Auditing Report: Evaluating the Financial Collapse of Rio Tinto

This report provides an in-depth analysis of the collapse of Rio Tinto, one of Australia's largest mining companies. It examines the key reasons for the company's downfall, including poor financial performance, failed deals, and fraudulent activities related to its investment in Mozambique. The report highlights the role of auditing failures, corporate governance shortcomings, and violations of ethical standards (APES 110) in contributing to the collapse. It discusses the consequences, such as job losses, financial losses for creditors and investors, and the manipulation of public statements. The report concludes with recommendations for improving financial practices, adhering to IFRS and APES 110 standards, and implementing effective corporate governance principles to prevent similar incidents in the future. The report emphasizes the importance of ethical conduct and transparency in the accounting and auditing professions.

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author’s Note

1AUDITING
Table of Contents
Introduction......................................................................................................................................2
Reasons of Collapse.........................................................................................................................2
Consequences..................................................................................................................................3
Conclusion and Recommendations..................................................................................................4
References........................................................................................................................................5

2AUDITING
Introduction
The main aim of this report is to analyze and evaluate the main reasons and consequences
of the poor performance and near to the collapse of one of the largest mining companies of
Australia, Rio Tinto Limited. In this context, it needs to be mentioned that Rio Tinto walked
away from a massive financial partnership or tie up with one of the major metal companies of
China, Chinalco. This major turn of Rio Tinto from the deal with Chinalco will cost the company
nearly $200 million as a break fee from the agreement (theguardian.com, 2018).
Reasons of Collapse
Risk Based Audit Approach is one of the major processes for assessing the reasons of the
collapse of Rio Tinto. This particular audit approach includes some steps. They are discussed
below:
It is required to determine the threats of the company. In case of Rio Tinto, it can be
observed that the company was exposed to different types of threats. The market in which Rio
Tinto operated is highly competitive with rapid changes in the demand process and due to high
pressure of the business, Rio Tinto failed to complete the major deal with the Chinese
corporation. This particular aspect contributed towards the poor performance of the company, as
there was a massive dip in the price of share of Rio Tinto (ft.com, 2018). According to the results
of Australian Securities and Investments Commission, the accounting profession is lager
responsible for the collapse of Rio Tinto. Another major reason for the collapse of Rio Tinto is
the attempt of the company to cover the losses from the investment in African company,
Mozambique. It needs to be mentioned that the US authorities has charged the former chief

3AUDITING
executive and chief financial officer of Rio Tinto with fraud when they were trying to cover up
the multi millionaire loss from the African investment. The purchase price of Mozambique was
$3.7 billion and the company was forced to write off more than $3 billion from this investment
in 2013 (abc.net.au, 2018). In this context, it needs to be mentioned that auditors signed off the
accounts of Rio Tinto in August 2015 by stating that figure are correct. This can be considered as
another major reason for the collapse of Rio Tinto. Another major reason for the collapse of Rio
Tinto is the manipulation in the public statement. The company made misleading public
statement to raise $5.5 billion from the investors while the worth of Mozambique was negative
$680 million (cnbc.com, 2018). It needs to be mentioned that the auditors of Rio Tinto simply
overlooked these aspects at the time to prepare the audit report.
Another major aspect of Rio Tinto collapse is the failure of corporate governance and
ehical code of conducts. The collapse of Rio Tinto states that the senior management of the
company was involved with the auditors in the manipulation of the public statement and
company loss. It implies that the company did not follow the principles of corporate governable.
Accounting Professional & Ethical Standards 110 (APES 110) provides all the ethical
principles that the auditors and accountants are required to comply with while providing
professional services. Thus, in this context, it needs to be mentioned that the accountants and
auditors of Rio Tinto has violated the principles of APES 110 (apesb.org.au, 2018).
Consequences
It needs to be mentioned that there are some major consequences of the collapse of Rio
Tinto. From the above discussion, it can be observed that the auditors and accountants were
involved in the manipulation process of Rio Tinto. This particular aspect contributed towards the

4AUDITING
collapse of the whole corporation of Rio Tinto and poor financial performance. Due to this
downfall of Rio Tinto, creditors did not recover their money. Most importantly, it needs to be
mentioned that a large number of employees lost their jobs in the process of the collapse. Apart
from this, the major investors and lenders lost their money due to the collapse of Rio Tinto
Conclusion and Recommendations
From the above discussion, it can be seen that the accounting and auditing profession was
majorly responsible for the collapse of Rio Tinto. Apart from these two aspects, some of the
other factors responsible for the collapse of Rio Tinto are ineffective corporate governance, the
absence of effective internal control and others.
Based on the above discussion, some recommendations are provided below:
 It is required for the business organizations to comply with the principles and standards
of IFRS while conducting the accounting and audit operations.
 The companies are also required to comply with APES 110 ethical code of practices
while conducting the professional operations.
 There is a need for the implementation of effective corporate governance principles in
the business organizations so that any kind of fraudulent activities in the financial
process can be avoided.
 Business organizations are required to carry their business operations in the most honest
and integrated manner.

5AUDITING
References
(2018). Apesb.org.au. Retrieved 7 April 2018, from
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
BHP Billiton, Rio Tinto fall after iron ore price dips. (2018). Ft.com. Retrieved 7 April 2018,
from https://www.ft.com/content/84557ed4-8938-3a64-bbd1-9e4b52acffc5
Macalister, T. (2009). Rio Tinto deal with Chinalco collapses. the Guardian. Retrieved 7 April
2018, from https://www.theguardian.com/business/2009/jun/04/rio-tinto-chinalco-
investment
Rio Tinto, former execs face fraud charges over African coal losses. (2017). ABC News.
Retrieved 7 April 2018, from http://www.abc.net.au/news/2017-10-18/rio-tinto-and-
former-bosses-charged-with-fraud-over-mozambique-/9060898
SEC charges Rio Tinto, former top executives with fraud. (2017). CNBC. Retrieved 7 April 2018,
from https://www.cnbc.com/2017/10/17/us-sec-charges-rio-tinto-former-top-executives-
with-fraud.html
William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and assurance services: A systematic
approach. McGraw-Hill Education.