Auditing Report: Analysis of Key Audit Matters in the Mining Sector

This report provides an in-depth analysis of key audit matters (KAMs) in the mining sector, focusing on the application of ASA 701, the auditing standard concerning the communication of KAMs in independent auditor reports. The report highlights the importance of KAMs in addressing financial crises and preventing fraud. It examines the KAMs of several mining companies, including Tungsten mining, King River Copper, Winmar resources, Vital metals, and Altura mining, detailing critical accounting estimations, accounting for plant and machinery, tax liabilities, and other significant areas. The report discusses how auditors address these matters, including the examination of lease agreements, exploration assets, and share-based payments. The analysis underscores the crucial role of auditors in assessing the financial health of companies and ensuring adherence to accounting standards, emphasizing the impact of management judgements and estimations on the audit process.

Running head: AUDITING
Auditing
Name of the Student
Name of the University
Author note

1
AUDITING
Executive summary
The aim of the report is to give a brief analysis of the need of communicating the key audit
matters in solving various financial crisis. the report contains the relevant auditing standard
that provide the relevant guidelines that are essential for communicating the key audit matters
in the report of the independent auditors. The report contains the details of the key audit
matters of the companies of the mining industry. The report concludes with the analysis of
the key audit matters and the requirements to highlight the key audit matters in the audit
reports.

2
AUDITING
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Recommendation......................................................................................................................11
Conclusion................................................................................................................................11
Reference..................................................................................................................................12

3
AUDITING
Introduction
The AUASB has realised the need of the changes in the rules of the ASA 570 and in
response to that a new auditing standard that is ASA 701 has been issued which deals with
the communication of key audit matters in the report of the independent auditors. With the
increase in number of financial crisis in the corporate sectors. In the modern days the
corporate sector is in the need of strict auditing guidelines that can prevent the occurrence of
fraud cases and solve the problem of financial crisis. In this context the need of
communicating key audit matters that are highlighted by the internal auditor has been realised
as the report of the internal auditor contain the details of the entire internal control system of
the company and that can be used to detect the area that may lead to the occurrence of any
financial crisis.
Discussion
The main purpose of the ASA 701 is to make the auditing standard issued by the
Australian regulatory body relevant with that of the provision of the international standard of
auditing. The issuance of the ASA 701 shows the commitment of the AUSAB towards
bringing an equality with the current amendments made by the international standard of
auditing in the audit reposting process. The major features of the ASA 701 are enumerated
below:
 The standard makes it mandatory for the listed companies to communicate the key
audit maters in the audit reports.
 The ASA 701 enables the auditors of the entities which are not listed to take decisions
whether it will be possible to include the key audit matters in the report of the
auditors.
 It specifies the process of determining the key audit matters these are listed below

4
AUDITING
 Identifying the matters that are communicated are charged with governance, and to
find out these matters that need more attention of the auditor.
 To select the areas of accounts which are riskier in nature, important areas that require
judgemental skills of the auditor, the areas that are specifically controlled by the
higher management and the impact of valuable events or transactions and
 Selecting the most valuable matters and highlighting such matters in the audit report.
 The process that the auditor must follow to describe the individual key audit matters.
 Identifying the situations in which a matter that is considered to be a key audit matter
is not communicated in the report of the auditor and
 Specifying the required documents that are related with the key audit matters.
 The key audit matters of some of the companies of the mining sector are stated below
Tungsten mining
Tungsten mining is one of the leading mining company in Australia that is listed in
the ASX. Some of the key audit matters that are mentioned in the independent audit report
are stated below
In the mining industry the accounting policies that are related with the lease are
considered to be the most significant accounting transactions that is considered to be the key
audit matters. In the independent audit report the auditor stated that the group has various
lease property and the lease property are generally made for a fixed period of 1 to 5 years and
theses contracts have an extension option. The AASB 16 is followed by the company and that
has been mentioned in the notes 12 and 15 (Vlachos, 2018).

5
AUDITING
For recording the financial instruments, the company used to follow AASB 9 which is
generally accepted by the mining industry. The company used to measure the assets and
liabilities that are arising from the lease contract on present value basis.
Critical accounting estimation and judgements
The company used to make judgements and estimations based on their past
experience and other factors that are relevant for the industry.
Recovery of deferred tax assets
It is a transaction on which the management give more focus as it is directly related
with the tax calculation and proper assessment of tax. So in this area the auditor give more
focus and highlighted all the relevant provisions that are related with the process of recovery
of deferred tax assets.
Accounting for plant and machinery
Plant and machinery are considered to be the essential part for the mining industry so
the auditor consider this as a key audit matter for the mining industry. In case of this
company the auditor reported that the company ahs followed relevant accounting standards in
this aspect also (Miah, 2017).
Income tax
Tax liability is the main area where most of the companies made deliberate errors in
order to reduce the tax liability. During the case of audit, the independent auditor found that
the company has followed all the relevant provisions of the taxation rules.
Accounting for provision and employee benefits

