Audit Risks For Mining Companies In Australia Essay

Questions:

1.What are the Significant Business and Audit Risks for Mining Companies? You need to Explain at least five risks.
2.What are the Specific reporting requirements (Standards and/laws or Regulations) for Mining Companies.
3.Referring to the Financial Statements Data for 2016 and 2015 from the Annual Report, Analyse the year-to-year Changes in the Account Balances for at least Five financial Statement line items of Concern.
4.Explain the Possible Financial Difficulties that the Company could Incur.

Answers:

an overview of the client’s business and industry in which it operates.

Alto Metal Limited is an Australian based public company listed on the Australian Securities Exchange. The primary operation of the company is the exploration of Uranium. In order to grow the business the company started advance search of gold and base metal projects. With the object to increase the business the company signed an agreement to purchase a company who was the owner of the Sandstone Gold Project, Sandstone Exploration Pty Ltd. Earlier the name of the company was Enterprise Uranium Limited and was listed on the securities exchange with the same name (Limited, AM 2016). After the completion of the purchase of Sandstone Gold Project the first objective of the company was to find such minerals resources which would contain at least one million ounces of gold.

Strategise

It is very important to know the area where the company had to focus. Hence a proper strategy was developed to identify the areas which would provide the company with the minerals with million ounce gold in it.
In today’s scenario the technology which is used for exploration of minerals is very important. The technology which is chosen for the working in the mining industries should be the ones which would save time and in that less time it should provide maximum outcome.
The working environment provided to the employees of the company matter a lot in the growth of the company. The management focuses on providing the best working environment to its employees as it will in return give high results.

1.Any mining company cannot work without the permission of government. The interference of government had made it more difficult for such companies to work. Although the interference of the government is important at some level I such industries otherwise this would lead to a high level of fraud by the companies (Lake & King, 2010).


Government Interference: No company can deal in mining business without the prior permission of government. We understand that the interference of government is important at some level but such interference sometimes strands as obstacle in the growth of the company (Rakow, Reichelt & Tiras, 2010). When the company have to approach to the government for every detail than the interference turns to be hindrance in the working.

New Projects: The mining companies are mostly restricted to the one kind of work only. And in such business the working of the company is based on the particular type of mining. (Bigus, 2015).

Capital Requirement: It is observed that the returns in the business of mining are not very frequent or fast. The profits which would be earned from the working of the company will be shown at a later stage. Such delay in the returns makes the company unable to raise capital at the time of need. It gets difficult for them to obtain money from the shareholders as the shareholders demand steady and frequent returns (Bordere, Ciccotello & Grant, 2015).

Labour: It is not easy to find labour to work for a mining company as there is a lot of risk of life involved in it. It is observed that the mining industry provide ample amount of employment but the shortage of labour leads to the downfall in the industry (Gourio, 2012).

2.It is observed during the study, that the permission of government is required for the working of any mining company. The basis on which the government provides such permits to the companies depends on the facts that whether the companies are compliant with various laws and standards. Following these standards is the responsibility of the companies as these laws protect the environment and the water bodies and consider the safety of the labours. Some of the mining laws and regulations and the standards of which are required to be complied by the companies are:

Mining laws: the main law which govern the mining industries is the mining law. It is the branch of the main laws and is separated from the other laws as it governs only the mining industries. It governs that if the companies are working in accordance with various other laws or not and there is no fraudulent activity going on under the name of the mining.

National Environmental Policy Act, 1969: The Act of National Environmental Policy was established in 1969. This law is based on the point that the companies which are indulged in mining process are following proper environmental protection policies. The aim of the Act is ensure that the industries are maintaining proper environmental consideration before taking up any mining project (Carrington & Pereira, 2011).


Clean Air Act, 1970: It is observed that the mining process leads to emergence of various pollutants in the air which would lead to many air born diseases. Under the Act the standards maintained are for the identification for the amount of pollution that the project on which the company is working produces. With this various steps to combat these pollutants is taken and if the company fails to work in accordance with the standards established will be under the great pressure to justify the same.

Clean Water Act, 1977: There is discharge of toxic and non-toxic pollutants under the process of mining. The goal of the Act is to maintain the cleanliness level of the surface water and the same shall not mix with the various toxic and non-toxic pollutants (Mary & Wendy, 2011). The disposal of the waste that is the outcome of the mining process is to be discharged at a place away from the water bodies or the surface water.

Toxic Substances Control Act, 1977: Various hazardous chemicals and materials are discharged from the mining process. Such chemical substances are dangerous for the health and the same should be disposed or should be minimized at the initial level only. The Act works on the object of minimizing the extraction of such hazardous substances and had maintained standards for the same.

Comprehensive Environmental Response, Compensation, and Liability Act, 1980: it is the responsibility of the company to clean up the site at which the work of mining is started. Special funds are provided in case when needed for the supervision and the cleanliness of the site. Various hazardous substances are detailed under this Act and way by which the same are to be disposed is discussed (Pearce et al., 2011). The area where the mining is done shall be cleaned and properly maintained after the work is done there.


