Northern Mines Case Notes
1. Identify and specify what financial reporting problem might exist and why.
The financial reporting problem in this case is that Northern Mines Limited (NM) currently plans to report a $22.5M liability, but there is a possibility that this liability could rise to as much as $300M due to potential regulatory requirements to adopt a different clean-up method. This issue relates to a contingent liability. There is an issue here because the Atomic Energy Control Board (AECB) have yet to review NM’s proposal and have not yet administered a decision on this matter.
2. Review IAS 37, Provisions, Contingent Liabilities and Contingent Assets - how does it apply here?
There is a decision-tree to be followed when determining whether to recognize a contingent liability. Specifically, disclosure in notes appropriate when:
Possible obligation that arises from past events, and
a. Its existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the control of the entity, or
b. It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or
c. Amount of the obligation cannot be measured with sufficient reliability
I think the most likely outcome will be a note disclosure here.
3. As a member of the audit committee, what factors would influence your decision about whether to investigate the issue?
Some factors include:
* The liability of directors and audit committee if this issue is not properly handled
* The usefulness of financial statements, and also representation faithfulness
* The need to determine the actual cost to the company, which may affect operational decisions
4. Should the audit committee conduct further investigation? If yes, formulate a plan of action outlining the steps the audit committee would take to investigate the concerns raised by the auditor. What information would the audit committee need? If...
