Comprehensive Auditing Report: Fortescue Metals Group (FMG) - HA3032

This report provides an in-depth analysis of the Fortescue Metals Group (FMG), a leading company in the iron ore industry. It begins with an executive summary and introduction, followed by an overview of the company's nature and operational aspects. The report delves into the industry's size, growth, major players, critical success factors, and potential threats. It examines the legal environment, external factors through SWOT and PESTLE analyses, and the company's objectives, strategies, and business risks. Furthermore, the report includes an analytical procedure to assess entity performance, management, and governance, culminating in a conclusion and references. The analysis covers various aspects of the business, including industry regulations, external factors, entity performance measures, and governance structures. The study also includes the application of Porter's Five Forces Model to understand the competitive landscape and other external factors influencing FMG's operations and strategies.

HA3032 Auditing
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Executive summary
The report is prepared over the company Fortescue Metal group (FMG) which is the global
leader in the iron ore industry. During the report the throughout understanding of the company
operation is being conducted and key operating, financing and investing activity of the company.
Also we have created the understanding over the current industry in which company operates
through analyzing various factor such as size, growth, supply chain, Major Player, critical
success factor and major threat. Further the understanding is conducted over the current legal
environment of the company. Also the report examiners the external environment of the
company through SWOT and PESTLE analyze and the way it create impact over the company
current working. The assignment also conducts the understanding over the objective, strategy
and business risk of the company. At last the analytical procedure is applied to entity
performance and the understanding is create over management and governance.
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Table of Contents
Executive summary....................................................................................................................................................
Introduction................................................................................................................................................................
Nature of the entity.....................................................................................................................................................
Understanding the industry.........................................................................................................................................
Understanding the legal environment.........................................................................................................................
Understanding external environment factor...............................................................................................................
Understanding objective, strategies and assessing business risk................................................................................
Performing analytical procedure to create the understanding of the entity performance...........................................
Understand management and governance..................................................................................................................
Conclusion..................................................................................................................................................................
References..................................................................................................................................................................
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Introduction
The Auditing is defined as the independent examination of the financial statement of the entity
for the purpose of reporting over the true and fair view of the financial statement of the entity. In
the given report the company we have considered is Fortescue Metal group is engaged in the
business or Iron ore. During the report various area of the business are examined in order to
create understanding over the company current operation. The report analyze the different aspect
of the business such as nature of the entity, industry regulation and the external factor, objective
and strategy, entity performance measure, management and the governance.
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Nature of the entity
The Fortescue Metal group is the global leader in the iron ore industry and is the industrial
leading development of iron ore deposit has most significant mines in the world. The company
has grown as one of the largest global iron ore producer and operates integrated operation
spanning five mines sites in the Pilbara. The company is engaged in the exploration, processing,
development production of iron ore and owns and operates integrated supply chain including five
berths Herb Elliott Port in Port Hedland and heavy haul railway with 42 ton Axle load capacity
(Fortescue Metals Group Ltd, 2017). The company owns and operates its purpose design rail
and port facility to deliver iron ore from mines to port and finally to the customer.
The Fortescue Metals Group Limited is the fourth largest producer of the iron ore in the world
and has two main group of operation namely Pilbara region of Western Australia and Chichester
Hub and Solomon Hub. The Chichester Hub is located in the Pilbara and is made up of Fortescue
flagship minesite cloudbreak and the other one is Christmas creak (Fortescue Metals Group Ltd,
2017). The cloudbreak is currently mining 40 million tons of iron ore in the year and it operates
on horizontal nature of deposit whereas other make the use of the vertical deposit of the ore. The
processing facility of the company process and refines the product before transporting to ports.
On the other hand the Christmas Creak has lifted its capacity to 50 million tons per year.
The Solomon hub is located in the middle of Fortescues Pilbara Tenement area which is
company second most major project. The exploration team of Fortescue has delineated 2.86
billion tons of resources at Solomon hub and targeting the same upto 2.86 billion tones.
The BC iron is the smaller company with its iron ore deposit at Nullagine and is in joint venture
with Fortescue Metals Group Limited where BC iron manage crushing, mining, screening and
trucking and Fortescue provide haulage and port service to the JV (Fortescue Metals Group Ltd,
2017).
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Understanding the industry
Industry size: The continent has been provided with heavy and giants ore mineral resources of
iron and they keep finding more with the help of heavy equipment and machines. The continent
Australia is blessed with diverse natural resources but none is important or essential or
significant as iron ore. Iron is the basic and common element found in the rocks and soil – but
finding iron in high concentrations and in the minerals which makes mining a bit harder task and
it takes a bit more tough efforts. Iron ore overlapped Australia’s most valuable, important as well
as the significant export of Coal, in the year 2010. This as a fact provides that it is a fast-growing
part of Australian economy having $ 47.2 worth in the economy in 2010.
