This is a question about audit quality and auditor liability.

You have been hired to audit a large multi-national mining company PHB Mining (PHB) which has been operating since 1960. The company mines iron ore in Australia and also has a number of diamond mines in South Africa and Argentina. Profits have been strong for the previous 10 years but have been steady for the year ending 30^th June 2021.

During the reporting period, PHB has begun negotiations to take over several smaller mining companies in South Africa and in Argentina. Negotiations to purchase a company in South Africa began in late 2020 but have not progressed significantly in the last 6 months of the reporting period. In January 2021, the company had signed an agreement to purchase 100% of the equity of a mining company, Maradona Ltd in Argentina for $150 million. The deal was finalised before the end of the current reporting period.

In February 2021, PHB were involved in a major incident involving the damage of land owned by the Australian Government and classified as conservation and natural environment land. The company accidently destroyed a large area of the land and the Environment Protection Authority (EPA) is currently investigating the nature and extent of damage to the land. It is expected that the EPA will complete their investigation in early July 2021. The EPA is likely to fine PHB the maximum allowed $10 million and will also likely initiate legal proceedings against PHB pending the outcome of the report. As a result of this incident, PHB replaced its CEO and CFO. The new CEO and CFO will take their posts on 1 June 2021.

During the period, a review was undertaken by management of the internal controls of the organisation and uncovered 3 employees who were engaged in fraudulent behaviour. The employees were immediately dismissed from the company.

In April 2021, PHB sold one of its major mining divisions for $50 million to Australian Minerals Limited, one of their competitors operating in Australia. Earlier, in September 2020, PHB took on additional debt to finance the expansion of operations in Western Australia and overseas to the value of $180 million (including the purchase of Property Plant and Equipment (PPE)). The debt was raised by issuing debentures which will be fully redeemed in 2028. The expansion of the operations is expected to be completed by March 2022. Contracts have already been signed to purchase $30 million dollars in PPE with initial payments of $10 million paid in June 2021.

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QUESTION 3_____________________________________________________

The audit partner is extremely nervous and wants to make sure the planning of the audit is undertaken in accordance with appropriate requirements from the Auditing Standards (ASAs) and to remove the possibility of being held liable for negligence relating to the conduct of the audit.

Required:

Using only the information contained in the case study above and with reference to applicable Auditing Standards (ASAs), identify four (4) procedures the auditor should undertake in the audit that represent compliance with appropriate requirements from the Auditing Standards (ASAs) to assist with collecting sufficient appropriate evidence to form an opinion.

If you were not sure what the question is asking, you are required to tell the audit partner four things the auditor needs to do if the auditor was going to undertake the audit and to make sure the audit is undertaken in accordance with the requirements contained in the ASAs. To assist you with your answer, you have been provided with an example of one procedure. (You are to complete all three columns for each of the four procedures you identify).

Total Marks for Question 3 (12 Marks)

(PLEASE ANSWER THE QUESTION BELOW)

Applicable ASA	Planning Procedure Required	Brief explanation why this procedure is undertaken
ASA210 Agreeing the terms of audit engagements	The auditor needs to agree the terms of the audit engagement with management or those charged with governance.	It is important that the responsibilities of the auditor are clearly stated from the beginning of the audit.
(1)
(2)
(3)
(4)