HI6026 Audit Assurance And Compliance Assignment Help – Holmes Institute Australia

Introduction

For over 30 years, the case company (CARRICK Gold & Copper Ltd. (KGC Ltd),  has been involved in a large Open Cast (Pit) gold and copper mine in the Star Mountain Range of Papua New Guinea (PNG). The Star Mountain Range is located in a very remote area of PNG and is rich with exotic plants and animal species.

a) Steps required to consider before accepting to do an Audit

Following steps are involved in order to accept the engagement of doing an Audit:

1. Evaluation of the Integrity of the Management

The first step to consider before accepting an audit engagement is to evaluate the integrity of the management of the firm, which involves evaluating material mistakes and indiscretions (and scams) because these are likely possibilities when there is dishonest management (Boynton et al., 2005).

2. Identification of Distinctive Conditions and Uncommon Risks

During this step, the auditor emphasizes classifying the targeted handlers of the company’s financial statements. The legal obligation experience of the auditor may differ based on the targeted statement users, particularly with reference to the usual negligence of law negligence (Boynton et al., 2005).

3. Evaluating the Audit Competency

Evaluating which personnel will be selected for conducting the Audit (Boynton et al., 2005).

4. Evaluating Individuality

This step involves evaluating the independence of an Auditor during the Audit process (Boynton et al., 2005).

5. Determining the Use of Due Care

There are two factors to consider in evaluating the capability to use due care:

a) The timing of the appointment

b) Scheduling the fieldwork

6. Preparation of Audit Engagement Letter

Preparing the final letter for engagement which acts as a contract between the firm and the auditors (Boynton et al., 2005).

b)     Acceptance of doing the Audit based on the Inherent Risks

Inherent Risk: Inherent risk is the risk that items may be misstated as a result of their inherent characteristics (Martinov and Roebuck, 1998). In this situation, the inherent risk is 80%.

Control Risk: Control risk is the risk that a misstatement would not be prevented or detected by the internal control systems that the client has in operation (Mohseni, 2014). In this scenario control risk is 10%

Detection Risk: Detection risk is the risk that the audit testing procedures will fail to detect a misstatement in a transaction or in an account balance (Mohseni, 2014). In this case, the detection risk is 50%.

In order to consider whether the audit firm accepts the audit engagement or not is depends on the Audit Risk. Audit risk is the risk that the auditor reaches an inappropriate conclusion on the area under audit.

Audit Risk = inherent Risk x Control Risk x Detection Risk

Audit Risk = 0.8 x 0.1 x 0.5

Audit Risk = 4%

This means that the auditor accepts that there will be a 4% risk that the audited item will be misstated in the financial statements and only a 96% probability that it is materially correct.in this case, the audit firm can accept the audit engagement but needs to extend its work in order to reduce the probability of audit risk.

c)  Audit Program for the KGC Ltd.

The following should be included in an audit program for the KGC LTD. Mine in PNG.

1. Review pertinent financial information for any unique or unusual items relating to the entity.

2. Gain knowledge of the area being audited by reviewing related documents, conducting interviews & observing the processes & functions. Obtain the organizational chart of the area being audited and the job descriptions of staff members.  List the major segments/processes of your review below and refer to the detailed narratives or flowcharts for each.  Include completed samples of input & output documents, forms & reports.  Include source on samples. Obtain auditee sign off on narratives and flowcharts to ensure accurate representation.

3. Analyse the strengths and weaknesses of the major processes in the narratives and flowcharts. Prepare a Risk Matrix that identifies the following for each preliminary audit objective:

a) the risks and expected controls for each objective

b) actual practices that fulfill each element (strength) or the absence of such (weakness) with work paper reference to the flowchart or narrative and

c) the disposition for each actual practice listed as appropriate from one of the following: report without testing, Detailed Fieldwork Program reference, or no further action (NFA) as outside scope or immaterial.

4. Prepare a summary of proposed modifications to the audit scope & objectives & prioritize the objectives in order of significance.

5. Develop the Detailed Fieldwork Program to include test steps for each objective as well as the sampling plans. Estimate time for audit steps & calculate completion date – document detailed time on by step and total time and the deadline on I. B.  Reference the applicable audit steps on the risk matrix.    If necessary, draft proposed revisions to budget & report due date & submit or approval – include on this General Audit Program.

6. If there are revisions to the audit scope, objectives, report due date, or other areas of significance based on the preliminary survey, prepare a memorandum to the attendees of the Entrance Conference to communicate the changes.

7. Prepare a Conclusion Summary for inclusion in the report for items that will not be addressed in fieldwork & discuss with the operating manager(s) & obtain signature(s).

