ASSESSMENT COVER SHEET

Group Number Individual Term Summer Term 2021

Unit Code BBAC601 Unit title Auditing and Assurance
Name of person Shahrukh
Due date
who submits
Name of lecturer(s) Quan Nguyen Email: S72253@cic.edu.com
Student/s Declaration:
This assignment is my/our own work, based on my/our personal study and / or research and no
part of it has been copied from any other student's work or from any other source except where
due acknowledgement is made.

I/ We declare that this assignment has not been previously submitted for assessment elsewhere.

I / We declare that no part of this work has been written for me/ us by any other person except
for collaboration authorised by the lecturer.

I / We give consent for the electronic version to be examined, archived and reproduced for the
purpose of detecting plagiarism.

I / We have retained a photocopy or electronic copy of this work which can be produced if the
original is damaged or lost for any reason.

Student Signature/s:

I / We declare that we have read and understood the declaration stated above:

Student number Family name Given name Signature

Shahrukh

S72253
 Audit Strategy

To the Audit Manager,

(A) Information About The Client:

This report is being prepared to support our client Admiralty Resources NL, headquartered at
Suite 305, Level 3/35 Lime St, Sydney NSW 2000, Australia with the understanding of the audit
strategy that will assist in planning the audit for the financial year 2020(Consolidated). The
company trades on the Australia Securities Exchange, a public limited company and domiciled in
Australia and is active in the Iron ore mining operations in Chile and Cobalt and Nickle in
Australia. Our client is a diversified mining company, operating in Australia, Chile and Hong
Kong with the major operations in Chile, under the name of Admiralty Minerals Chile Pty Ltd,
whereas the client does have significance presence in Australia and Hong Kong as well. The
Admiralty Resources, organize their functions in an effective way where they have divided the
regions as per their requirements, as the head office is located in Australia, the managerial
decisions are taken in Australia itself. The explorations and the mining activities are done in
Chile and the borrowing institution in Hong Kong.

The Admiralty is having larger chunk of its revenue coming from its operations in Chile where
Harper South district acts as the major player along with Mariposa, La Chalula, Soberana, Pampa
and El Cojin district of Chile.

Industry, Regulatory & Other External Factors:

Since the ongoing pandemic has affected a lot of sectors in the economy, the COVID19 has also
impacted a severe blow to the mining industry. The recent drop in business and the minerals
requirements has forced the numbers to go down and there is a rare scenario that any of the
mining company is not affected by it. Codelco, the largest in Chile and one of the biggest mining
companies is the world has witnessed a drop in revenue from $26.8 billion in 2018 to $12.5
billion in 2019. This significant drop hence proved that the mining sector is suffering setbacks
for the last accounting period.

Under Chilean mining rules and regulations, the country having one of the world’s highest
mineral reserves, the State of Chile is the sole owner of all the mineral deposits found under the
soil of Chile and the individual entity like my client Admiralty can only have the rights to
explore and mine the deposits by complying to the set of rules and regulations set by the
government. The Admiralty resources has also been awarded 6600 hectares of lands to mine
from the Chilean government itself and 5.37 km2 from the Australian government.

As mentioned in the client’s annual report, the size of the company is really small that it can’t
compete with the mining giants present in the Chilean mining industry. Bruna Alves (2020)
explains us that the top 10 leading mining companies’ revenue stands in billions of dollars
whereas the client revenue stands just in some hundreds of thousands, the Codelco leads with
$12.5 billion dollars of revenue in the Chilean market.

The demand for the primary raw materials that are mined by our client and other companies has
been diminishing since the start of the Covid19 and since then the demand graph is sloping
downwards because the demand for finished products have significantly reduced and the final
consumer is reluctant to purchase it because of the drop in purchasing power.

Paulina & Gianni (2014) have found that there aren’t any such barriers while entering the mining
industry, however there are some gender barriers which barred the women entering into the
mining industry .The company as a whole is not having any barrier to enter into the mining
industry.

