KeyAuditMatterofBHPbilitionand PDF

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It is a Key Audit Matter of those two mining company...

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Analysis of Key Audit Matter Of

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ACC 707 Auditing and Assurance

Student ID: 11600524 Student Name: Roshan Khatiwada

ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

Executive Summary

Different business shareholders have a interest in the financial growth of their business. Financial reports contain the accounting transaction which reports the data on an entity’s financial activity, its performance as well as it also shows the changes in the business shareholders who uses it. In various situation, shareholders prefer to gets managers and staff to run their business activity. To ensure that the business is running smoothly, the stakeholders have to choose the correct accounting information. The assessment represents the result of the analysis of the key audit matters of BHP Billiton Limited and Evolution Mining Limited from the auditor’s perspective view. The researcher has reviewed the auditors report, annual report and sustainability report for the year ending 2017 of BHP Billiton limited and Evolution Mining Limited for the dept analysis of the KAM. Researcher also views many authors executive summary for the understanding of ASA 701, AASB 101, AASB114, AASB8, AASB110 and AASB 128. Researcher observation has found mainly four different key audit matter with the proper remedies from the auditor. Analysis has been done deapthly on how the matter was addressed in the auditors report for the KAM. The auditors have found the following perspective for BHP Billiton Limited as a Key Audit Matter Assets Valuation Taxation Samarco Dam Researcher has also studied and analysis the following KAM of Evolution Mining Limited Accounting for Ernest Henry Mine Recognition of deferred tax assets Other information

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

Introduction Introduction to BHP Billiton Limited BHP, which is also known as BHP Billiton is the trading entity of BHP Billiton Limited and BHP Billiton plc is an Anglo-Australian multinational mining company which are specialized in metals and petroleum. This dual listed public company headquarters is located in Melbourne, Victoria, Australia. BHP was founded in 1985 by Broken Hill Proprietary Company Limited (BHP) and in 2001 the merger of BHP and Billiton, a mining company in London, makes the company BHP Billiton Limited which makes the bench mark of being the world’s largest mining company, based on market capitalization. BHP is also the Australia’s third-largest company by its revenue. In 2002, BHP produced the Flat Steels products under the firm BHP Steel which later in 2003 became BlueScope Steel. In 2005 BHP took the 90 per cent acceptance of WMC Resources, which was the owner of Olympic Dam Copper, gold and uranium mine. On the same year in August 2nd, BHP achieved through the compulsory acquisition of the remaining 10 % share of the company. It also in 2007, BHP purchase rival mining group Rio Tinto Group in an all share deal. But the initial offer of 3.4 share of BHP stock for each share of Rio Tinto was rejected by the group for under valuing the company. But the bid was withdrawn on 2008 due to the global recession. The Australian BHP and the British BHP are separately listed with the share holders bodies, while conducting the overall business as one corporation, it has the one operation with identical boards of directors and a single management structure. Currently BHP have the five primary operational units which includes Coal, Copper, Iron Ore, Petroleum, and Potash. Introduction to Evolution Mining Limited Evolution mining is also the leading, growth focused Australian gold miner. It has the 5 wholly owned mines – Cowal (NSW), Mt Carlton, Mt Rawdon and Cracow (Queensland), Mungari (Western Australia). Evolution also holds an economic interest in Earnest Henry (Queensland) which deliver 100% of future gold and 30% of copper and silver. Evolution Mining was created in Late 2011 through the merger of Catalpa Resources Ltd and Conquest Mining Ltd and the concurrent acquisition of Newcrest Mining’s interests in the Cracow and Mt. Rawdon Mines. The company has the continuous growth from the [3]

ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

acquisition which completed the acquisition of Cowal Mining in July 2015 and Mungari Mine in August 2015. Evolution has a reputation for consistency and reliability which has helped the evolution to be the winner of NSW Mining Safety Award and also the runner up in Community Excellence Award in 2017. It is also the winner of 8th Annual International M&A Awards.

The Implementation of the accounting standards (along with GPFR)

The General Purpose Financial Report (GPFR) is a requirement of a business entity to observe the standards of AASB, IFRS and corporate governance as per the Australian Accounting Standards Board, 2009. The board of directors and Administration of for BHP Billiton and Evolution Mining have committed the maximum level of corporate governance that is very much essential for forming value. All the guidelines and procedures or both the entity have various legal and other obligation which are followed by all the shareholders. BHP and Evolution always provides the consistent, and trustworthy information as regulated by the IFSR and AASB, in their annual financial statement reports. These reports are printed annually by the company by the end of each financial year. This types of financial reports address the gross margins, total dividends allocated, Net profit before and after tax, Earnings before interest and taxes, Revenue, debts of the operating cash flow for the year, strategic development and the total earning per shares allocated.

