Auditing and Assurance Services: Macarthur Coal Limited - Case Study Example

Running Head: Auditing and Assurance Services REPORT ON MACARTHUR COAL LIMITED BY: PRESENTED TO: UNIVERSITY: CITY: STATE: DATE DUE: Business Operations Introduction Macarthur Coal Limited produces coal which is used for steel making. The company exports most of its products around the world. The company operates its mines in Queensland Bowen Basin. The company produces seaborne product which is transformed to steel. The seaborne is mined at the Coppabella and Moorvale mines. The company has developed another mine called Middle mount mine.1 Being the largest producer and supplier of seaborne, the product is sold to steel mills in Asia, Europe and Brazil. Apart from seaborne the company produces coking and thermal coal. Macarthur Coal Limited was listed in the in the Australian Stock Exchange in July 2001. The company trains all its employees to better manage all the mines. Through contracting mining operations are done at Moorvale Mine by other companies. Nature of Revenue Sources The company has shares in Coppabella Mine and Moorvale Mine. The company has 73.3% shares in these two mines, it also has 50% share in Middle mount Mine. All the coal mines excluding that of Middle mount mine are held within ventures that are joined together. By involving other entities in its projects the company has been able to gain strategically. The other participants are CITIC Resources Australia Pty Ltd, Sojitz Corporation, NS Trading Co Ltd and JFE Shoji Trade Corporation. Around four hundred and forty five people are employed directly, and three hundred and eighty through contracting. The input of all its employees is taken into consideration for the company to achieve its present and future goals. More emphasis is always placed on the health and safety of all the stakeholders. Through training better talents are created which enhance the overall objective of the company. The company’s corporate governance total structure enhances its vision. Its shows the company as being focused, independent and delivering all the shareholders needs. This necessitates the government framework to be transparent of the company’s performance and operations. The company’s customers are mostly steel producers. Since steel is essential to modern life, the product has a high demand. It is mostly used for construction, housing and other modern equipments. Conduct of Operations All the steel produced in the world is dependent on coking coal. This is used to make coke which a key component in making steel. Coal is usually used in two ways during the production of steel. It is used to make the coke that is placed in the blast furnace. Macarthur developed the Coppabella brand coal. Production of Coppabella brand and its sales account for 30% of the world seaborne market. The company holds contracts with majority steel producers in the world. This is for the main reason of achieving its sales goals.2 Industry Conditions Since product markets have no restricts the company has enjoyed importing and exporting of its products. Since it is faster to start a business in Australia the company initiated its objectives with ease. Predictability is always enhanced in the Australian markets. Since the currency of the country is fully internationalized there are no foreign exchange controls. The company has enjoyed capital flows, capital repatriation and all payments are free from regulation. Since there is enterprise competition, the company has always brought on board new strategies to stay at the top. The company operates in a streamlined, business oriented regulatory framework. Focuses on labor market has increased the company’s output since its market is flexible. This has led to the company being highly responsive to all social and economic conditions. Factors Affecting Macarthur Coal Ltd Macarthur Coal knows its role within the countries the product is exported. For the company to achieve its set goals the management has to place greater emphasis on its overall performance. Hence for the company to be sustainable for longer periods then it has to work with its stakeholders. The stakeholders measure the political, economic, social and technical patterns of the company. This enables good relations and environmental improvements.3 For trust, integrity and transparency to be achieved all the four factors are to be put into consideration. There is a greater importance to create strong relationships with customers, local communities and suppliers. For commitment to be evident the company has engaged the community. All the stakeholders have also been involved on issues affecting them. The management has also encouraged contributions for consideration. Economic and Social Factors The company supports projects and has a constant review of those projects. The company’s contribution to economic and social development has been felt by the people. Through charities, educational initiatives and programs for children, the company has made an impact in the society. All the funding is made only to the organizations where its donations are minimal. Whenever there is need for funding the company comes in. The company provides resources necessary for all those engaged in community work. This ensures that all the staff members are given necessary help. As all the employees are consulted to the company policies are followed. This is achieved because there is communication between the personnel and all the stakeholders. All the standards and procedures are made known to various sources with