Research based report
As a new accounting graduate you have recently joined the accounting department of an ASX listed
company operating in the mining extraction industry. To complete this assignment you will need to
select a suitable company yourself that meets the following criteria:
The company must be a constituent of the S&P/ASX 300 index (www(dot)asx300list(dot)com);
The company must be in the ‘Materials' sector
you can identify all companies in this sector by sorting the list based on the third column of the table in the above website
The company must publish audited annual financial reports in English, fully complying
with IFRS or AASB standards;
The company must have a 30 June year end; and
The company cannot be Evolution Mining Limited. Your manager, the CFO, has sent you an email containing a Media Release (MR) from the Australian Securities &Investment Commission (ASIC) in relation to Evolution Mining Limited (Evolution Mining), a listed entity in the same industry as the company that you are employed by. MR is provided below:
http://asic(dot)gov(dot)au/about-asic/media-centre/find-a-media-release/2016-releases/16-294mr-evolution-mining-writes-down-pajingo-mine/
http://asic(dot)gov(dot)au/about
The Audit Committee is aware that as well as Evolution Mining, numerous other companies in the same industry have also recently been investigated by ASIC in relation to asset valuations. The Audit Committee is also aware that ASIC Commissioner,John Price,wasquoted as saying the following when announcing the focus areas for 30 June 2016 financial reports:“Directors and auditors should continue to focus on values of assets and accounting policy choices. We continue to see companies use unrealistic assumptions in testing the value of assets... To this end, the Audit Committee is keen to ensure that asset values are appropriately reflected in
the 30 June 2017 financial statements of your company.
You have been asked to undertake some research and prepare a report for presentation at the next meeting of the Audit Committe, to be held on 1 June 2017. Your report must address each of the following:
The role of ASIC as a Corporate Regulator, specifically in relation to their Financial Reporting
Surveillance Program. In your discussion provide a summary of ASIC's findings from their review of 31 December 2015 financial reports in relation to asset values and impairment testing. (5marks)
A critical analysis of some of the complexities and key issues involved in impairment testing for mining assets.
In your analysis, refer to one or more publications issued by the ‘Big 4'in relation to the mining industry.
Provide a detailed explanation of the impairment write-down made by Evolution Mining in the
year ended 30 June 2016. Your explanation should include a discussion of the asset/s that were
impaired, the amount of the impairment write-down, and relevant disclosures in the 30 June 2016 financial report in relation to impairment testing.(10 marks)
In relation to the company that you are employed by, identify five specific issues that the Audit
Committee should consider when reviewing the impairment calculations that will shortly be prepared by management. For each issue identified,explain how it is specifically relevant to your
company. Hint: You may wish to refer to table 3 of ASIC information sheet ‘INFO 203 Impairment of non-financial assets: Materials for directors'
for a list of matters that would be relevant to the Audit Committee. (10 marks)