6
AUDITING
As mining industry is labour intensive so the accounting for the provision and
employee benefits are considered to be an important part of the accounting system and it can
be possible to make financial scandal in this area.
This matter is also audited properly and no discrepancies detected in this area also.
Accounting for financial assets at amortised cost.
The company used to measure its financial assets at amortised cost which is
considered as relevant and as per the regulation of the applicable accounting standards. From
the view point of the auditor this matter is also considered as one of the significant audit
matters and this should be considered in the audit report (Barry, 2016).
King river copper
This also one of the largest mining company in Australia and the shares of the
company is listed in the Australian stock exchange. The company’s independent auditor has
considered the following matters as key audit matters and given their view on these matters
which are described below
Accounting for the exploration and evaluation of the assets.
The total value of exploration and evaluation of assets is $12252588, the carrying
value of exploration and evaluation assets is calculated for impairment by the group at the
time of indication that the value of the exploration and evaluation of assets can exceed their
recoverable amount (Pornupatham, 2016).
The purpose to find that whether there are any indicators which will be necessary to
assess the evaluation and exploration assets. This assessment may require a number of
judgements which includes whether the group has time to perform ongoing expenditure and

7
AUDITING
whether there is adequate data from which it can be possible to detect the area of possible
interest is not commercially valid. The group indicates that there is no indicator of
impairment (Manoel, and Quel, 2017).
In response to the above-mentioned audit matters the independent auditor of the company
considered the following points
 The right of the group to explore the in the selected exploration area and to ensure that
the company checked all the relevant documents like the licence agreements.
 To verify the intention of the group to carry on the exploration and evaluation
activities the auditors checked the cash flow statement and make enquiry from the
senior management and the directors.
 The assessment procedure followed by the group to calculate the value of the carrying
value of the exploration assets and also make assessment of the capacity of the
company to provide adequate capital that may be required to execute any planned
future exploration and evaluation activity (Ratzinger-Sakel, and Theis, 2018).
Winmar resources limited
The key audit matters that are considered by the independent auditors of the company are
stated below:
 Capitalisation of the exploration assets were valued to be $5925326. In relation to this
it has been identified as the key audit matter as exploration assets are the most
significant matter from the percept of the mining industry. The judgement that is
required to take decisions relating to the impairment of assets is depends on several
factors that can be influenced by the management (Carson, Fargher, and Zhang,
2016).

8
AUDITING
 Some of the factors on which the judgement is made are various assumption and other
factors like historical experience and the present economic condition that is existing in
the particular country.
The methods applied by the auditors in addressing the key audit matters
 The auditors highlighted the basis on which costs has been capitalised and impaired
through profit and loss with management and to determine whether such accounting
process is in accordance with the provision of the AASB 6 (Horberry, Burgess-
Limerick, and Steiner, 2016).
 To investigate the interested parties to this process of assessment of the exploration
assets the auditors make enquiry from the senior management and directors, also a
proper verification system has been followed by checking all the relevant documents
like ASX announcements, minutes of the directors and the minutes of the annual
general meeting.
 The sample of capitalised cost is verified with a supporting invoice.
 The managements process of assessment for the recoverability of capitalised
exploration assets ahs been reviewed by the auditor.
 The copies of the licence of exploration rights has been collected from the
management and duly verified, to check the tenure of such licences and the validity
period of the exploration rights.
 The disclosures made by the organisation in relation to the exploration process has
been properly investigated.

9
AUDITING
Vital metals
Key audit matters
 The group issued equity instruments like options to directors who are eligible to get
such benefits, and also to some specified employees and brokers.
 The valuation of such options are made in accordance with the provisions of the
AASB 2 share based payment in the statement of the consolidated profit and loss
account and the other comprehensive income (Harrison, and Goode, 2018).
 As the valuation process of such options is complex the auditors consider the
accounting for the share-based payment as the key audit matters.
The audit matters are addressed by the auditor in the following method:
 The auditors checked the nature of the payment that are made on the basis of shares,
 The management’s determination of the value of the options issued, the auditors make
a comparison between the valuation model used by the company and the valuation
process used by the organisation (Gunningham, 2017).
 Assessment of the adequacy of the disclosure made by the organisation in the
financial statements.
Altura mining
In this case the mine development expenditures of the company are considered as the
key audit matter. As the process of capitalisation of the mine development expenditure is
complex and require many critical judgements. The value of the mine development
expenditure is about $221562 million (Prasad, and Chand, 2017).
The main reason this expenditure being considered as the key audit matter are

