Regis Resources Ltd. Audit and Ethics Report - ACCT20075, 2019

This report provides a critical analysis of the audit of Regis Resources Ltd., focusing on key aspects such as materiality, analytical review, and the review of the cash flow statement. The report begins with an introduction to Regis Resources, a public limited company involved in gold production and exploration, highlighting the importance of proper financial reporting and adherence to regulations. The report then delves into the level of materiality, discussing risks like impairment of intangibles, transactions between related parties, and the impact of inventory valuation. It further reviews the company's draft notes and disclosures, focusing on the valuation of low-grade ore stockpiles and Exploration and Evaluation (E&E) assets. The report also includes a preliminary analytical review, assessing the current and quick ratios, and debt-to-equity ratio to gauge the company's financial health. Finally, the report examines the cash flow statement, analyzing the net cash flow from operating, investing, and financing activities for the years 2017 and 2018. The overall aim is to provide a comprehensive assessment of the company's financial position and adherence to auditing principles.

AUDIT & ETHICS
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[Year]

Regis Resources
Executive Summary
It is important for a company to adhere to the principles of disclosures and other relevant
regulations. It needs to be carefully assessed because any ignorance can lead to immense
problem for the auditor. The current report is based on Regis Resources Ltd, a company
engaged in resources. The main aim of the report is to provide a critical analysis of the skills
in tune to materiality by undertaking audit procedures and framing opinion.
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Contents
Introduction...........................................................................................................................................4
1. The level of materiality..................................................................................................................5
 Review of the various draft notes and disclosures.........................................................................6
2. Preliminary analytical review........................................................................................................7
3. Review of cash flow statement......................................................................................................8
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
Appendix.............................................................................................................................................14
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Regis Resources
Introduction
Regis Resources is a public limited company that in engaged into production of gold and
exploration. It has a strong management team that has enabled it to develop mid size gold
operations within Australia. However, for a smooth functioning of the operations, it is
essential that the company should have proper resources and stakeholders. Therefore, it is
imperative must perform the duty with due care and diligence. The current report sheds light
on analytical review of the auditor and an assessment of the financial statement of the
company.
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1. The level of materiality
Impairment of intangibles is another material risk faced by Regis Resources Ltd. It is highly
material due to the fact that the organization did not account for impairment of its intangibles
in 2017. This means that the company did not account goodwill for impairment while the
non-financial assets were given due consideration in the year 2017. It is not just necessary but
also essential at the same time for an organization to examine and account impairment of its
intangibles every year. This allows an organization to account the changes in its intangibles
and duly allow the impairment of the same. The present values of assets and liabilities are
also affected by the risks that are aligned with the materiality level of investments such as
provisions, share-based payments, employee benefit liabilities, and deferred taxes.
The transactions between related parties also carry risks associated with material
misstatements. The real value of the transaction is often prone to risks and consequences
arising out of transactions between related parties. The transactions between related parties
also impact the financial wellbeing of an organization. There are multiple instances of
transactions between related parties at Regis Resources Ltd. The involvement of directors of
the company in multiple related party transactions is also seen. The financial status of the
company always gets impacted due to such related party transactions. Regis Resources Ltd
should now chuck out an audit plan in order to safeguard the financial wellbeing of the
company, keeping in mind the consequences of transactions between related parties.
Regis Resources Limited offered a loan to Duketon Resources that was non-interest bearing
and has no fixed date of repayment. The balance of the loan receivable was 24,157,000$ as in
the year 2017 while 25,971,000$ as on 30th June 2018. LFB Resources also received a loan
from Regis Resources Ltd on account of towards the subsidiary’s share of payments for
exploration and evaluation expenditure. The loan was non-interest-bearing and has no fixed
date of repayment as well. The balance of the loan receivable was 38,775,000$ as in the year
2017 while 63,945,000$ as on 30th June 2018.
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The inventories of Regis Resources Ltd have seemingly increased as compared to the
previous year. As compared to the previous year, the rise in the sale of goods and services of
the organization in the ongoing year is so good to be true. This means that there are high
probabilities for the inventories to be overstated in the financial accounts of the company.
