA 701.
The new auditing standard was established for disclosing the key audit matters in the annual

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report of the company which would be helpful for the investors. It can be summarized from the
above discussion that the formation of the new auditing standard ASA 701 Communicating key
audit matters has been done to develop an idea about the result of the world financial crisis. It is
also mentioned in the discussion how this new auditing standard is helping to protect the
interests of the investors by providing information about the important audit matters. Finally, it is
concluded by saying that this has increased the responsibility of the auditors largely as they have
to present a better picture about the financial reports to the interested parties.

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Reference list
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