Mining and Quarrying Safety and Health Act, 1999: The safety of the labour working for the mining companies is very important. For this proper regulations are made which are required to be maintained by each company. Proper safety measures are to be taken by the companies so that the worker is safe and the safety measures shall be as mentioned in the Act.

Income statement: Please find appendices

  • The income of the company has decreased by 5.86 times
  • The corporate expenses which are made for the growth of the company are reduced majorly about 43 times from the previous year.
  • The expense made on the exploration of mines which is supposed to be the main business of the company had reduces by 40 times from the previous year.

Even after the reduction in various expenses of the company the income had opt increased which ion return had resulted to losses even in the current year. Although, because of the reduction in the expenses in the current year the losses has also reduced about 48 times as compared to the previous year (Karanovic, Bogdan & Baresa, 2010).

Statement of financial position:

Interpretation- From the above statement of financial position of Alto Metals Limited, it can be analysed that they have higher level of cash and cash equivalents. Therefore their current assets have been at higher side. Another peculiar point of statement of financial position is that their debtors are at lower side. For management of business operations Alto Metals Limited has been using only current liabilities. Alto Metals Limited is highly backed or supported by its internal funds or equity funds (Han, S., Rezaee, Xue & Zhang, 2016). Alto Metals Limited is highly liquid business organisation as they are backed with more of current assets or cash & cash equivalent.

Ratio analysis

Current-ratio

2016 = 3.64 times

2015 = 12.41 times

(El-Dalabeeh, 2013)

Net-profit-margin

2016 = (614.70 %)

2015 = 1114.09 %

Debt-equity ratio

2016 = 0.04 times

2015 = 0.03 times

Debtor’s day turnover

2016 = 5.50 days

2015 = 7.01 days

Total assets to equity ratio

2016 = 1.04 times

2015 = 1.03 times

4.Explain the possible financial difficulties that the company could incur.

The shareholder wants instant results but in the business of mining the results are not on time hence if the company needs to raise the funds in between the project then it gets difficult for them.

Workforce Planning: in the business of mining it is difficult to the retain labour and workforce. The planning of the workforce is difficult. If the labour leaves in between the project then the recruitment of other labour in its place will require more cost which will be a part of loss for the company.

Technological planning: Each day the technology gets upgraded and in order to gain better results it is important to stay updated with the technology which will be used for the mining process. This requires great amount of funds and financials (Njowa, Clay & Musingwini, 2014).

Risk management: the business of mining is associated with the great amount of risk. In order to reduce the same funds are required by the company. Such cost incurred by the company is called the contingency cost.


Operational difficulties: the day to day expenses that are required by the mining business is also high. Hence there is a need of funds in order to combat the situation where the companies face the operational difficulties (Omar et al., 2014).

Conclusion

On the basis of ratio analysis of Alto Metal Limited, audit work can be accepted. Since Alto Metal Limited has been facing losses and operational & structural imbalances therefore these are to be advised. Liquidity ratio has been showing adverse results as cash and cash equivalents have been largely accumulated. Debt-equity ratio reflects adverse results as they are backed with only internal funds or equity funds only. Total assets have been backed with internal or equity funds only therefore they are required to be advised on the same.

There are some limitation of this report also that needs to be addressed so as overcome from them. In this report, analysis of significant risk has been stated and explained. Analysis technique of financial statements i.e. horizontal analysis of financial statements is another limitation. Ratio analysis has some inherent limitation that needs to be analysed and measures need to be undertaken for the same.

References

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Bigus, J. 2015, ‘Loss Aversion, Audit Risk Judgments, and Auditor Liability’, European Accounting Review, vol. 24, no. 3, p 581.

Bordere, X., Ciccotello, C., & Grant, C. 2015. ‘What Does "Say on Pay" Say about Audit Risk?’ Current Issues in Auditing, vol 9, no. 1, p A1.

Carrington, K., & Pereira, M., 2011, ‘Assessing the social impacts of the resources boom on rural communities’. Rural Society, vol 21, no. 1, pp 2-20.

El-Dalabeeh, A, 2013, ‘The Role of Financial Analysis Ratio in Evaluating Performance’ (Case Study: National Chlorine industry). Interdisciplinary Journal of Contemporary Research in Business, vol 5, no. 2, pp 13-28.

Gourio, F., 2012, ‘Disaster Risk and Business Cycles’, The American Economic Review, vol 102, no. 6, pp 2734-2766.

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Karanovic, G., Bogdan, S., & Baresa, S, 2010, ‘Financial Analysis Fundament for Assessment the Value of the Company’ UTMS Journal of Economics, vol 1, no. 1, pp 73-84.

Lake, N., & King, J. (2010). Keep the change: Reaping the rewards of high-risk investment. In Finance, vol 124, no. 3, pp 51-53.

Limited, AM 2016, 'Alto Metals Limited, Annual Report', Annual Report, vol 1, no. 1, pp. 1-112.

Mary Mindak, & Wendy Heltzer. 2011, ‘Corporate environmental responsibility and audit risk’. Managerial Auditing Journal, vol 26, no. 8, pp 697-733.

Njowa, G., Clay, A.N., & Musingwini, C., 2014, ‘A perspective on global harmonisation of major national mineral asset valuation codes’.(Author abstract). Resources Policy, vol 39, no. 1.

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