BISICHI MINING PLC ANNUAL REPORT 2017

Governance Independent auditor’s report
KEY AUDIT MATTER
HOW THE MATTER WAS ADDRESSED IN OUR AUDIT
The risk that judgments, estimates and disclosure associated with
the carrying value of Ezimbokedweni and impairment charges are
inappropriate.
As at 31 December 2016 the group’s net investment in Ezimbokedweni
Mining (Pty) Limited (“Ezimbokedweni”), an equity accounted joint venture
was £1.8m. The carrying value was dependent upon the ultimate completion
of a sale and purchase agreement to acquire the Pegasus coal project in
South Africa, under which a deposit had been paid by Ezimbokedweni.
During the year the joint venture was placed into Business Rescue under
the South African Companies Act by the group’s joint venture partner. The
original deposit has been returned to Ezimbokodweni and as a result, the
Board consider there to be no reasonable prospect of the Pegasus coal
project transactionw completing.
Further to these developments, the Board performed an impairment review
of the carrying value of the net investment in Ezimbokedwini and recorded
an impairment of the net investment of £1.8m, with any further movements
since 31 December 2016 reflecting foreign exchange differences.
The assessment of the carrying value, subsequent impairment and
associated disclosure represented a significant focus for our audit.
Additionally, the tax treatment of this transaction was considered to be an
area of risk of material misstatement. This was also considered to be an
area requiring specialist knowledge and expertise.
We will have made specific inquiries of management and the Board to
gain an understanding of the fact pattern and events during the year
regarding Ezimbokedweni.
We have reviewed minutes of Board meetings, legal documents and
correspondence relating to the joint venture, the Business Rescue
and assessments of the resulting financial position and interests of the
joint venture.
We have assessed the Board’s conclusion that the net investment is
impaired based on the facts and circumstances, including assessment
of the probability of value being recovered from the joint venture.
We have assessed the tax treatment of the transaction applied by
management in conjunction with our valuation specialists and those
of the component auditor in South Africa.
We have assessed the accounting entries in respect of the
impairment as well as the disclosures in note 13 and the Key
Estimates and Judgments note.
Our findings
We consider the judgements made by management relating to the impairment recorded by the group to be appropriate based on the
developments during the year. We consider the disclosures at note 13 and the Key Estimates and Judgments note to be acceptable.
Our application of materiality
The materiality level we applied was calculated based on 1% of total assets reflecting both the
significant asset base of the group and the transitionary phase of mining.
Whilst materiality for the Financial Statements as a whole was £300,000 (FY 2016: £350,000),
each significant component of the Group was audited to a lower materiality as detailed in the
table below.
Performance materiality is the application of materiality at the individual account or balance level
set at an amount to reduce to an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial statements as
a whole. Performance materiality was set at £225,000 (2016: £260,000) which represents 75%
(2016 75%) of the above materiality levels.
Clearly
trivial
£15,000
2017
Materiality
£300,000
Clearly
trivial
£18,000
2016
Materiality
£350,000
Bisichi Mining PLC
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