ease. Policies of the company are reviewed frequently.4 This is done to ensure that they are in accordance with the statutory requirements. The company is committed to manage all its operations in the environment. This is done by employing best standards in mine. And reducing the energy consumed in accordance with management plans. Mining operations at all mines are carried out in accordance with plans of overview. All these documents are approved by the government.5 Management Any changes made to those documents are subject to the departments in charge. All the environmental activities at the mines are managed by manager Macarthur Coal. He has together with his team the task of making sure all the government standards are followed. The manager ensures that all plant and equipment are installed, operated and maintained. Environmental manager has the functions to oversee the day to day running of the company.6 All the managers are always urged to ensure compliance of all stipulated policies. Any report on environmental performance is reported to the Board of Management. They are also given the task of setting objectives and reporting compliance to the management. They do these by identifying corrective implications on the organization. Macarthur Coal ensures that all stakeholders are aware of their contractual obligations. Political and Technical factors Australia has the best regulatory environment which is transparent and efficient. Through reforms the government has depicted strong commitment to giving out the best.7 Hence its friendly environment is not compromised. The country has been cited as the best benchmark for other countries. Macarthur Coal has enjoyed this kind of environment since inception. This has made it work with other stakeholders to provide better services. Usually all the workers are trained to be aware of environmental issues. This covers areas like waste limitation, water and weed management. All the above ensures a safe working environment. Hence safety is central to all stakeholders of the company. Due to this undertaking its performance has increased over the years. The safety performance of the company is usually measured periodically. The measuring tool gives the total actual safety results of a company. Macarthur Coal gave the best results in 2010. It also recorded its first all year free of lost time in damages. The company has always aimed to operate in compliance with all legislations. This has ensured that all the bodies for monitoring and reporting perform their functions well. There has been the need to increase research and production in the company.8 During the years this goal has been achieved. The production of clean coal has been evident as funding is given by the federal government. The coal mining industry has always given directions and funding to the company too. In the year 2006 the government gave half a million dollars. These funds were to be used for demonstration purposes. The government has set up a Clean Coal Technology Board. Their main function is enhancing development and invests in clean coal. Audit Risks The company’s management has lots of influence in the way the process of auditing is done. This affects the total correct amount of assets that are presented. This leads to wrong information in the income statement. Hence the future planners may make wrong decisions pertaining to the organization. This occurs because of the errors in the materials examined. And before the control systems are set on course. The assertion here then is completeness. The company also operates with other overseas companies. This other countries have differences in their exchange rates this leads to audit risk of its account receivables. The total account receivable is not always presented accurately. The assertion would be valuation and allocation. Because the account affected is in the balance sheet. There will be a misrepresentation during invoicing and payment from other clients. The company failed to discover fraud in a timely manner. This was because all the reconciliations are not performed in a monthly basis. The account affected during bank reconciliations is expenses. It becomes hard to verify how much has been spent for a particular period of time. This leads to embezzlement and the need for frequent audit arises. The assertion most relevant is completeness. The time the company has sales agents. They are given the tasks of receiving payments from customers and delivering the same to the company. This leads to a problem during auditing. It becomes hard to determine whether there were any sales made. Sales are an account that is in then affected. This leads to a possible assertion of occurrence. There must be much evidence that the said transaction actually took place. All the audits performed in the company are always without bias. These achieved because internal audits are usually discouraged. Internal audits are those that are mostly carried out by the accountants of the same company. The auditors are made to audit all the records they themselves contributed. Macarthur Coal audit reports are usually inspected by it stockholders. This is because the company is publicly traded9. Cash is always kept in the company’s bank account. The accountants responsible ensure that the money is given out when needed. Hence after receipt and payments records are always made. Since cash is a balance sheet item the assertion that is mostly made is presentation and disclosure. Withdrawals are made by the company accountant after signatures are affixed in the cash request