10
AUDITING
 The amount of such expenditure is huge almost 82.40% of the total assets,
 The process of judgement of the treatment of the mine expenditure as per the
provision of the AASB 116 is complicated and require expertise knowledge.
The judgement is generally made regarding the following issues
 Whether the company satisfies all the conditions that are required to capitalise an
expenditure,
 Whether facts and situations show that the mine development assets can be tested for
impairment.
 It is required to make critical judgement to evaluate the recoverable amount of the
asset and to determine the key estimations that are required to support the expected
future cash flow from the project of the pilgangoora lithium.
The audit procedure that is used by the auditor to address the key audit matters are
 Collecting a report of the project and making discussions with the directors and
management to ensure that the mine development project can be completed within the
stipulated time and by utilising the resources available (Concha, et al 2017).
 Collecting a schedule of the costs capitalised and make a test on sample basis, the
expenditures that are made during the operation in the mining site, installation and
completion of infrastructure that are capitalised in the financial year.
 Setting of meetings with the staffs of the mine and asking questions to them regarding
the nature of expenses.
 To check whether the provisions of the AASB 116 has been duly complied by the
company while recording the costs that are to be capitalised.

11
AUDITING
 To make an assessment of the facts and circumstances that may exist to give
suggestion to the organisation that they require to follow impairment procedures.
Recommendation
It is recommended that to bring more transparency in the financial statements the
auditors should make it mandatory to mention the key audit matters in the annual reports so
that it can be possible to get an idea about the most significant transactions that can directly
effect the financial position of the company.
Conclusion
From the above discussion it can be concluded that the communication of the key
audit matters in the internal audit report is essential for preventing the occurrence of the
financial crisis. the need to highlight the key audit matters can be easily assessed from the
analysis of the companies in the mining sector. The key audit matters include the transactions
that are complicated and required critical judgement and for that reason the auditors should
highlight the points that are considered as significant from the view point of the organisation.
this will make it sure that all the transactions are recorded properly and asper the provisions
of the related accounting standard. Thus, the communication of the key audit matters can
reduce the occurrence of financial crisis and the organisations can provide a true and fair
view of their financial position to the stakeholders.

12
AUDITING
Reference
Barry, M., 2016. Employer and employer association matters in Australia in 2015. Journal of
Industrial Relations, 58(3), pp.340-355.
Bunn, M.L., 2017. The Development of Public Sector Audit Independence: The Colonial
Experience in Western Australia (Doctoral dissertation, Curtin University).
Carson, E., Fargher, N. and Zhang, Y., 2016. Trends in auditor reporting in Australia: a
synthesis and opportunities for research. Australian Accounting Review, 26(3), pp.226-242.
Concha, F., Segovia, J.P., Vergara, S., Pereira, A., Elorza, E., Leonelli, P. and Betancourt, F.,
2017. Audit industrial thickeners with new on-line instrumentation. Powder technology, 314,
pp.680-689.
Douglas, R., 2017. Quantitative materiality disclosure and the impact on investor decision
making and perceptions of audit quality.
Gunningham, N., 2017. Overcoming the disconnect: internal regulation and the mining
industry. In Varieties of Legal Order (pp. 143-166). Routledge.
Harrison, P. and Goode, P., 2018. Making Effective Audits Truly Effective.
Horberry, T., Burgess-Limerick, R. and Steiner, L., 2016. Human centred design of
equipment: lessons from the mining industry.
Kutera, M., 2019. Kluczowe kwestie badania–nowy element w raportowaniu biegłych
rewidentów. Zeszyty Teoretyczne Rachunkowości, 157(101), pp.79-94.
Manoel, J. and Quel, L.F., 2017. Innovation in the international standards for the new
independent audit report. Journal on Innovation and Sustainability. RISUS ISSN 2179-
3565, 8(1), pp.130-143.

13
AUDITING
Miah, M.S., 2017. Accounting standards complexity, audit fees and financial analyst
forecasts in Australia: a thesis submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy in Accounting at Massey University, Albany, New Zealand (Doctoral
dissertation, Massey University).
Pantsar, M. and Josefsson Hillström, T., 2019. Swedish Bank Directors' Perceptions of
Extended Audit Reports.
Pornupatham, S., 2016. Perception Differences of Auditors, Professional Users, and General
Users towards the New Auditorûs Report. Chulalongkorn Business Review, 38(147), pp.1-24.
Prasad, P. and Chand, P., 2017. The Changing Face of the Auditor's Report: Implications for
Suppliers and Users of Financial Statements. Australian Accounting Review, 27(4), pp.348-
367.
Ratzinger-Sakel, N.V. and Theis, J., 2018. Does considering key audit matters affect auditor
judgment performance?.
Vlachos, T., 2018. Certifiable Risk Management & Business Continuity Approach in Mining
Industry. In Proceedings of the 4th World Congress on Mechanical, Chemical, and Material
Engineering (MCM'18), DOI (Vol. 10).

14
AUDITING