Further mining related questions... 1661

  • 1.) We as mining consultants often do technical audits on the mineral resource and ore reserve management process for clients looking at aspects such as procedures, QAQC, adherence to recognized classification codes, modifying factors etc.%0AMany of the internal controls that are addressed during a technical audit are SOX relevant controls. How do I convince a client that they need an aditional technical SOX audit? Is it viable to combine such audits into one?%0A2.) Many of our clients have various mines throughout the globe. Do they need audits on all these sites?%0A3.) What are the repercussions of the proposed ‘SOX Rollback Bill’? And if passed, how would one determine 5% materiality in a technical process?%0AAny comments are highly appreciated…

  • I’m not sure that I understand your question correctly, so could you give us examples of those technical issues that are SOX relevant?
    SOX should only deal with Financial processes. And if your company is not a SEC filer, you are not required to comply with SOX.

  • Let me explain:
    Mining companies annually compile a Mineral Resource and Ore Reserve statement which informs shareholders of the ‘inventory’ of economically exploitable material which is the foundation of their business model. Shareholders are very interested in these figures since it relates to the future of the company (and hence the share).
    The SEC states that
    ‘Section 302 of the Sarbanes-Oxley Act requires the principal executive and financial officers of a company filing periodic reports to certify in each quarterly and annual report, among other things, that the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading, and the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the company.’
    I would think that such a Resource and Reserve Statement and its accuracy would be a ‘material fact…’ needed in ‘order to make statements made…not misleading’.
    Therefore, all the processes and internal ‘technical’ controls related to the compilation of such ‘material’ (although not strictly financial) statements should be subject to SOX scrutiny.
    Secondly, from a financial point of view, the Notes to the financial statements very often refer to such a Reserve Statement and therefore its accuracy is directly implicated.
    I do not disagree that the financial health of the company (historically) is reflected through the financial statements, but in the natural resources industry the resource and reserve inventory (size as well as quality/grade) speaks volumes about the future, which is exactly where the shareholder needs transparency.

  • I would look at this as ‘just standard inventory process’

  • Why do you think that the client needs to have a SOX audit separate from the work that you are doing for them? It would seem to me that they could rely on any of your testing of controls that they have determined to be key financial reporting controls. No separate work should need to be done just to satisfy SOX requirements if the work that you are doing is adequate. They are likely already testing any other controls that you are not testing.

  • The financial auditors who we have been working with advised me that in compiling the financial statements for a mining company the resource-reserve ‘account’ figures are used in calculating the depreciation, amortization and impairment lines in the financial statements. Therefore the accuracy of the process governing the resource-reserve derivation is significant and should be tested for SOX compliance.

  • Well maybe it should, but not necessarily FOR SOx.
    Generally resource reserves are disclosed but are not ‘in the accounts’, however there are real potential reputational issues that arise and for any extractive industry company this may very well be important enough to document ‘to a SOX standard’ even if not actually required for SOX.
    Look no further than Shell for an example of why this is important.

  • Hi,
    To add to the feedback provided by other persons posting, on 7/4/06, a similar question was posted on this Forum.
    The relevant reply posted:
    ‘The mining industry is unique in a number of ways. As related to SOX and internal controls over financial reporting (ICFR), certain financial statement assertions are more heavily emphasized, particularly those over valuation since the ‘inventory’ is not clearly identifiable until extraction. Thus, the reserves valuations seem to have a significant impact on the balances and other information presented in the financial reports.’
    Additionally, if you conduct a search on this forum using the term, ‘mining’, you will see the related questions and replies. In short, the external auditor is correct in stating that reserve valuation estimates in a mining entity is within scope for SOX purposes and the underlying controls should be tested for design adequacy and operational effectiveness.
    Hope this further helps,

  • The following was posted on 1/10/06 in response to a similar question:
    SOX in the Mining Industry can be quite challenging. Some quick thoughts:
    '* Materials Extraction and Processing requires signifcant use of management estimates and may have a financial reporting impact if GAAP is not consistently applied.

    • Some companies might use derivatives and hedging strategies to manage risk.
    • On AuditNet, auditnet.org/docs/InventoryAPG-Mining.doc, an APG may also be found and useful.
    • Finally, the Mining Industry is a well-developed and mature industry. Previously, the AICPA had developed audit guides for specific industries. You might want to query their publications to see if they have published an Audit Guide for the Mining Industry. If so, it will be very helpful since it will focus on financial reporting aspects, and therefore, useful as a guide to comply with SOX.’
      Hope this helps,

  • Can I just ask why it would be YOUR responsibilty to ensure that your clients are SOX compliant? I would have assumed that this should overall, be determined by THEIR Finance Department and auditors?.
    Is there any liability that the compan you work for would have to accept if they do not comply and are not required ( by law) to compy?

  • Regarding point 2:
    ‘Many of our clients have various mines throughout the globe. Do they need audits on all these sites?’
    If your client will needs to audit all the sites, it will depend of how significant is each side for their financial reports. Not necessarily all sites may need to be in the scope by thier own, however some of them together mya be significant and will be included. To summarize, it is necessary to evaluate the importance of each location.

  • Hi everyone
    I am new to this forum, i need to put up a paper about the SOX in the mining industry.
    I am looking for articles/papers about SOX in the Mining Industry
    Your help will be appreciated

  • I need to put up a paper about the SOX in the mining industry.
    Just contact Admin (via the left hand panel).

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