Presentation of Financial Statements

The financial statements of every organization must have the complete information required by the AASB which includes the factual figures and contain all the information to all the stakeholders of the company. In September 2007, Section 334 of the 2001 corporation act, AASB 101 had made the financial presentation should be mandatory to apply the consistency concept, where all the procedures must required similar treatments followed in the annual financial statements. (Adhariani, Sciulli, & Clift, 2017).

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

BHP Billiton Limited ensured the similar items in their accounts has been given accordingly with the same accounting treatments for coming period to next periods. BPH Billiton Limited and Evolution Mining esures the accounting standards has been compiled with the AASB 101 as well as with the provision of IAS 1. Both the BHP Billiton Limited and Evolution Mining Limited prepares their financial statements based on the historical cost convention, following all the provisions made by the AASB 101 Standards which excludes certain liabilities and assets are measured on a reasonable

value.

Analysis of Key Audit Matter BPH Billiton Limited vs Evolution Mining

Key Audit matters are those matters that, in an auditor judgement, were most of the significance in the audits of a financial statement for that particular period or year has includes the most significant assessed risks of material misstatement whether or not due to the fraud has be identified by the auditor. This includes the overall audit strategy, allocating the audit resources, and also directing the efforts of the engagement teams. ISA 701 has defined the Key Audit Matters (KAM) as the matters where, in the auditor’s professional judgement, where most of the significance in the presentation of financial statements by the audit committee of the current period. ISA 701 is mandatory for audits of complete sets of GPFR for the listed entities, with voluntarily application that are allowed for the other entities that that of listed entities. Where as auditor of public interest entities, required to communicate KAM. The process can be shown in the figure below.

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

The auditor of BHP Billiton Limited has summarised the key audit matters which are unchanged from 2016, where there is a decreasing order of Audit Significance, in arriving the audit opinion with the key audit process and procedures which has addressed the matters that are required for EU public interest and solely for the purpose of the financial statements. Evolution Mining Limited has tailored the scope of their audits to ensure that Evolution has performed the enough work which has been able to give a correct opinion on the financial report as a whole, taking into consideration the geographic and management structure of the company, their accounting process and controls, and those of the industries they operate.

The key audit matters that had the greatest effects on the audit procedure of BHP are Assets Valuation

Fig: Assets Valuation of BHP Limited. The carrying value of the BHP portfolio of the assets has been impacted by sustained volatility in commodity prices. Assets Valuation was a key audit matters because of the size of the balances where 72 percent of the company’s total assets. And the total level of judgements has been applied by the auditor in evaluating the remarkable inputs which has been used in assessing the group’s assessment of the total recoverable value of the above assets. This [6]

ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

results in the consideration of carrying amount of property, plants and equipment, intangible assets and those investments are accepted. Assets Valuation

PIC: Taxation of BPH Limited. BHP is a multinational corporation which operated in multiple countries, with their own taxation regime. The nature of this corporation activities hits different taxation obligations including corporation tax, royalties, other resources and production base taxes and employment taxes. The auditor has mention Tax as a key audit matter due to the application of taxation legislation to the organization which is inherently complex, with high specialization and requires a compressive judgement that has to be undertaken by the auditor relating to assessing the groups estimation of tax exposure, associated provisions and contingent liabilities. The auditor has worked with different tax specialists in Australia, Chile and the United States to evaluate the group’s tax obligation.

Samarco Dam

Pic: Legal Obligation of funding to Samarco DAM, BHP Limited There are various accounting issues and disclosure made by the BHP which results from the Samarco dam failure which includes the legal status of claims made against of Samarco and [7]

ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

the BHP. Disclosure of contingent liabilities associated with the different claims and other circumstances which has been represented the exposure of Samarco and BHP that cannot be reliably estimated. This has been a key audit matter because of the significant number of the potential claims, high degree of the estimation uncertainty and the level of judgement while assessing the legal claims.

