Gold Explorers Inc. (Gold Explorers) is a major Canadian gold mining corporation. Gold Explorers has mines and
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Terrence, chairman and CEO of Gold Explorers, is known throughout the Canadian mining industry as a man of principle and integrity. He governs Gold Explorers in accordance with three key guiding principles, which he articulated in 1978 when he founded the company. These principles are entrepreneurial management, financial discipline, and corporate responsibility. Adherence to these principles has given Gold Explorers a stable and dedicated work force, and a strong balance sheet that includes $623 million in cash, virtually no net debt, and shareholders' equity of just over $3 billion ($3,023 million). In addition, Gold Explorers boasts an "A" credit rating and has access to a $l-billion line of credit. Gold Explorers' efforts with respect to corporate responsibility have been recognized internationally, and the company was awarded eight major awards for environmental protection in the past four years. In spite of this, however, Gold Explorers has had to expend some money on site restoration in the past in order to meet the requirements of environmental compliance orders.
Your firm has been Gold Explorers' auditors for the past eight years. In that time, there have been very few misstatements discovered during the audits, which have required adjustments to the draft financial statements. In fact, Raj, the partner in charge of the audit, and Margaret, audit manager, have found the audit to be almost routine in the past four years of their involvement with Gold Explorers. However, this year promises to be a little different. Responding to the need for consolidation in the industry, Gold Explorers merged this year in an all-share deal with a major U.S. gold company that had significant mining operations in Canada. Furthermore, immediately prior to year end, Gold Explorers reassessed the carrying value of its capital assets. The reassessment resulted in a $l.l-billion write down of Gold Explorers' property, plant, and equipment assets to a carrying value of $3,565 million. Even with this write down, Gold Explorers' total assets remain at a substantial $4,535 million; however, the write down resulted in a significant net loss before taxes of $944 million in the current year, compared to net incomes before taxes of $441 million and $443 million in the preceding two years.
Required
(a) Identify eight factors that Margaret needs to consider that would affect her assessment of audit risk, inherent risk, and control risk for this year's audit of Gold Explorers. For each factor you identify, indicate which one of the three risks would be affected and state whether the factor is likely to increase or decrease Margaret's assessment of that risk relative to other companies in other industries. In addition, for each factor, explain why the risk will increase or decrease. Set up your answer in the following manner:
(b) Identify the most appropriate basis for determining materiality for this year. Justify the basis of the materiality you selected and explain why other bases are not appropriate.
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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