ACCT20075 - Auditing & Ethics: Audit Report of Regis Resources

This report provides an audit analysis of Regis Resources Limited, focusing on materiality, analytical procedures, and the going concern assumption. The materiality concept is discussed, with specific attention to the company's 2017 annual report, examining profits, impairment losses, deferred tax liabilities, and retained profits. Analytical procedures, including inter-firm and intra-firm comparisons, are applied to assess the company's liquidity, profitability, asset management, and solvency. The cash flow statement is reviewed, highlighting operating activities and non-cash financing activities. The report evaluates the appropriateness of the going concern assumption, referencing ISA 570, and discusses key audit matters (KAMs) identified by the auditor, such as the valuation of low-grade ore stockpiles and exploration assets. The auditor's unqualified opinion and the significance of KAMs are also addressed.

Running Head: Audit of Regis Resources Limited
AUDITING AND ASSURANCE SERVICES

Audit of Regis Resources Limited 1
Section 1
The materiality concept is the most fundamental concept of the audit. At the planning stage
of an audit engagement, the auditor has to determine the level of materiality for the overall
financial statements of the entity. The basic purpose of setting the overall materiality at the
stage of audit planning is that it serves as the basis for the determination of performance
materiality (ICAEW, 2017). Also, it helps in clearly deciding the thresholds for the
accumulated misstatements in the financial statements of the company. An item or
transaction related to the business of entity is said to be material when it becomes relevant to
influence the decisions of the users of financial statements of the entity. Audit materially is
primarily bifurcated into two categories i.e. materiality in terms of size of the item or
transaction (quantitative materiality) and materiality in terms of nature or of the item or the
circumstances of the company (qualitative materiality).
As the determination of level of materiality is purely based on the decision of the auditor and
there is not specific set of guidance on determination of materiality, the materiality in the
present case of Regis Resources Limited, the annual report of the company for the year
ending 2017 will be referred.
While examining the income statement of the company, the materiality level that has been set
out for the profits from the continuing operations at the percentage of 5% of the total
revenues earned by the company. It has been found that the profit from continuing operations
is 25% of the total revenue hence the reasons must be evaluated in detail. It has also been
observed that the amount of impairment has significantly increased in year 2017 since last
financial year i.e. 2016 (Regis Resources Limited, 2016). In year 2016, the total impairment
losses that were recognised in the financial statements were only $ 21. However, in 2017, the
reported losses on the ground of impairment of non-current assets particularly the exploration

Audit of Regis Resources Limited 2
and evaluation assets are $ 2939. The actual reasons for the reporting of such significant
losses must be assessed by examining the records of assets. It must be checked whether such
exploration assets have actually been relinquished or expired in the reported period.
While examining the statement of final position, it has been found that the deferred tax
liabilities constituted the significant component of non-current liabilities of the company. For
this purpose 5% is set as the materiality level in this regards. Since, DTL of the company in
2017 exceeds 5% of the total non-current liabilities, these items must be examined more
carefully by applying detailed audit procedures. The percentage set for retained profits is 10%
of the total shareholder’s equity. The reported amount in regards to retained profits is quite
higher than the materiality level and hence the sources of retained earnings must be assessed
in details.
Since, the company has executed a contract to purchase the McPhillamys project’s license
and for this purpose it has made a payment of cash of $ 3.25 million, the materiality must be
set for the cash balances to understand the impact of such transaction on the overall assets of
the company as well as on its overall liquidity position. The cash balance at the year-end
2017 must be evaluated applying the detailed audit procedures (Annual Report, 2016).
Moreover, it is necessary to obtain necessary and appropriate audit evidences to verify the
cash account balances. The necessary evidences in this regards could range from the licensing
documentation, bank statements through which the payment has been made (Kachelmeier,
Schmidt & Valentine, 2017).
Section 2
Analytical procedures are the important aspect of the audit process and it entails evaluation of
the financial information contained in the financial statements of the entity. It involves
various processes which range from simple comparative study of key financial results to the

Audit of Regis Resources Limited 3
deployment of complex models which involves various relationships of the data (ACCA,
2017). As a part of analytical procedures, the auditor has to make both inter firm and intra
firm comparisons of the key financial data of the company. In intra firm comparisons, the
financial data of the company is compared with the financial data of the same company but
from different years. In inter firm analytical procedures the financial data of the company is
compared with that of its industry or a particular competitor of the firm (PWC, 2017).
Analytical procedures are used to obtain adequate knowledge of the business of the client
entity and to assess and analyse the risk of material misstatements contained in the financial
statements of such entity. They are also used as the substantive audit procedures of audit to
apply test of details to the key financial assertions. These procedures help the auditor to form
an opinion on the truth and fairness of the financial statements (Elder, Beasley & Arens,
2011).
As a part of analytical procedure, the financial statements of Regis Resources Limited have
been analysed from year 2014 to 2017. A trend analysis of key financial ratios related to the
major components of financial statement has been performed. The said analysis is undertaken
by taking 2014 as the base year. The liquidity position of the company has been found to be
enhancing with each passing year. This has been observed through the increasing trend of
current and quick ratio. The profitability position of the business also seems to be improved
since 2014 as depicted by the net and gross profit margin as well as the return on equity.
The key risk areas are the asset management of the company as the efficiency ratios of the
company are showing that it is not able to manage its assets efficiently. Further the solvency
ratios of the firms have shown that it has sound management of capital structure and hence it
does not have to face financial risk.
Section 3