8. Review previous auditor reports and evaluate findings:

a) How often are audits on the company’s finances conducted?

b) When was the last audit performed?

c) By whom was the last audit performed?

d) Was the audit adequate?

e) Were past recommendations implemented? If not, what were the reasons?

9. Review the internal control questionnaire:

a) What is the company’s perceived internal control strengths?

b) Are there any weaknesses that require additional audit testing?

c) Obtain a copy of the National Staff Personnel Policy Manual (if available).

d) Obtain a copy of the Company Accounting Policy Manual (if available).

10. In connection with the review of deposits in the cash area, reconcile the deposits to the receipts recorded; determine the nature of the various sources of receipts and any unusual recording procedures, entries, etc.

11. Determine whether the company owns any assets.(Automobiles, land, buildings, office equipment)

a) Determine whether a listing of all assets owned is maintained.

b) Obtain a copy

c) Review for completeness

d) Determine the date of the latest compilation

e) Verify whether the assets are registered to CRWRC. If not, state the reasons.

12. Determine whether the company prepare an analysis of the activity in intangible assets (License) for the period and reconcile it to the general ledger control accounts, including the following information:

a) A description of each intangible asset (License);

b) Method of amortization;

c) Balances at the beginning and end of the period;

d) Additions;

e) Transfer, sales; and

f) Amounts amortized or written off

13. Where applicable, verify the value of the intangible assets with patents and other third-party documents.

14. By review of the check register for the prior months, select  checks and review the following:

a) Cancelled checks for agreement of endorsement, payee, amount, etc.

b) Supporting invoice for agreement of description, amount, date, and account classification.

c) Proper authorization in accordance with agency policy.

13. Review the check register for the prior months and be particularly alert for unusual items such as

14. Large amounts

15. Payments to agency staff

16. Payments to company treasurer/director or related persons

17. Payments to banks

18. Payments to individuals

19. List any items noted above and follow up by discussing with the company treasurer/director with the supporting documentation.

20. Review personnel expenses for personal medical charges for expatriate-level staff. Agency funds should not be used unless with Home Office authorization.  This authorization must be documented

21. Review the mission’s compliance with the host country’s laws in regard to

22. Country registration

d)     Major Concerns for the Auditor

Following are the major concerns and tests that should be performed to resolve those concerns.

1. Whether the appropriate expert is employed to revalue the property plant and equipment

2. Consider the relevance and reliability of the information to be used as audit evidence To resolve these concerns auditor should perform the following steps.

a) evaluate the competence, capabilities, and objectivity of that expert

b) obtain an understanding of the expert’s work, and

c) evaluate the appropriateness of his report as audit evidence

In order to address the concerns, the auditor can expand the number of tests of controls in the Audit scope. The auditor can also carry out control tests on the firm’s internal control system and assessing its efficiency to define the level of risks involved.

e) Future Prospects of the Mine

Mining companies including CARRICK Gold & Copper Ltd. (KGC Ltd), today, face a difficulty of problems: spiraling costs, government intervention, deepening pits, lower ore grades, and declining productivity are just some of the issues. Communities are not trusting mining, and this creates additional uncertainty. It is harder to find and start a mine than ever before. Combine this with today’s capital environment and struggling commodity prices, and it creates a very difficult picture. Through advances in scientific research and development and technological innovation, it can address the challenges that not only hinder the productivity of the industry but of the country, such as rising energy costs. It can drive the growth of a new mining services sector that helps to diversify the economy. It can take a leadership position on issues such as environmental and social sustainability. Changes such as these will be vital for ensuring that Chile remains a key player within the global mining value chain over the coming decades.

However, this sort of progress will not be possible without successful collaboration across industry, government, and the research community. There is a need for these different stakeholders to unite behind a shared vision for the future of mining in Chile and work together to move towards this ideal.

In the last few decades, the Christian-animist residents of the Indonesian half of the island of New Guinea (the Indonesians call their half of the island “Irian Jaya” or “Papua”) have been agitating for independence from Indonesia (it is estimated that 100,000 of them have died in the conflict and some of the tribes have resumed headhunting with the Indonesian soldiers and settlers being targeted. The PNG tribes near the border with Papua are closely related to the tribes across the border and there is fear the conflict and the police actions by the Indonesian army will spill into the PNG portion of the Star Mountain Range.

f) Firm’s Social Responsibility

As the company dumped 5 million pond litters of ore-waste sludge into a river from which two local villages draw their drinking water, fish, hunt, harvest lotus root, and water their taro root, yam, and cassava crops, we will not sign-off that statement as being true and fair.

g) Willingness to Sign-off on the Prospectus

As the firm’s current license from the PNG government to mine in that region will expire in eight years and PNG operations are its principal asset, therefore, we will not sign off on that prospectus stating that those operations as low risk and that it expected them to be indefinite in duration as being true and fair

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