Identifying And Assessing The Risks Of Material Essay


Discuss about the Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.


The Company

Altos Metal Limited is a public limited company listed in Securities Exchange of Australia under the name of Enterprise Union Limited. The primary target for exploration for the company was uranium in 2012 and 2013. Later the focus of the company shifted to advanced gold. The company (then Enterprise Uranium Limited) completed the acquisition of Sandstone Gold Project by June 2016 and renamed the combined entity as Altos Metal Limited. The company is currently operating with the primary objective of discovering or acquiring projects which can provide plus million ounce of gold deposit which will ultimately contribute to the wealth maximization objective of the shareholder,

The Industry

The mining industry had been pertinent to the growth of the Australian economy through its significant economic and social contribution. Mining industry is responsible for the 40% of the exports and 8% of the Australian economy. The country is currently the market leader for the export of mining equipment, service and technology. The Australian mining industry has been thriving to cater the demand arising from part of China and Asia. (Livesley, 2010)

Ore Reserve and Mineral Resource Reporting and the JORC Code

JORC Code or the Australian Code for Reporting of exploration result, mineral resources and or reserves is used by the mining industry of Australia for reporting in their annual report. The code is applicable when used in context of solid minerals starting from diamond, gemstones and coal. Apart from the JORC Code, ASX listing rule is also applicable to companies which are listed with ASX.

1.Disclosure of exploration results

The code directs mandatory requirements of disclosure of information regarding drill hole and intercept which should further be classified into easting, northing, elevation, dip, down-hole depth and width. This is specially done when drilling operations involving exploration results are reported in the market.

2.Disclosure of exploration targets

It is mandatory for the companies to declare their exploration target along with its other priorities and give an account of the expenditure and investment involved in exploration of new project.

3.Defining the level of study for declaration of maiden ore reserve

Maiden ore reserve declaration should be supported by a completion of minimum level of preliminary feasibility study. The code further directed on adapting the definition of preliminary feasibility study and feasibility study as suggested by the Committee for Mineral Reserves International Reporting Standards (CRIRSCO).

4.Disclosure of Production Targets

This code deals with the need to reports the production targets along with the financial information which has been used in the process of forecasting. The ASX paper gave three options which could be used for improving the disclosure requirement of production targets.

Option 1 suggests that disclosure be prohibited for production targets on the basis of exploration target solely. This applies for company who has been holding reserves and mineral resources as per the requirement of the JORC Code. The second option suggests that prohibition be imposed on production targets disclosure on the basis of targets obtained partially from exploration. The third option suggests prohibition on the basis of inferred mineral resources solely. The most preferred option is ideally the first option which gives the independence to the company on a reasonable basis to decide on the disclosure requirement of the production targets considering the obligation of Corporations Act 2001.

5.Reconciliation and annual reporting of mineral resources and ore reserves

The code directs reporting in the annual report or reporting separately in some other statement about the annual review document on mineral resources and ore reserves. Further it is suggested to disclose in the statement the total aggregate of ore reserves and mineral resources with the company on the date of preparing the balance sheet. (JORC, 2012)

Some of the noted changes in the standard which didn’t have any impact on the financial statement are

AASB 2014 -1 (Part E: Financial Instruments) amendment

Amendment to accounting standard relating to the Conceptual Framework, Materiality and Financial Instrument

Business Risk

1.Cash Optimization

The volatile market of mining and metal has allowed little space for the companies to determine the demand and set pricing strategy accordingly. The companies through judicious cost reduction methods actually work on making a balance between liquidity and long term plan.


Peak season at mines means relentless pursuit of volume. This often has lead to mining over large areas with operation inefficiency and connectivity issues creeping in. The only solution is to streamline the asset as a business system and focus on quality manpower.

3.Capital Access

Considering the volatility in the sector banks are willing to lend on a long term basis leading to shortage of capital in this sector. This has further led to options re

garding realignment of portfolio and alternative source of finance.

4.Social Image

The apathy of the company toward the employees leading to accidents, diseases and absence of rehabilitation packages has dented the image of this sector. Considering the long term vision of the company, there is a need for harmonious relationship with the community in which they are operating.


Innovation which pushes productivity has generally been neglected while focusing only on short term profitability. Innovation itself provides competitive advantage in terms of increase in productivity at the existing cost. (Ey, 2017)

Overview of the material misstatement of financial statements

According to ASA 315, the objective of the audit is to identify the material misstatement in level of financial statements and assertion level for account balances caused by fraud or unintentional error along with the assessing of the risk. In order to understand the risk from the misstatement one needs to understand the entity along with the environment, internal control of the entity and the understanding of relevant control. When a risk has been identified requiring significant consideration the auditor needs to decide whether the risk is a fraud, whether it is relevant to current economic accounting, what are the complexities involved in transaction, the level of subjectivity present in the financial data and whether risk arises from any unusual transactions. (, 2017)

Some of the assertions involves are:

Classification: Whether the transactions are posted in the correct account.

Existence: Whether the asset, liability or equity actually exist.

Accuracy: Whether the amount recorded is accurate.

Rights and Obligation: Whether the balances possess exclusive right of the company

Valuation: Whether the valuations are accurate.

Presentation and disclosure: Whether the balances and transactions are disclosed appropriately. (CPA, 2017)

According to ASA 315, understanding of the business performance of the company is important since poor performance often leads to attempt of misstatement. Performance of the business can be judged through analysis of key ratio, trends, statistics of operation, budget, forecast, analysis of performance and its business scenario with reference to its competitors. (Auditing Standard ASA 315, 2017)


Auditing Standard ASA 315. (2017). [online] Available at: [Accessed 21 Apr. 2017].

Bansal, S. (2012). Auditing and Assurance. 10th ed. New Delhi: Bestword Publishers.

CPA (2017). Overview of audits and reviews of financial statements. [online] CPA Australia. Available at: [Accessed 17 Apr. 2017].

Ey. (2017). Business risks facing mining and metals 2016-2017. [online] Available at: [Accessed 19 Apr. 2017].

JORC (2012). Reserves and Resources Disclosure Rules for Mining and Oil & Gas Companies. [online] Australian Securities Exchange. Available at: [Accessed 18 Apr. 2017]. (2017). ASA 315 - Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment - October 2009. [online] Available at: [Accessed 18 Apr. 2017].

Livesley, K. (2010). Mining: The Regulation of Exploration & Extraction: - Energy and Natural Resources - Australia. [online] Available at: [Accessed 19 Apr. 2017].

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