Company Dealing In Mining Metals Products â€Myassignmenthelp.Com

Question: Discuss About The Company Dealing In Mining Metals Products? Answer: Introduction Rio Tinto is the multinational company from Australia and it is one of the largest companies in the company dealing in mining and metals products. The company was formed during the year 1873. They are the leader in producing various products including iron ore, uranium, metal, coal, diamonds and copper. The main objective of the company is to become the global leader in mining in association with achieving and maintaining the sector leadership that will include sustainable development, operations excellence, innovation and exploration. The working approach of the company is to be effective with regard to all the operations and activities. All the employees and staffs of the company are well aware regarding the mission of the company and perform their activities accordingly. This generate the consistent policies and principles for the entire group as per the global criteria of the company with regard to environment, people, society and it further ensure the long run sustainability of the company (Rio-tinto.com.au, 2016). Audit planning The term audit planning is stated as the procedure under which the approaches are planned to carry on the forecasted outcomes that also states the audit scope within the company. Based on the nature of business and size of the business the planning of audit and required time may vary. As the business of Rio Tinto is large enough, it will need more time plan the audit and implement the strategy (Chou, 2015). The audit planning is generally a step by step process where the control under audit reviews the financial procedure and the internal control in association with management preparation. Preparing the plan for audit for Rio Tinto is the most stressful job for the audit firm NY audit firm as the entire audit is depended upon the audit plan. Various stages under audit planning are as follows Make the acceptance of the client and carry out the planning for initial audit Every client is different. In the same way Rio Tintos business procedures and circumstances are different from others. NY audit firm shall consider the mining industry in Australia and the clients integrity (Laitinen Laitinen, 2015). As the previous years audit was carried out by Price Water House Coopers, the audit firm NY, after taking the permission from the client, must contact the previous auditor before proceeding with the audit. The auditor may, if required, contact other companies that are in dealing with client to get any information regarding the client. The auditor shall perform the following activities before planning the audit Identify the reasons of the client for audit Establishing a level of understanding with client Select the staffs who will be engaged under the audit. It was found that Rio Tinto required the audit to find out true and fairness approach in preparing financial statement of the company. Further, the audit is required to be carried out to establish that the financial reports are prepared in accordance with the conceptual framework and the requirements of accounting standards. It is also expected that the audited report will increase the transparency, credibility as well as reduce the risk of investors of the financial statements (Christensen et al. 2016). The auditor will conduct a meeting with the management of Rio Tinto regarding the audit aspects like the areas to be covered under audit, availability of required information and documentation. During the meeting the auditor will also discuss about the staffs who will be engaged for the audit. Understanding the clients business process and the industry NY audit firm must have clear idea regarding the mining and metal industry in Australia and the business process of Rio Tinto. The auditor further shall acquire information regarding the intangible asset, global operations processing system of the information to deliver the client with best quality services. This approach of the auditor requires knowledge regarding the following dimensions Business process and operations Internal and external environment Strategies and objectives Governance and management Performance and measurements (Pike et al., 2016). It is found that Australia has wide supply for minerals that are extracted, processed and sold by mining division (Li et al,2016). The mining industry of Australia is price sensitive and is export oriented. The performance of Rio Tinto is highly depended on the pricing strategies, value of Australian dollar and the trend of supply and demand all over the world. Assessing the business risk of the client The auditor shall apply the strategic systems for getting information for the analysing the business risk of the client and establishing a basis for assessing the risk associated with material misstatement. As per the Sarbanes-Oxley Act, the management of the client company shall certify that They have designed the disclosure procedures and controls for assuring that the major information regarding the business risk is revealed to them The management informed the audit committee and the auditor regarding the significant deficiencies