Part I - Research based report
As a new accounting graduate you have recently joined the accounting department of an ASX listed company operating in the mining (extractive) 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.asx300list.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.
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, was quoted 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..." (16-174MR)
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 Committee, to be held on 1 June 2017. Your report must address each of the following:
a) 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.
b) 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.
c) 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.
d) 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.
Part II - Video Oral Presentation
The CFO was impressed by your report and has asked you to prepare a video presentation to be played to the Audit Committee at the next meeting on 1 June 2017.
Your video presentation should:
a) Explain the importance of accurate asset valuations from ASIC's perspective;
b) Highlight what you believe to be the key issues in impairment testing of mining assets;
c) Identify and explain the five key issues that you believe the Audit Committee.