Industry growth: According to some analysts production volume of iron ore and export in
Australia are expected to rise (Klettner, et. al., 2014). The industry of Iron ores is growing too
rapidly in the Australian market. Iron ore exports have increased quickly and rapidly over some
of the few years and period which shows positive growth of the industry (IBIS, 2017).
Some of the key and major players of the industry include Fortescue itself holding a market
strength and position of 10 %,
Brake Horse Power (BHP) having a market share of 16 %,
Rio Tinto holding a market position of 17 % and
Vale having a market share of 26 %.
Market share of iron ore industry in seaborne
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However, this industry is having some crucial success factors which should be followed by these
industries prevailing in the market which is as follows:
Effective Cost controls,
Availability of the concerned resources and
downstream ownership skills (Shepherd and van Leeuwen, 2011).
Industry sometimes faces several threats due to which it becomes hard to find the opportunities
in the environment, some of the threats and opportunities of the industries are given below:
(a) A major threat being a weak positioning of Australian dollar in international market and for
the same opportunity being higher volume of mining will support industry revenues and profits
in the current period (Cowie, et. al., 2015).
(b) The second threat being production volume of iron ore and opportunity in the case be exports
of the iron ore are forecast to increase over the next 5 upcoming years.
(c) Third and the last threat being Australian iron ore production and for the situation, the
opportunity would be iron ore exports have increased quickly and rapidly over some of the few
years and period.
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Understanding the legal environment
The legal environment of Fortescue comes under several state and commonwealth acts which
are as follows:
Wildlife Conservation Act 1950;
• Bush Fires Act 1954;
• Rights in Water and Irrigation Act 1914;
•Western Australian Marine (Sea Dumping) Act 1981;
• Agriculture and Related Resources Protection Act 1976;
• Private Railways (Level Crossings) Act 1966;
• Environmental Protection and Biodiversity Conservation Act 1999;
• Land Administration (Amendments) Act 1997;
• Health Act 1911;
• Conservation and Land Management Act 1984;
• Dangerous Goods (Transport) Act 1998;
• Rail Freight System Act 2000;
• Mines Safety and Inspection Act 1994;
• Environmental Protection Act 1986;
• Australian Heritage Commission Act 1975;
• Occupational Safety and Health Act;
• Explosives and Dangerous Goods Act 1961;
• Town Planning & Development Act 1928;
• Soil and Land Conservation Act 1945; 1984
• Local Government Act 1995;
• Mining Act 1978;
• Rail Safety Act 1998 and
• Aboriginal Heritage Act 1972.
Some of the commonwealth regulations likely to be significant to the Fortescue include the
following: • National Native Title Act 1993;
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• Environmental Protection and Biodiversity Conservation Act 1999 and
• Environmental Protection (Sea Dumping) Act 1981.
Provisions relating to Rehabilitation
Provisions are identified when the Company Fortescue has a current legal or constructive
liability because of past events, it is most likely an outflow of resources will be needed to support
to settle the liability and the value can be reliably be determined (Andrew and Cortese, 2011).
Liability for site rehabilitation is only in need because of the extraction, mining and processing
activities of the Company Fortescue. Liability of rehabilitation consists of removal of treatment
of waste items, decommissioning of facilities, and restoration of site and rehabilitation of the
land. The surplus of work needed and the associated costs are determined using today’s
techniques and standards of current restoration. Estimation of the cost of each program of the
rehabilitation program is determined at the time of disturbance in the environment occurs.
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Understanding external environment factor
The auditor of the Fortescue Metals Group Limited needs to create the understanding over the
external environment of the business and report the key event which may create impact over the
current working of the company (Lu, 2015).
PEST analyze
The PEST analyze of the company which create the understanding over the change in the macro
factor and the impact it create over the current working of the company.
Political – The few of the political factor which created impact over the company working is
importance of material sectors to the economy and in the country economy and level or
corruption especially in relation to the material sector. The Legal frameworks of the
enforcement of the contact and intellectual property protection impact over the company. Also
the industry safety regulation in material sector in and mandatory employee factor which create
impact over the company working.
Economic – The economic factor include the rate of inflation, interest rate, exchange rate,
economic cycle and the demand and supply in the economy (Fullagar and Wallis, 2012).
Social factor – The external environment also include Demographic and skill level of the
population and the hierarchy and power structure in the society. Also the culture, attitude and
leisure interest create the impact over the company working.
Technology - The auditor also needs to look towards the development of technology and the
way it create impact over the company working. The recent technological development by
Fortescue Metal group competitor will have huge impact over the company demand (Wilson,
2011).
The other tool which can be to create the understanding over the external environment is SWOT
analyze-
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