The company discussed about here is St Barbara Limited, it is listed on ASX. The company deals in production and exploration of the gold and has a history of 50 years. Initially the company focused only on the mineral exploration and asset production in Western Australia however late in 2005, the company made an acquisition of Southern Cross, Leonora and South Laverton gold assets from Sons of Gwalia Limited. The company further made an acquisition of Allied Gold Mining plc at Papua New Guinea and Gold Ridge in the Solomon Islands. All this has contributed to the growth of the company over the years in terms of revenue and profitability.
Materiality is defined as the range or a particular amount above which everything is considered to be important and therefore material. It is one of the very basic steps in planning of the audit and helps the auditor in paving the path for the overall audit procedures. The concept of materiality is important simply because of the fact that in case it is inappropriately determined, it may give hamper the quality of audit and that the material misstatement may not be caught at times.
(Amt in $'000)
ST Barbara Limited
Quantitative estimate of materiality
Criterion Base Amount Materiality level/range
0.5% to 1% of gross revenue Gross Revenue 679,204 3396.02 to 6792.04
1% to 2% of the total assets Total Assets 821,144 8211.44 to 16422.88
1% to 2% of the gross profit Gross Profit 403,509 4035.09 to 8070.18
2% - 5% of the shareholders's equity Equity 665,870 6658.7 to 13317.4
5% to 10% of the net profit Net profit 226,998 11349.9 to 22699.8
The quantitative estimate of the materiality for the company in hand has been shown above. There are various ways in which the same can be determined and have been used in the past. Some of them are percentages of gross sales, gross profit, net profit, total assets or even equity. Using these limits, materiality has been calculated above, however the same should be in 11.35 Mn and 22.70 Mn as determined as a percentage of net profit as it seems to be the most convenient.
Review of the draft notes and disclosures
The notes on accounts as well as the disclosures have been studied and analysed and it was found that the company has 2-3 major customers contributing to nearly 90% of the revenues and therefore the contract with the customers’ needs to be checked by the auditor’s w.r.t. revenue recognition criteria and other terms and conditions. The company’s management has used a number of accounting judgement and estimates with respect to accounting for income taxes, deferred tax treatment, deferred mining costs, etc., all of which should be reviewed and checked with those charged with governance for proper back ups and justifications. The company does capitalizes the mineral properties and the mineral rights based on the exploration and evaluation of the assets, the same needs to be checked with the help of the expert. The company had disclosed some information in events occurring after balance sheet date like the declaration of fully franked final dividend by the directors, for which the provision has not been recognized in the 2018 financial statements. The company has also disclosed some of the contingencies like the potential penalty on account of provision of benefits to the foreign public official which is a violation of the anti-bribery and anti-corruption law in Australia. The company has also mentioned the chances of ATO audit as a part of regular tax review for which the company has made appropriate provision for taxes,
The Analysis of Ratios and Assertions and Audit procedures
Some of the audit assertions in case of St Barbara Limited and the relevant audit procedures to be taken are mentioned below:
1.The company capitalizes a lot of exploration and mineral based assets and the rights and therefore the assertion of the right on the asset needs to be verified. The same can be checked by going through the accounting policies of the company and the time at which the capitalization is being done.
2.The company is also carrying a rehabilitation provision in the books and the assertion that the management has recorded full amount of the expenditure and that the completeness in recording the provision has been ensured. The same can be verified by checking the calculation of the estimation of provision for dismantling, removing, restoring and rehabilitating the property, plant and equipments and other relevant assets.
3.The company does a fair value assessment of a number of financial assets and the assertion involved here is the correctness of the valuation technique. The same can again be reviewed and checked in terms of the calculations and working and the assumptions made during the course of valuation by the management. The auditors should also go for checking the appropriateness and presentation and disclosure in the financial statements in this regard.
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