forms. The use of external audit is mostly encouraged in the company. This is done by a neutral third party, such as a professional auditing firm. In this case all the company’s financial records are examined. All the records are inspected for any discrepancies. If any inconsistency is uncovered it is usually repaired. All simple mistakes in accounting are revealed and corrected. Any big issue that arises during the audits they are put forth for correction. Since the company acquires some of its materials from other countries their exist differences in exchange rates. This affects the accounts payable account which is a balance sheet item. This audit risk of its books affects both the clients and the business. The assertion made is usually rights and obligations. This then leads the auditors to give unqualified opinion on the misstatements that have been gathered. The company has taken steps to avoid fraud and other mismanagement of funds. It has from the past been able to view all its bank transactions in a regular manner. Monthly bank reconciliations maintain the accuracy of information in the accounting department. Risk is always categorized in two major ways as major or minor. Depending on the degree of the risk the company has always made sure the cost doesn’t exceed the benefits. The company always writes down scenarios and by analyzing its risk consequences it weighs its impacts. As an auditing department all material amounts are considered. It does not matter if the material is small or big. For example, $ 2000 in MacArthur Coal is not a large amount but it represents assets. This asset can be stolen and concealed hence it becomes material. All the amounts concerned where the $2000 was stolen should be scrutinized. All inherent risks are always examined during the planning stage of the assurance engagement. Planning is the beginning of the risk evaluation process. Inherent risk also is broken down to financial stability of the company to meet all debts. Other risks associated to inherent risks are trader related risks and sector risks. Sector risks are concerned with the areas of operation whereas trader risks deal with size and type of customer. Since there are material weaknesses within the company, forensic accountants are usually called to assist. They make sure enough such is done beyond financial records when facts are found in an investigation. Using the available facts they are able to quantify all the available resources into financial processes. This information is then given to the in depended auditors who make final documents to be presented to the accounts committee. Effects of Tax on audits The company auditors will have to ascertain the products amount after and before tax. This will lead to variations in the final opinion that will be given. the tax given by the government increases expenses account. This is on the part of the company hence the auditors will need to ascertain the validity of the total amount of tax. This will eventually lead to changes made to the company in areas of management and administration. The rate of investment will reduce. This is because portion of the amount will have been used in the tax levy. The books to be audited will have to be balanced. Since there will be no balance achieved the auditors will have the task of excluding different unimportant expenses. This will lead to the reduction of some activities in the company which are important. The audited books will tend to omit these changes. The opinions that will be given at the end may not conquer with past decisions made. Incorporation of tax means that the burden is imposed to the buyers. The customers of products from the company will have to pay more as the company receives less. Tax authorities usually require the company or its customers to shoulder the excessive costs included. In the event of tax there is a change of supply and demand of the products of Macarthur Coal. The auditor have to take into consideration all the adverse effects caused by the tax. If buyers have other alternatives to coal with a new tax they will tend to buy the other alternatives which are cheaper. Subsequently if the company decides to reduce the amount for its customers it may go out of business. Hence the company may be forced to produce other alternatives to stay in the market. The auditors will have hard time in effecting the cost of the new product. Hence the final audit will not reflect the true picture of the company10. The auditor will again make incorrect opinion. This is possible if the tax imposed is not felt by either party. This will lead to financial materials that are materially misstated. The need of evidence on the tax imposition will greatly be required. This will lead to delays as the auditing period will have to be extended. This is because they will need reasonable assurance that the said tax is included; hence no material misstatement that has occurred. Since Macarthur Coal is a paying tax organization, the effects of tax are always evident. There is a greater need to explore ones finances before and after tax. Taxes usually lower overall company gains. Since there are net cash inflows the taxes work to reduce the gains. If the total tax rate is, say 20%, a $100 operating gain becomes an $80 gain after tax. In the end in the audited books the reflection of the gain reduces profit and loss account. The account reduced will be gross profit11. Also tax the product will reduce expense impacts and the total cost. When the company indicates losses on net outflows, taxes reduce the total