Nature of the Entity:

The Admiralty Resources is a public company that is associated and listed in the Australian
Securities Exchange who deals in primarily a mining and mineral deposits extraction in Australia
and Chile whereas the finances are taken care of from its facility in Hong Kong. Since, the
client’s operations comes under service sector and the services it provides it to the state directly,
therefore the mining services are provided to the state itself. In this world, where the natural
resources or the natural reserves are wholly controlled by the state therefore it is really important
for the Admiralty resources to comply with the rules and regulations set by the government of
Chile and Australia.

The Admiralty Resources complies with the ASX Corporate Governance structure and
recommendations for ethical corporate conduct as released by Corporate Governance Council on
1st of July 2014. The hierarchy of the entity was nominated by the majority of shareholders at
General meeting September 2014 keeping in view the experience they are having in Mining and
Corporate finance industry, where the chairman Mr. Bin Li was appointed as the chairman of the
organization by the majority of votes, Mr. Qing Zhong as Managing director and Mr. Jian
Barclay as executive director. The company adheres strongly to the needful that has to be done
in the good faith of the organization and consider itself liable for the disclosure of minutes of the
meeting of every meeting held between the board of directors.
Accounting Policy:

The accounting policy of the Admiralty resources is an important factor and when I look into the
details of their policies and the financial statements, they are all prepared as required by the
Corporation Act 2001, AASB & IAS. The financials are prepared on accrual basis and on
historical costs. The basic accounting policies are summarized as under:

- The financial statements are consolidated, where all the subsidiaries of Admiralty
Resources facts and figures are consolidated as one.
- Income tax is applied to the profit or loss that incurred during the accounting period, the
deferred tax is estimated for the future taxable income that may arise from the utilization
of deferred tax asset.
- The assets/liabilities are considered as current if they are expected to be realized/sold or
consumed within one accounting period, otherwise it is considered as non-current.
- The historical cost is carried for the Property Plant and Equipment (PPE) less the
accumulated depreciation or impairment loss.
- The building is depreciated on 2% of depreciable rate, PPE between 5 to 25%, Furniture
& Equipment between 8 to 33% and Motor Vehicles 15 to 25%. For the land it is the
revaluation procedure that will be adopted as the depreciable amount can’t be calculated
as explained in AASB.
The asset useful life is calculated, reviewed and adjusted. If the asset carrying amount is
greater than its recoverable amount, the value is revalued to its recoverable amount.
The disposal of asset is determined by the asset carrying value and the gain or loss on the
disposal of asset is to be mentioned in financial statement.
- Since the Admiralty resources is a mining company, therefore all the mining interest is
added up with the exploration cost minus the impairment as the exploration cost is
directly linked with the revenue of the company. If the exploration costs is spent on the
area which becomes of no use or revenue will be deducted and will be shown in the profit
and loss account.
- All expenditures incurred during exploration of mines will be considered as mining
interest as defined by the AASB 6.
- Investments are measured at Fair Value.
- All the intangible assets, such as Goodwill are having an indefinite useful life and
therefore will not be subjected to amortization.
- Trade receivables are realized at Fair Value initially and later at amortized cost by using
the interest method minus the losses(bad debts). Trade payables to be paid within the 30
days of maturity or recognition of liability will be considered as current liabilities and
more than one year as non-current liability.
- Recognition of revenue, asset and expenses after the application of GST, except if the
value of the GST in not recoverable from the Australian Taxation Office.
(B)Analysis of the Client and Impacts on the Future Audit Work:

Changes in Accounting Policies and the Impact of Changes:

I have identified that the company’s treatment of exploration expenditure is not up to the mark as
the expenditure which the Admiralty is capitalizing is huge (22million $) and cannot be made
with the assumptions or as per the consents of the directors as there is a fear that the values can
be faked if there is not any involvement of government department.

The AASB6, indicates the determination that either the exploration expenditure is allocated to
the reliable and suitable area where the organization can attain maximum positive output, while
just assumptions will not make the picture clearer to the stake holders of the company. Therefore
it is advisable that a government department gets involved who overview the exploration
expenditure if it will be in the interest of the organization or not.