This also highlights the probability of the level of inventories to have a downward trend in
the ongoing year as compared with the last year. Such mishaps in the accounting of
inventories can be either due to unintentional errors or underlying economic interests or
simply both.
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All such analysis is highly significant for an organization’s financial performance. The
management of an organization after analyzing all such material risks thoroughly can assess
its ongoing audit plan and look for the areas where it needs rectification and redesign it in the
manner in order to leverage the overall financial wellbeing of the company. The management
of an organization is highly responsible for installing an appropriate audit plan in the same.
An organization that works in the best interest of the public is often the most desirable one in
the eyes of both existing and potential investors. So, it can be concluded that an organization
might gain a competitive advantage over others in its industry and have a profound financial
status if only there is an implementation of an effective audit planning.
 Review of the various draft notes and disclosures
A per note 8 of the annual report, the management at Regis Resources Ltd should exercise
necessary judgment so as to evaluate the values and segregation of cheap quality ore
stockpiles that shall be later utilized in the process of producing gold bullion. These low-
grade ore stockpiles require significant valuation and classification from to time due to-
Continuation of mining activities allows in the formation of further low-grade stockpiles, and
to determine and challenge the organization’s assessment one must pass judgment
accordingly. Expected future revenue is estimated by the group from lower selling prices,
future processing costs so as to manufacture gold bullion from stockpiles and gold that is
contained in the low-grade ore stockpiles. Following are the judgments that affected the
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valuation and segregation of low-grade ore stockpiles- •Predicting manufacturing costs of
low-grade ore stockpiles and amount of gold present in the same. • The gold that is obtained
from low-grade ore stockpiles is when processed and sold will cause future commodity prices
to take place. • The segregation of low-grade ore stockpiles as current or non-current assets
are dependent on the estimated time is taken by the same in converting into gold bullion.
Further as per Note 12 of the annual report, following are the reasons due to which the
valuation of E&E assets is regarded as a key audit matter: •Not less than 21 percent of the
company’s total assets are E&E assets, and •the company’s compliance with the AASB 6
Exploration for and Evaluation of Mineral Resources is necessary to be evaluated by means
of immense audit efforts. The kind of business the company is in it must give due
significance towards the computation of the value of its E&E and for the same, there must
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have been the obvious installation of various impairment indicators. The audit team in this
regards focused on areas where significant capitalization in E&E exists with respect to
commercial continuation of E&E activities for the McPhillamys project of NSW along with
Duketon region of WA. However, it was found that such indicators were never implemented
and installed in Regis Resources Ltd. The assessments were performed on the basis of the
company’s compliance with the required necessary statutory requirements, and the financial
well being of the company with respect to continuation of activities for all areas of interest.
Net income is the most preferred used base in auditing. Net income is calculated by dividing
earnings by profits. 5-10% range is the most common percentage. An amount greater than
10% is considered material while less than 5% is termed immaterial and when it is between
5-10%, judgment is required.
2. Preliminary analytical review
Section – 2
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Current ratio is a very significant tool as it helps in ascertaining the short term liquidity
position of an organization. Current ratio is a comparison between an organization’s current
assets to its current liabilities. It is one such liquidity ratio that evaluates the ability of an
organization to tackle its short term obligations. In short, current ratio is used to analyse
whether the resources available with the company at present are sufficient enough so as to
overcome its short-term debts (Venanci, 2012).
Regis was unable to perform as per the industry standards in the previous year and therefore,
the company is looking to make amendments for the same in the current year. The company
highly aims at increasing its current ratio in the current year by means of increasing its sales
and reducing its levels of inventories and accounts receivables. The company must improve
its cash flow position along with its current assets and current liabilities so as to uplift its
performance in the ongoing year and meet its current goals. The company’s current ratio has
seemingly improved to 3.7 from 3.6 in the year 2018. The current ratio of the company
depicts a lower level of risk.