loss. If 20% taxes on income, a $100 loss also reduces the tax company’s tax by $2012. Hence the net effect of the loss on the total cash flow becomes $80. Usually the tax effect make the overall loss go down. This will change the amount recorded in the books and misstatements may occur. The company has included the acquisition of capital assets. This has led to tax savings to operate to increase cash flow. All depreciation expenses do not make any contribution to cash flow. Since depreciation expense reduces the communicated income, they also lower tax liability. There is need to build an after or before tax version of the financial position of the company. Sometimes both versions are used as opposed to others. There are factors to be considered when deciding which version best fits the company. Looking on how other entities are presented is very important. When the company’s plans compete with others’ results are compared directly. This is done by using the same basics on tax approaches. If the company decides to use after tax approach it must know how the before tax approach operates. All important information is put into consideration. If the results are used by those with responsibility of looking at profitability then after tax version is used. When the issues of budget are put into consideration then before tax version is mostly made use of. Managers in Macarthur Coal Limited have greater emphasis on sales revenues. Since different financing options exist in Macarthur Coal, tax effects have to be employed. When after and before tax effects differ, both versions are used13. Effects of Tax on Supply and Demand Accounts When making business projections in the company taxes are usually put into consideration. Failure of this all the planned success of the company may turn failure. This is possible because taxation of assets and revenue can go down considerably. Since the company is limited by shares taxation inclusion is of great importance. These leads to minimum amounts of taxes implored. The company can lease some of its equipment and by so doing tax is reduced considerably. The total effect of these “carbon tax” can be illustrated using a graph. The graph shows how the company’s financial position will be affected. The supply and demand will clearly be depicted through the graph. Without any tax equilibrium price will be Pe and quantity will be Oe. After the imposting of a tax levy, the consumers pay will shift to Pc. the price the company receives will shift to Pp. The company’s price will equal the client’s price and an additional cost of the task. The customers of Macarthur Coal will buy less at higher price (Pc). The company will sell less at a lower manufacturer price (Pp); total commodities sold will drop from Qe to Qt. A tax on carbon in Macarthur Coal shifts the supply curve to the left. The vertical distance in the two supply curves, equals per unit tax. When everything remains constant the price increases. A tax on consumption usually shifts the demand curve to the left. Prices paid by consumers increase when everything remains constant. This has consequently reduced the money received by the company. The end result is that after the company is taxed the company receives less as the consumers pay more. Subsidies on manufacturing always shift the supply curve to the right. This is done until the vertical distance is equal.14 Demand and supply Demand and supply15 Depending on the price changes in demand and supply, tax is always paid for. Where the supply curve is more inelastic the company bears more of the tax. They also receive more subsidies than customers. This is available because the market prices become high. Taxes and subsidies have a lot of impact on investments. Taxes on these costs reduce the amount of capital that can be bought. Embedded taxes in those initial prices of supply are not usually made use of in Macarthur Coal Limited. Conclusion In conclusion all businesses including Macarthur Coal exist in a competitive environment. This is done with a view to being the best provider in their various industries. They also strive to provide the most suitable range of product to their consumers. The company has made it to be the best in the world because of the policies implored. Being in the best location strategically the company has enjoyed a wide range of customers from all over the world. The company in accordance with legislations set forth has always put all its stakeholders at the top. The company is faced with competitors. This is those who provide the same products. However, most of these products are differentiated in some way. Indirect competition is also preverent. The company from many years has made its objectives come true. This has been done because of the training programs that are available in the company. The leadership is always keen to foster unity and hard work in all departments available16 Bibliographies List Boynton, Kell 2006, Modern Auditing, 6th edn, McGraw Hill Publishing Company Limited, Canada. Fees, Warren 2008, Accounting Principles: unconventional strategies for reinventing your career, 5th ed, Harvard Business Press, Athens. Butt, P 2003, Auditing in today’s world, Perth researcher finds’, ABC online, viewed 10th April 2004, . Christy, Crendon 2006, Basic Guidelines to investment planning, Philosophical research online, vol. 2, no. 3, viewed 19th April 2006, < http://investment.orgintroductiontoinvestment>. Gay, Simnet 2010, “Auditing and Assurance Services in Australia” 4th edn, McGraw Hill Publishing Company Limited, Australia. Read More