Key Audit Matter for Evolution Mining Accounting for Earnest Henry Mine The accounting procedure for the economic interest acquired in the Ernest Henry Mine and the ongoing income verified from the mine was a key audit matter. The Evolution team detailed the assessment over the risk exposure and entitlement to the mine, this company has recognized the AUD$880 Million for the upfront payment as a mine development asset. The auditor has addressed the economic interest in the mine, where they focused on the judgement made when assessing the key transaction documents. They also setup the revenue recognition policy for the gold sales and copper and silver sales.

Recognition of deferred tax assets In the financial year of 2017, this corporation has recognised the $57.774 million of differed tax assets from the available of net tax losses. The company has a net deferred tax asset of $ 16.448 million at the end of 30 June 2017 in its financial statement. AAS required deferred tax assets to be recognised only to that extent as it has probable that sufficient future taxable profits will be generated for the facility of beneficial of differed tax assets to be realised. This has been a key audit matter due to judgement required in preparing the forecast report of taxable profits for the future utilization in accordance to Australian

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

Accounting Standards. The auditor has found the differed tax assets balances had comprise a combination of tax losses and there is a different between the accounting values and taxes.

Impairment Reversal of Mt. Carlton’s Non-Current Assets. Evolution Mining has recognised the impairment losses of $148.6 million relating to the Mt. Carlto’s non-current assets in 2013 resulting in the fall of price of the gold as compared with the other gold industries. This assessment of whether to reverse impairment was a key audit matter given the high levels of judgement by the Evolution team over the impairment reversal. Auditors has assessed the recoverable amount of these non current assets for this project

has been

compared current year US $ gold prices with the date of impairment occurred. Auditors also forecast the gold prices when the impairment occur. Auditor has to evaluate the disclosure made in the light of requirements by the Australian Accounting Standards 570.

Conclusion BHP Billiton Limited and Evolution Mining Limited is one of the top leading mining industries producing the various product of gold, silver and copper, steels in Australia and London. Both of the company has a duty to prepare and report the annual financial reports to the exterior users and the sole company users since its trades with the public. This financial reports must have to be more reliable and accurate as they will contribute to the choices for its share holders and end users. From the above Key audit Matter, Both the company has compiled with the guidelines that has been provided by the ASA and 2001 corporation Act for preparation of financial report. This reports has considered the AASB provision with AASB 101, AASB114, AASB8, AASB110 and AASB 128. The purpose of communication key audit matter is to enhance the communicative aspects of the independent auditors report by providing greater transparency about the audit which has been performed in BHP and Evolution. Communicating key audit matters also assist intended users of the financial report in understanding the entity and areas of significant management and judgement in the audited financial statement. The auditor has described each key audit

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

matter using appropriate headings and sub headings in separate section of the financial report under the heading of Key Audit Matters.

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ACC 707 Auditing and Assurance

|Roshan Khatiwada 11600524|

References

Adhariani, D., Sciulli, N., & Clift, R. (2017). Quantitative Optimisation Model, Results, and Discussion. In Financial Management and Corporate Governance from the Feminist Ethics of Care Perspective (pp. 209-284). Springer International Publishing. Australian Accounting Standards Board. (2009). AASB 101: Presentation of Financial Statements. Bhp.com.

(2018).

Annual

Financial

Report.

[online]

Available

at:

https://www.bhp.com/-/media/documents/investors/annualreports/2017/bhpannualreport2017.pdf [Accessed 26 May 2018]. Campbell, J. L., Feagin, J., Downes, J. F., & Utke, S. (2017). Do Investors Adjust for Balance Sheet Risk that Should Be'Off Balance Sheet'? Evidence from Cash Flow Hedges. Carey, P., Potter, B., & Tanewski, G. (2014). Application of the reporting entity concept in Australia. Abacus, 50(4), 460-489. Evolutionmining.com.au. (2018).

Annual Financial Report.

[online] Available at:

https://evolutionmining.com.au/wp-content/uploads/2017/10/171020-Evolution-MiningAnnual-Report-2017.pdf [Accessed 26 May 2018]. Grinblatt, M., & Titman, S. (2016). Financial markets & corporate strategy. Hodgson, A., & Russell, M. (2014). Comprehending comprehensive income. Australian Accounting Review, 24(2), 100-110. Kang, H., & Gray, S. J. (2013). Segment reporting practices in Australia: Has IFRS 8 made a difference? Australian Accounting Review, 23(3), 232-243. Leuz, C., & Wysocki, P. D. (2016). The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), 525-622. Martínez‐ Ferrero, J., Garcia‐ Sanchez, I. M., & Cuadrado‐Ballesteros, B. (2015). Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, 22(1), 45-64.

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