The Audit Risk of Bhp

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In addition, the tragedy occurred in Brazil's Samarco, which resulted in a large amount of indemnity and litigation in the company, which required assumptions about future events, so there could be a different understanding of accounting estimates that could lead to a risk of material misstatement.

The direction of these business risks influencing the financial statements’ balance depends on the motivation of management, if management tried to make operating performance seems not so bad, and the net assets may be at risk of being overstated; if the company's performance has been irretrievably lost, the management will lay the groundwork for the performance of the next fiscal year, and may implement a "big bath" behavior.

For the risk of material misstatement at the level of the financial statements, the auditor should maintain the professional skepticism in the process of collecting and evaluating audit evidence, and assign more experienced and qualified accountants, or consider hiring engineer, computer, evaluation, actuarial experts to carry out the work. When selecting further auditing procedures, it should be noted that certain procedures are not foreseen or known in advance by management. Such as adjusting the timing of the implementation of the audit process, so that the audited companies are unpredictable; take different sampling methods.

Figure 3

Risk number

The nature of the risk

Identified risk of material misstatement

transaction

Related accounts and presentation

1

Commodity market downturn, prices fell sharply, lower than expected

Sales, inventories

accounts receivable

Revenue

Impairment of assets

2

Sale and sale of assets

Investment

monetary assets

Investment income

3

Brazilian tailings caused by a series of compensation and litigation

Fee

Expense

Contingent liabilities

- The Audit Risk of Revenue

Revenue is the total inflow of economic benefits realized by the sale of goods, the provision of services or the transfer of the right to use the assets. The revenue generally accounted for the proportion of corporate income, and relatively stable, which has an important impact on the business performance and the financial statements’ user to analyze the business growth and profit quality. While revenue manipulation and fraud is the usual means of misstating financial statements, so the auditor treat the revenue account as audit key account.

According to the income statement, BHP achieved revenue 30912 million in 2016, compared to 44636 million in 2015 reduced by nearly 31%. And it is a substantial decline in sales revenue, making income cannot make up for costs, resulting in the loss of current net profit, affecting the profit statement balance finally. In addition, the revenue account is related to the accounts receivable, not all income is paid in the current period, and part of the income becomes accounts receivable. And accounts receivable are assets in the balance sheet, the misstatement of revenue will eventually affect the balance of the total assets of the balance sheet. Moreover, a large part of the decline in BHP Billiton's revenue is due to the collapse of commodity prices, which makes the impairment of inventories, affecting asset impairment accounts, and ultimately influence the balance sheet through asset impairment accounts. Therefore, the significant decline in revenue need the auditors to focus on, and find out the reasons for the substantial decline in revenue, considering whether it is really the result of the company operation, with or without the risk of material misstatement.

The interpretation of BHP's unsatisfactory financial results in 2016 is that "three sever charges in relation to the Samarco dam failure, the impairment of our US Onshore assets and its common global taxation matters, which contributed to a statutory loss of $ 6.4 billion." However, excluding these external objective reasons, the normativity in the accounting treatment of income, as well as the effectiveness of internal controls will also affect the revenue reported results. The same unreasonable earnings management and even fraud of company executives for some reason, will make the audit risk of material misstatement. May there is a worse financial results, the management tried to make business performance seems not so bad, will try to increase the revenue, resulting in the revenue account inflated; if the company's performance has been irreversible, the management for the next Fiscal year performance to lay the foundation of the motive, may implement the "big bath" behavior.

The auditor cannot know whether the management has the existence of the above motives, and therefore need to take control test of the revenue to determine the effectiveness of internal control in sales; and through substantive procedures, found that whether there is mistaken reported in revenue.

BHP is a global large-scale integrated mining company, which has standard company rules and regulations, so we can assume that the internal control can be a high degree of dependence; and for revenue of such a frequent occurrence of a large number of daily transactions account, should also use a lower risk assessment method.

After conducting the control test, the auditor should take more detailed test and substantive analysis procedure for the revenue. The audit objective is to determine whether the record of the revenue is reasonable and complete; whether the accounting treatment of revenue is appropriate; whether the presentation and disclosure of revenue are appropriate.

There are the following substantive procedures for BHP's revenue audit:

- Obtain or prepare the revenue details, check whether the sum is correct, reconcile the sum