Auditing and Assurance - Mining Industries WORD
Auditing and Assurance - Mining Industries WORD
Auditing and Assurance - Mining Industries WORD
Group 4 Members
Cercado, Arnold
Dacumos, Carlito
Losadio, Mary Leslie
Mobilla, Jorey
Quintero, Faith
Santos, Hannah Camille
May 2021
I. INTRODUCTION
1. Exploration
It usually begins with field studies and mapping. In this phase, initial information about the
probability of mineral ore deposit is collected with the help of experts like geologists. If this
initial information is promising, companies may apply for exploration licenses with which they
can conduct further research, usually including some drilling and extraction of core samples is
necessary before starting a mining project.
2. Development
The development phase commences after the mineral ore exploration proves that there is a large
enough mineral ore deposit, of sufficient grade. This phase is divided into two stages: Feasibility
stage and Construction Stage. Feasibility stage includes the site investigation, determining what
type of mine is required, the design and the assessment of cost to perform these actions while the
Construction stage includes the construction of access roads for the heavy equipment, delivery of
supplies to the site and transportation of extracted minerals, and site preparation and clearing.
3. Production
During this phase, the company extracts the minerals from the ground and often rinses or
separates some of the minerals from the ore.
4. Closure
It is the last phase in the mining cycle wherein the extraction company has a responsibility to
close the mine. During the closure and rehabilitation phase, the company often has to make the
area around the mine safe, including securing the waste piles produced by the mine.
I.B. Relevant Accounting Standard
PFRS 6 EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES
Scope of PFRS 6
This standard shall apply to exploration and evaluation expenditures incurred. It does not apply
to expenditures incurred:
- before the exploration for and evaluation of mineral resources
- after the technical feasibility and commercial viability of extracting a mineral resource
are demonstrable.
Definition of Terminologies
Exploration for and Evaluation
It refers to the search for mineral resources, including minerals, oil, natural gas and similar
non-regenerative resources after the entity has obtained legal rights to explore in a specific
area, as well as the determination of the technical feasibility and commercial viability of
extracting the mineral resource.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures are expenditures incurred by an entity in connection
with the exploration for and evaluation of mineral resources before the technical feasibility
and commercial viability of extracting a mineral resource are demonstrable.
Examples:
1. Acquisition of rights to explore
2. Exploratory Drilling
3. Expenses related to the conduct of technical feasibility and commercial viability
Accounting Treatment
An entity’s treatment of the exploration and evaluation expenditures for each area of interest
shall be either:
i. expensed as incurred, or
ii. partially or fully capitalized and recognized as an exploration and evaluation asset if the
following conditions are met:
a. the rights to tenure of the area of interest are current, and
b. at least one of the following two conditions is also met:
i. the exploration and evaluation expenditures are expected to be recouped
through successful development and exploitation, or by sale; or
ii. exploration and evaluation activities in the area of interest have not at the date
reached a stage of reasonable assessment to determine the recoverable reserves,
but active operations are continuing
Measurement At Recognition
If the entity opts to capitalize exploration and evaluation expenditures as assets, it shall
measure them at cost. The assets shall be classified as tangible or intangible according to
the nature of the assets acquired.
Examples:
• Tangible Assets: vehicles and drilling rigs
• Intangible Assets: drilling rights
Subsequent to recognition, the exploration and evaluation assets shall be measured using
the cost model or the revaluation model.
Derecognition
An exploration and evaluation asset shall no longer be classified as such when the
technical feasibility and commercial viability of extracting a mineral resource
are demonstrable. The assets shall be assessed for impairment before the accounting for
reclassification, and the impairment loss shall be recognized in profit or loss.
Audit Focus
The first step in the audit planning process is to determine what exactly should be audited
in the mining sector (that is, the audit focus). The make this happen, the auditors will need to
undertake two initial research and analysis tasks.
1. Acquire knowledge about the business by gathering and analyzing relevant
information on the mining sector and on government responsibilities in regulating,
monitoring, and overseeing the sector.
2. Identify and assess risk factors that could prevent the government from carrying out
its responsibilities in this sector effectively and meeting its objectives.
At this stage, the auditors can also view performance audits on the mining sector that
have been previously published by their office or other jurisdictions, as well as the work that
financial auditors have conducted as part of their audits of the public accountants. This may help
audit teams to complete their list of potential issues to examine and to identify risk factors that
they might not yet have considered.
Test of Controls
Inquiry
- Inquiring to knowledgeable people with regards to the mining company, its control
environment, business operations, and implementation of guidelines and policies.
Observation
- Observe the process of its revenue and expenditure cycle, on-site operations, and its
administrative control to manage the whole mining company.
Inspection
- Conducting an inspection both on-site and their headquarter office with regards to the
processes that they follow with the production, extraction of minerals, documentation and
recording of transactions.
-
Re-performance
- This involves re-performing activities which can provide evidence that the results obtained in
relation to the internal control activities can be relied upon as audit evidences. It may be
performed by the auditor itself, or a knowledgeable and competent professional expert to
mining industry.
Wrap-Up Procedures
Wrap-up procedures are those procedures done at the end of the audit that generally cannot be
performed before the other audit work is complete which include;
Final analytical procedures
Analytical procedure involves analysis of significant ratios and trends, including the
resulting investigation of fluctuations and relationships that are inconsistent with other
relevant information or deviate from predicted amounts.
These analytical procedures helps auditor in assessing the risk of material
misstatements in the financial statements.
Evaluation of the entity’s ability to continue as a going concern
The auditor is required to evaluate whether substantial doubt exists about the client
entity's ability to continue as a going concern.
Evaluation audit findings
After evaluating the evidence obtained, the auditor should decide whether to accept
the financial statements as fairly stated or to request management to revise the statement.
Material misstatements discovered during the audit must be corrected by recommending
appropriate adjusting entries.
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