associated with internal control, if any, inclusive of the material weaknesses. As per the recent statement of the chairman of Rio Tinto, Mr. Jan du Plessis regarding the condition of global business, tremendous uncertainties are exposing the business to the real risk. Mr. Plessis further stated that the company will continue to reduce the capital spending and cut-off the costs to face the storm (Costan Popa 2017). He further stated that the political environment and global economy started deteriorating since 2015 that led to the company in a challenging position to run the complex business like Rio Tinto. Further, the company is exposed to various risks with regard to operational, financial and regulatory compliance that have an impact on the reputation, operating license and performance of the company. However, the company tries to reduce the level of risk through establishing a risk aware culture among the employees and commitment for managing the risk in effective and proactive manner. Performing the preliminary analytical procedure The fourth major step under audit planning is performing the analytical procedures at preliminary level. Under this step the ratios of the client is calculated and measured with the industry average as well as with the previous year of the company (Connors et al., 2013). The ratios considered for are the liquidity ratio, profitability ratio and leverage ratio. Ratio calculation Ratio Formula Result Industry average 2016 (US $m) 2015 (US $m) Profitability ratios Net profit ratio Net profit / sales 19% -2% 20% Return on equity Net income / shareholder's equity 14% -2% 10% Liquidity ratio Current ratio Current assets / current liabilities 1.61 1.52 1 Liquid ratio Liquid assets / Current liabilities 1.29 1.20 1 Leverage ratio Debt ratio Total liabilities / total assets 0.49 0.52 0.50 Debt to equity ratio Total liabilities / total equity 0.95 1.07 0.5 Evaluation of the financial health Profitability ratio it us recognized that the company was not able earn positive return during the year 2015, However, during 2016 Rio Tinto recovered from that position and was able to earn a net profit ratio of 19% as compared to the industry average of 20%. The return on equity of the company was 14% that was more than the industry average of 10%. It indicates that the company is able to generate sufficient income to their shareholders. However, the significant changes in the profitability position during 2016 as compared to 2015 must be enquired and find out. Liquidity ratio the current ratio of the company was 1.52 and 1.61 respectively for the year 2015 and 2016 against the industry average of 1. Further, liquid ratio of company was 1.29 and 1.20 respectively for the year 2015 and 2016 against the industry average of 1. It indicates that the company can pay off their short-term obligation efficiently. However, as the current ratio of the company is quite high, the auditor must find out that the company may not use the working capital efficiently. Leverage ratio - The leverage ratio represents the debt load on the company as compared to the equity. It reveals the amount of assets owned by the shareholders and how much is owned by the creditors. It is recognized from the above calculation that the debt ratio of the company is more or less as per the industry average and does not require extensive analysis by the auditor (Gurov Milgunova, 2016). However, the debt to equity ratio of the company is quite high as compared to the industry average and that indicates that the company is highly leveraged and the auditor shall look into the fact. Recommendation Looking at the above scenario of Rio Tinto, it is suggested that for the purpose of auditing, NY shall adopt the analytical test procedure under which the expenses and revenue related transactions for the current year as well as the previous year shall be analysed. Further, under the analytical test approach the ratio analysis of the company will be carried out for the current as well as the previous years. Conclusion It is concluded that, the audit planning is essential for carrying out the audit smoothly. The audit partner from NY audit firm fund that Rio Tinto is the global leader in the mining sector. However, it is exposed to various risks and the company has some established strategies to mitigate the risks. Under the audit planning, the auditor will take into consideration all the aspects like risks, financial performance, and reason behind the audit and business process of the company for successful audit. Reference Chou, D. C. (2015). Cloud computing risk and audit issues.Computer Standards Interfaces,42, 137-142. Christensen, B. E., Glover, S. M., Omer, T. C., Shelley, M. K. (2016). Understanding audit management: Insights from audit professionals and investors.Contemporary Accounting Research,33(4), 1648-1684. Connors, G. J., DiClemente, C. C., Velasquez, M. M., Donovan, D. M. (2013).Substance abuse treatment and the stages of change: Selecting and planning interventions. Guilford Press. Costan, L., Popa, S. (2017, May). 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[online] Available at: https://www.wesfarmers.com.au/investor-centre/company-performance-news/reports [Accessed 10 Sept. 2017].