The Convertible note is the another weak link that I have studied while going through the
financials of the company as the practice of determining the convertible notes in USD is really
complicated and will not be giving the true and fair information regarding the convertible notes
that is a major part of the liabilities of Admiralty.

The other most important aspect I have realized is non-hiring of an internal auditor in a company
where majority of the decisions are made by the some individuals and this can be the reason the
client is unable to find out the issues that are not making them successful in attaining the desired
target.

The company is going through a continuous tough face and in making the audit strategy it is
really important to point out the discrepancies that the company’s management is skipping that is
resulting in such huge losses and shortage of capital. Instead company is tilting towards more
borrowings then before that should be taken care of at earliest.

Preliminary Analytical Procedures

Ratio formula Result comment

1 Current Current 2020 2019 The benchmark
ratio assets for the current
divided by = 685,993/ 4,589,664 = 732,122/ 5,567,541 ratio is between
current 1.5% to 3%.
liabilities 0.15 0.13 Here the
 company is
going through a
serious situation
where the
company is not
having enough
current assets so
they can pay off
the current
liabilities.
2 Quick Current Same 0.15% as there Same 0.13% as there This is some
Asset assets – is no inventory is no inventory serious concern,
Ratio Inventory since the
divided by Admiralty deals
current in services
liabilities therefore the
chance of paying
off the current
liabilities with
the inventory is
not available at
all.
3 Debt to Short term = 11,499,108 = 9,327,232/ The debt to
Equity debt + /11,543,178 13,089,018 equity ratio does
Ration Long term indicate that the
debt+ 0.99 0.71 assets are more
other funded by the
fixed equity and not by
payments debts since it is
divided by below 1.
Share However, if the
holder’s practice of
equity convertible notes
and
capitalization of
exploration
expenditure is
avoided the
situation will be
different. This
ratio should not
be considered as
true and fair.
4 Return Net Profit = = The negative
on before (1,545,840)/23,042,286 (1,135,957/22,416,249) value indicates
Assets interest negative value as
 and taxes/ (0.06) (0.05) for both of the
Total years the assets
Assets are far ahead of
brining the
company to
profitability.
5 Net Net Profit (1,545,840)/973,758 (1,135,957/2,882,055) It is clearly
Profit divided by visible that the
Ratio Net Sales =(1.58) =(0.39) company is
struggling with
the losses that it
is incurring
during the course
of 2 years.

Measurement and Review of Financial Performance:

As the business and the size of the company is not big enough that a separate department is
required that evaluate the executive remuneration but the board of directors are responsible to
appoint, terminate, delegate and related to the remuneration to the managing director, accountant
or secretary whatsoever.

There are no equity remuneration scheme, remuneration, retirement bonus to non-executive

director but there are for the executive directors. Summarizing the remuneration setup, the whole
of the decision makings are made by the board of directors and there is no any sort of
remuneration for the non-executive director but the fee that is also determined by the board of
directors periodically.

Objectives, Strategies & Related Business Risks:

It can be concluded that although the Admiralty resources have made the financials on the basis
of going concern but it is very likely that if the situation remains the same, the company will not
be able to survive for long even if the Hong Kong chapter assists with the funds. The Admiralty
has singed the mining lease documents with the Rocterra Limitada and with Shanghai Long
Sheng Technology but it can easily be concluded that Admiralty will not going to be survived if
things go this way and proper accounting and business precautions are not taken.
References:

Admiral Resources NL (2020), Financial Report for the year ended 30 June 2020.

Bruna, A 2020, Leading mining companies in Chile in 2018, by net revenue, reviewed on 17
February 2020, https://www.statista.com/statistics/769208/leading-mining-companies-revenue-
chile.

Paulina & Guianni 2014, Gender Barriers in Chilean Mining: a Strategic Management, viewed
on 17 February 2020,
https://www.researchgate.net/publication/264935651_Gender_barriers_in_Chilean_mining_a_str
ategic_management.