Analysis On Financial Statements Under Antipa Minerals Annual Report In 2019
You are a part of the team responsible for planning the Antipa Minerals Ltd (ASX code – AZY),
a listed mineral exploration company, audit engagement for 2020. You are required to gather
relevant background information and prepare a report for a meeting with your seniors.
Assume that this is the first time that the audit will be conducted by your audit firm for this
Your report must address the following issues:
(a) Identify and briefly describe three inherent risks that your team will consider for AZY engagement.
(b) Are there any events or conditions that may cast significant doubt on the AZY’s ability to continue as a going concern? Explain.
(c) Based on your risk analysis and understanding of AZY and its environment, list and explain three accounts that could be at risk of material misstatements. You also need
to identify the key assertion at risk for each identified account.
(d) With specific reference to the AZY’s corporate governance arrangements, assess the likelihood of the potential reliance that could be placed on the overall control environment.
The answers for above questions should be reflective of your in-depth understanding of how the AZY operates. You should conduct extensive research and perform an analysis of the annual report of AZY for the year 2019 and any other relevant information that you have obtained. (Hint: company’s financial results and corporate governance statement, financial press and other business media).
Extract from CPA In the Black, 1st of June 2018
“As a means of detecting fraud, external audit only features in 3 per cent of detected fraud cases. The top three methods by which fraud is detected are tip-off, internal audit and management review. External audit is not designed to detect fraud”.
Director and national head of fraud and forensic services, Australia, RSM
(a) Review the above statement and discuss what is the auditor’s responsibility under auditing standards for detecting fraud.
(b) Auditors are required to make inquiries with individuals in the company when gathering information to assess fraud risk. List those with whom the auditor must make inquiries.
The main focus of this report is to analyse the Antipa Minerals annual report for the year ending 2019. Important aspects of auditing in the organization have been undertaken with the help of an audit report provided by the auditor of this organization in the previous year. This report has identified the different types of inherent factors and factors that can result in material misstatement under the Antipa Minerals annual report and audit report. It can be said that all the financial statements are following the provided legislation and management has been able to develop an effective level of transparency in such a statement.
Question 1- Antipa Minerals Ltd.
Inherent risk factors
Inherent risk factors are the factors that can create misstatements in financial statements from any factor other than the internal controls of the company. Following are the three main inherent factors that are identified in the financial statements under Antipa Minerals annual report-
The complexity of financial statements- Legislation as applicable to the business organization operating in the mineral extraction industry significantly difficult and complicated as compared to Other industries. This type of legislation increases the complex nature of financial statements that can increase the inherent risk factor (Jones, 2017).
Use of information technology- Significant number of operational activities in this project is dependent on the use of information technology and accounting software. This type of framework can be very difficult for auditors to examine due to the limitation of knowledge concerning information technology.
Assumption based accounting- Auditors of the organization has disclosed various assumptions taken by the management of the company concerning accounting for "Exploration for and evaluation of mineral resources". This type of examination increases the complexity of financial statements that ultimately increases inherent risk factors (Knechel and Salterio, 2016).
On page 41 of the Antipa Minerals annual report issued in the year 2019, it was provided under the section "capital risk management" that there are no events that can create any problem for the organization to continuous operation in the future. Going concern is a concept that is required to be followed by every business organization and they are required to disclose in notes to accounts and events that might affect the existence of the organization in the future. Based on analysing the financial statement as well as the statements provided by directors, it can be said that going concern concept of this organization would not be affected in any negative manner.
Accounts at risk of material misstatement
After analysing financial statements of the company following are the three accounts where the probability of material misstatement is higher as compared to other accounts-
Cash and cash equivalents- Cash and cash equivalents are considered as one of the most fraud-prone areas in any business organization. For example, petty cash expenses can be menu plated by cash managers easily to gain a significant amount of cash reserves over the period. The auditor of the organization is required to make sure that proper disbursement and issuance policies have been used by the organization to control cost management (Bendickson, Hammer and Ross, 2018).
Stock management- Another important aspect of business management that is required to be considered by any business organization is its stock. The importance of stock valuation in the given scenario will increase significantly as the valuation of minerals and other natural resources can be very difficult. In addition to that significant amount of skills and experience is required for the classification of a particular mineral and providing valuation to such mineral in financial accounts. In the given scenario auditor is required to identify the overall framework that is used by the organization for the valuation of such inventory.
Exploration and evaluation expenditure- One of the primary costs associated with direct operations of the organization is exploration and evaluation expenditure. In addition to that evaluation of this expensive is also very complicated as provided in AASB 6 (William Jr., Glover and Prawitt, 2016). Increased levels of complexity can result in an increased probability of misstatement.
Corporate governance arrangement
Corporate governance arrangement can be identified as policies adopted by an organization to keep a balance between the interest of different stakeholders such as shareholders, senior management staff, customers, suppliers, etc. The overall structure of the company can be analysed based on the information provided in Antipa Minerals annual report. Based on the structure it can be said that management is trying to maintain transparency of operations and financial position of the organization with the help of Antipa Minerals annual report. For example, management has provided the revenue distributed to senior staff members in comparison with the total profit made by the organization in a particular accounting period.
Similarly, there are various steps taken by the organization that creates are effective and efficient corporate governance arrangement in the company (Turker and Bicer, 2020). Based on this Antipa Minerals annual report analysis, it can be said that effective and efficient internal control strategies are been implemented in the company and this controlled environment can be relied upon by the auditor.
Question 2- Extract from “CPA in the Black”
Auditor's responsibility to detect fraud
Based on different rules and regulations provided by the Australian accounting standard board, auditors are not essentially required to identify fraud associated with a particular organization. On the other hand, they are required to detect a material misstatement that can result in fraud or caused by fraud. It is the responsibility of the auditor to identify such material misstatement and communicate such statements as internal and external stakeholders. Detection of fraud can be undertaken by the stakeholders based on information provided by auditors (Umar, Erlina and Fauziah, 2019).
Inquiry with individuals
Following are some of the individuals or group of people that are required to be communicated by the auditor-
Audit committee- The purpose of developing the audit committee is to identify problems associated with financial statements.
Internal auditors- Auditors can easily identify the main areas of problem associated with the financial statements of a company with the help of communication with internal auditors.
Accountants and accounting department- This communication will help to identify the general Framework used by the accounting department for the development of financial statements.
Management representative- Representative of management such as chief executive officer should also be communicated to identify the general assumptions or frameworks used for conducting general operations.
On the overall conclusion of this report, it can be said that some various roles and responsibilities are required to be performed by the auditor. This is because numerous stakeholders such as the shareholders and creditors are dependent on the opinion provided by auditors to take their investment decisions. Based on analysing the statement prepared within the Antipa Minerals annual report in the year 2019, it can be said that financial statements are providing Clear View of operations in the company for the year under consideration.
Bendickson, N.J., Hammer, B. and Ross, P.E., 2018. Drive excellence: auditing fleet safety process to manage risk. Antipa Minerals annual report Professional Safety, 63(02), pp.30-35.
Jones, P., 2017. Statistical sampling and risk analysis in auditing. Taylor & Francis.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Turker, I. and Bicer, A.A., 2020. How to Use Blockchain Effectively in Auditing and Assurance Services. In Digital Business Strategies in Blockchain Ecosystems (pp. 457-471). Springer, Cham.
Umar, H., Erlina, E. and Fauziah, A., 2019. Audit Quality Determinants And The Relation Of Fraud Detection. International Journal of Civil Engineering and Technology, 10(3).
William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. Antipa Minerals annual report McGraw-Hill Education.