White Ice Mines Inc. is a mining company. During 20X4, White Ice acquired a diamond mine located in the far north for $800 million from Albatross Inc. The purchase price is based on the mine’s inventory of extracted diamonds, with an appraised value of $300 million, plus diamond reserves estimated in the range of $600 million to over $2 billion. White Ice raised $100 million of the funds to acquire the mine by issuing public shares on the Canadian Adventure Exchange, with the remainder being lent by a consortium of three major Canadian banks. Shortly after the IPO, a shareholder resolution was passed requiring White Ice to appoint new auditors from one of the large, national auditing firms. The previous auditor was a small firm that also was the auditor for Albatross for many years. The new auditor of White Ice is examining the existence, valuation, and ownership assertions for its mining assets for the year ended December 31, 20X4. White Ice informs the auditor that its mining specialists provided the appraisals for use in preparing the prospectus for their Initial Public Offering of shares, and to satisfy the due diligence enquiries of the three banks. The new auditor has determined that it will be necessary to rely on an independent expert to provide a valuation report to support the audit opinion.

a. Refer to CAS 620 (Using the Work of an Auditor’s Expert) and develop an audit program for verifying White Ice’s diamond mine investment.
b. White Ice’s management is concerned that using another expert will drive up the audit cost. The managers (some of whom previously worked for a mining company called Bre-X) suggest it would be more efficient for the auditor to rely on the specialist reports already generated for the IPO and the bank financing. As the new auditor, how would you respond to this suggestion? You may want to refer to CAS 550 (Related Parties) for guidance.

  • CreatedJanuary 09, 2015
  • Files Included
Post your question