Quick ratio
Quick ratios are also known as liquidity ratios or acid test ratios. It is the comparison of a
company’s liquid assets to its liquid liabilities. Through quick ratios it becomes easier to
measure the ability of a business to tackle its short term debt obligations by means of its
liquid assets that is assets that can be easily converted into cash. The quick ratio of the
company is seemed to have improved in 2018. This means that the liquid assets of the
company have increased in comparison to the liquid liabilities of the same. It is the
responsibility of the auditor to ensure whether the improvement in the current ratio and quick
ratio of Regis is on the basis of rise in cash and cash equivalents and not because of the
growth in its debtors. Nevertheless, it should also be noted that the level of risk here is
relatively lower or may be a little moderate (Gay & Simnet, 2012).
Debt equity ratio
The debt to equity ratio is a leverage ratio. It is a comparison between an organization’s
overall liabilities to its total equity. The debt held for every 1 unit of equity in an organization
is ascertained by means of debt to equity ratio. The industry average for a standard debt to
equity ratio is 0.5 times while the same for Regis is 0.29 times. This means that there is a rise
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in overall debts and the same has exceeded the overall shareholders funds. The auditor must
focus on the company’s debt equity ratio and look for reasons behind the fall in the same and
suggest measures in order to make necessary rectifications. Underperforming debt to equity
ratio is a high risk area for the company (Niemi & Sundgren, 2012).
The assertions that can be followed are
Existence – this should be followed the auditor to know whether the asset or liability is
question is really present (Lapsley, 2012)
Right – whether the industry or any third party is involved in controlling rights of the asset or
liability
Occurrence – the disclosed events or transactions have link with the matter and pertain to the
entity.
3. Review of cash flow statement
2018 2017
Net cash from operating activities 2,59,727 2,06,082
Net cash used in investing activities -1,17,630 -1,04,782
Net cash used in financing activities -80,407 -81,407
As seen from the table that the net cash flow from operating activities provided the major
cash flow. The net cash inflow from operating activities increased in the year 2018 as
compared to 2017 owing to the fact that receipts from sale of goods was more. It needs to be
noted that the revenue brings in additional cash inflow for the company. For RRL, the
revenue was more followed by a marginal increment in the payment to the suppliers. The
receipt of interest was more and a marginal increment of income tax from ($36,230) in 2017
to ($36,868) in 2018 provided additional benefits to the company. Since the outflow was low
therefore the company was able to witness a major inflow of cash from this region.
On the other hand, the major cash outflows were witnessed from investing activities. As the
company purchased more plant, property and equipment there was a cash outflow in this area.
Further, there were payment in respect of the exploration, as well as acquisition of rent
refunds and payment, payment for acquisition pertaining to exploration of assets were the
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main reason of outflow (Kaplan, 2011). Furthermore, payments were made for intangible
assets and the same lead to more cash outflows. Net cash was used in investing activities and
hence the figure increased from -1,04,782 in 2017 to -1,17,630 in 2018.
The primary cash receipts were mainly from the sale of gold, proceeds from the sale of
shares, receipt of interest income.
The primary cash outflow was seen in the area of payments to suppliers, payment of interest,
payment in investing activities, payment for mine activities, etc.
In the case of Regis Resources there was no presence of the non cash financial and investing
activities. Conversely, it states that the entity will not be allowed to stop the operations under
any scenario. As per the cash flow, a declaration can be made that the business does not have
the intention nor the requirement to liquidate the business (Fazal, 2013). Hence, from the
cash flow statement it is imperative that there is no foreseeable situation that will led to the
curtailment of the operations (Lapsley, 2012). The business is meeting the obligations as and
when it is due hence, the financial stability of the business is strong. The cash flow from
operating activities is strong and increased as compared to 2017. Moreover, the company’s
investing activities tend to be strong while financing activities projects that the finance has
been used. There is no risk or danger that will put the going concern of the company into
problem hence no adequate measure or step in this scenario is needed (Matthew, 2015).
An unqualified opinion was provided by the auditors since there as no problem pertaining to
the company. Performing an audit in accordance with AAS might not always trace material
misstatements even in the existence of the same. Misstatements can either be intentional or
unintentional or sometimes both (Merchant, 2012). Misstatements can be construed as
material if it impacts the investments related decisions of the investors based on the financials
of the company (Kaplan, 2011).
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