Aquino, Erika Justine M.

Sec - 4

Webinar 5: Audit of Mining Industries

I. Specialized Industry
● Nature and Background of Specialized Industry
The mining industry is concerned with extracting minerals and other
geological materials. These raw materials are transformed into mineralized
forms that benefit the prospector or miner. Because the growth of the mining
industries often regulates the resource acquisition potential and economic
development of the countries, the mining industry is one of the most
prominent earning sources in many countries. This industry may be classified
as geophysical or chemical based on the various characteristics of the mining
industries.
Typical activities or processes in the mining industry include the
surface method, underground, placer, and in-situ. Surface mining is the most
widely known method used in this industry. It involves digging the surface
ground with heavy equipment, and the collected raw materials are brought
away from the field to process further. The second is underground mining. It
requires preparations such as drilling holes and using explosives to create a
tunnel. Afterward, concrete is placed to prevent the field from collapsing. Next
is the place mining. It is usually done by putting the materials in water
streams to extract the minerals. Lastly, in-situ mining involves injecting
solutions into the mineral body to extract the mineral courses. It does not
include excavation, and only pipes are inserted.

● Overview and Statistics of the Specialized Industry

The Philippines is one of the nations with the greatest mineral wealth
in the world, despite having a small area compared to other countries. In
2020, the contribution of mining to Gross Domestic Product fluctuated to
7.87%; however, in the same year, it dropped to 0.6%. In the course of the
pandemic, despite its impact on different business fields, the mining industry
was ironically unaffected, and employment was also stable. A total of Php
380M were donated to fight against COVID-19 (Toledo, 2022).

● Key Updates
Following the anti-mining stance in 2017 that suspended 26 mining
operations for having environmental violations, former President Rodrigo
Duterte lifted the ban after 4 years (Crismundo, 2022). This is to resuscitate
the economy which got affected by the pandemic. However, with the effects of
mining on the environment, many activists were against the decision of
President Duterte as it imposes danger not only to the environment but to the
locals as well.

● Key Players
Some mining companies that DENR recognizes include:
● Hinatuan Mining Corp.
● Holcim Resource Development Corp.
● Taganito HPAL Nickel Corp.
● Philex Mining Corp.
● Apex Mining Company
II. Accounting Standards Applicable to the Industry
Specific accounting standards that apply to the mining industry are the
following:
● PFRS 6: Ensures that expenditure incurred is generally expensed
before obtaining legal rights.
● PAS 23: borrowing costs must be capitalized while acquisition or
construction is underway.
● PAS 21: any gain or loss in foreign exchange must be recognized in
the profit or loss.
● PAS 16: proceeds from sales must be offset against the asset cost
instead of being recognized as revenue

III. Audit Considerations

● Risk Considerations
In the mining industry, auditors usually monitor the improper
recognition of exploration and evaluation assets, improper recognition of
assets related to the development costs, valuation of inventories such as
allocation of inventoriable costs, accounting for stripping costs, and
determination of net realizable value, and weight and content. Also, mining
assets are at risk of depreciating/amortizing methods of mining assets,
estimation of reserves as the basis for unit-production method, changes in the
basis of reserves, and impairment of mining assets. Regarding the revenue
and trade receivable, the risks are the amount needed to be recognized in
revenue, the period of recognition, and compliance with the MGB and BIR.

● Audit Procedures
With the stated risks above, procedures are done to monitor and
prevent threats from affecting the company. Hence, auditors need to review
the nature and timing of expenditures during the exploration and development
phase, make sure that costs from exploration and evaluation assets are
obtained before legal rights, and assess the property if it is necessary for
commercial production or attributable to an area of interest. Performing
walkthrough inventory management process, reviewing accounting stripping
costs, conducting tests to determine the accuracy of costing, etc.

● Key Audit Matters

In the financial statement of Apex Mining Company as of 2021, the
key audit matters in the auditors' professional judgment include Recoverability
of Deferred Exploration Costs. Under PFRS 6, deferred exploration costs
shall be assessed for impairment if facts suggest that the carrying amount
exceeded the recoverable amount.

IV. Reflection and Learning Points

I have always been familiar with the harmful effects of the mining industry on
the environment. While that is true, I did not know that it also contributes to the
country, like the economy. It is quite relieving to know that processes and
examinations are conducted before thoroughly performing mining activities. Also,
there are processes to restore some parts in the field. Mining companies must follow
guidelines to legally perform activities in certain parts of the area to prevent
anomalies.
 V. References

Crismundo, K. (2022). Lifting of mining ban to usher in manufacturing resurgence. Philippine

News Agency.
https://www.pna.gov.ph/articles/1167954#:~:text=%E2%80%9CThe%20Philippines%
20lifted%20a%20four,mining%20agreements%20seven%20months%20earlier

DENR. (2021). DENR Recognizes Exemplary Mining Companies at 2021 Annual National
Mine Safety and Environment Conference.
https://www.denr.gov.ph/index.php/news-events/press-releases/3425-denr-recognize
s-exemplary-mining-companies-at-2021-annual-national-mine-safety-and-environme
nt-conference

Toledo, M. (2022). The Philippine mining industry: Looking for a stable business
environment. Philstar Global.
https://www.philstar.com/other-sections/newsmakers/2022/04/19/2175019/philippine-
mining-industry-looking-stable-business-environment