Audit of Regis Resources Limited 4
After reviewing the statement of cash flows of Regis Resources Limited for the year 2017, it
has been observed that the major flow of cash in the company occurred due to the operating
activities undertaken by the business. Operating activities are those activities that are directly
related to the core operations of the business i.e. the provision of goods or services. The
majority of cash inflows are generated from the operating activities in the form of revenue
collected for the sale of gold. Even the outflow of the cash has majorly occurred due to the
operating activities. The major amount of funds was spent for the payment made to the
suppliers as well as the employees and for the payment of income taxes paid. Therefore the
primary cash receipts for the year 2017 were the collection of gold sales amounting $ 540,048
and primary cash payment was amounting $ 300,416 towards the payment made for
purchases and for the wages and salary. During the financial year 2017, Regis Resources
Group entered into an arrangement of hire purchase for the purchase of second Komatsu
WA600 loader for its Duketon Gold Project. The total amount that was financed for the
acquisition of the loader was $ 1,222,000. It was the only non-cash financing and investing
activity undertaken by the group during 2017 (Annual Report, 2017). However, since such
purchase was not made through the cash payment, it is not involved in the cash flow
statement.
The financial statements of the company have been prepared on the basis of the going
concern assumption. This assumption contemplates the continuity of the company’s normal
business activities and also on the realisation of the assets held by the company along with
the settlement of liabilities of the business. The use of going concern assumption in the
preparation of financial reports assumes that the company will be able to fulfil all its
commitments related to the contracted leases along with all its fixed costs (ACCA, 2017).
The Regis Group is consistently evaluating the option to fund the development cost of
Duketon Gold Project. The increasing profits and the sound working capital management of

Audit of Regis Resources Limited 5
the company have allowed it to use the going concern assumption for its preparation of
annual accounts (Tsipouridou & Spathis, 2014).
The company has no significant reason that normal credit facility as well as operating lease
facility will not be continued to be provided by the trade suppliers of the company. Also, it is
expected that the company will be able to square off its operational commitments that are
going to be due in near future. Moreover, since the company has no contingent liability as at
the reporting date, no events are expected to occur that will affect the financial position of the
company. On the basis of this, it can be said that the company is not facing any going concern
risk. The assessment of going concern ability of a firm is the responsibility of the
management of the company. It is the responsibility of auditor to evaluate the correctness of
the assumption used by the management. To examine the correctness of the going concern
assumption of Management, it is necessary to collect sufficient and necessary audit evidences
that prove the appropriateness of entity’s assumption of going concern. The auditor must also
conclude whether there is any material uncertainty that casts doubt on company’s ability to
continue for the foreseeable future. If auditor finds any event or evidence that proves that the
assumption of entity’s ability for long term is not appropriate, it is necessary on the part of
auditor to express an appropriate opinion as per the requirements of ISA 570 ‘Going
Concern’ (Arens, Elder & Mark, 2012).
Looking at that section of annual report of the company where the auditor’s opinion is
incorporated, it can be said that the auditor has issued a clean report by expressing
unqualified opinion. An unqualified opinion is formed by the auditor when the auditor
believes that the financial statements of the company contain no material misstatement and
hence depicts the true and fair view of entity’s financial performance (Louwers, et. al., 2017).

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Along with the clear report, the auditor of the company has disclosed certain key audit
matters separately. Key audit matters are those matters which require significant user’s
attention but do not contain any kind of material error or misstatement. These matters
influence the decisions of the readers of the auditor’s report (Eilifsen, et. al., 2013).
Following are those matters that have been identified as the KAMs by the auditor of the
company:
 Valuation as well as classification of the low graded ore stockpiles: These matters are
considered as KAM by the auditor because a significant degree of management
judgement was required to identify the value of such low grade ore stockpiles and also
for their classification (Sirois, Bédard & Bera, 2018).
 The valuation of entity’s exploration and evaluation assets: Since exploration and
evaluation assets of the company constitute around 25% of its total assets, they are
considered as significant enough for the reporting purpose. To value such assets,
application of AASB 6 Exploration for and Evaluation of Mineral Resources is
required which requires significant knowledge and judgement by the auditor.

Audit of Regis Resources Limited 7
References:
ACCA. (2017). Analytical Procedures. Retrieved from:
https://www.accaglobal.com/in/en/student/exam-support-resources/professional-
exams-study-resources/p7/technical-articles/analytical-procedures.html
ACCA. (2017). Going Concern. Retrieved from:
https://www.pwc.com/im/en/services/Assurance/pwc-understanding-financial-
statement-audit.pdf
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integrated approach. Boston: Prentice Hall.
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https://www.icaew.com/-/media/corporate/files/technical/iaa/materiality-in-the-audit-
of-financial-statements.ashx
Kachelmeier, S.J., Schmidt, J.J. and Valentine, K. (2017). The disclaimer effect of disclosing
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seminars/accounting-seminars/KSV_93014.pdf

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Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C.
(2015). Auditing & assurance services. McGraw-Hill Education.
PWC. (2017). Understanding a financial statement audit. Retrieved from:
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statement-audit.pdf
Regis Resources Ltd. (2015). Annual Report. Retrieved from:
http://www.regisresources.com.au/reports-2/annual-reports
Regise Resources Ltd. (2016). Annual Report. Retrieved from:
http://www.regisresources.com.au/reports-2/annual-reports
Sirois, L.P., Bédard, J. and Bera, P. (2018). The informational value of key audit matters in
the auditor's report: evidence from an Eye-tracking study. Accounting Horizons.
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