Question Tag: Extractive Industry

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

XYL Limited has been granted a license to operate in the extractive industry in the middle belt of the country, where there is an abundant mineral resource called Topaz. This mineral is in great demand in the manufacturing industries of Western Europe.

Due to the need for heavy equipment requiring intensive capital outlay, indigenous companies could not invest in the sector. Moreover, the technical expertise required in mining this product is not locally available.

The company was not only granted the license but also granted a pioneer status. The local community where operations take place supply the necessary labor, both skilled and unskilled. After a year, the workers’ union found out that they were paid far less than what the company is paying in similar operations in nearby countries. As a result of labor union activities, many workers were retrenched, and the company started making use of locals who had just completed secondary school education. Union activities were proscribed.

Being an extractive industry, the local people were affected as they could no longer carry out their economic activities as before.

Your firm has just been appointed as auditors of XYL Limited after three years of operation.

You are required to:

Explain SEVEN areas of concern that would be of interest to you as auditor and provide reasons for their importance. (15 Marks)

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  • 30 Marks

PSAF – Nov 2018 – L2 – Q1 – Regulatory and Institutional Framework

Discuss actions against companies with non-compliant financial reports, calculate NEITI unspent funds, outline NEITI functions and procedures for appointing auditors.

The Federal Government of Nigeria is committed to the principle of transparency and accountability in all its financial activities. The country has diverse sources of revenue which include natural resources, ranging from iron-ore, crude oil, zinc, tin-ore, and coal. In order to enhance its agenda of “zero tolerance for corruption,” the country established, among others, the Nigeria Extractive Industry Transparency Initiative Commission (NEITI) with the sole aim of reducing corruption in the extractive industry. The establishment of the commission was backed by an Act of National Assembly in 2007.

The commission normally carries out annual audits of accounts of companies in the extractive industry after obtaining their statements of accounts on a regular basis. Records available to NEITI revealed that five out of fifty-two companies in the industry failed to render their statements of accounts for the year 2016; another eight companies rendered falsified statements of accounts, while thirty-nine companies rendered accurate statements of accounts.

The records of receipts and expenditures of NEITI revealed total receipts of N2,396,581,900 in 2016, out of which N1,998,500,770 was expended on the commission’s activities up to December 31, 2016.
Further scrutiny of the accounts revealed receipts of gratification by some government officials in the eight companies that presented falsified statements of accounts. There were also expenses on frivolous overseas tours allegedly for attending seminars and workshops.

In line with the Act that established the commission, the audit reports on the financial activities of the companies in the extractive industry have been sent to the President and the National Assembly.

Required:
a. Discuss five actions that should be taken against the companies that failed to render their statements of accounts and those that rendered falsified statements of accounts.
(7½ Marks)
b. Calculate the unspent amount by the commission as at December 31, 2016 and the treatment of the unspent amount.
(4 Marks)
c. Outline five functions of NEITI as contained in the Act that established it and indicate the members of the National Stakeholder Working Group (NSWG) as contained in the NEITI Act, 2007.
(12½ Marks)
d. Explain six procedures for the appointment of auditors and publication of reports as contained in Section 4 of NEITI Act, 2007.
(6 Marks)

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  • 10 Marks

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

You have been invited as a student of Taxation to speak at a stakeholder workshop on mining and mineral operations in the extractive industry. In the letter of invitation, the Organisers indicated that you are to submit a detailed write-up of your presentation on the following issues.

Required:
i) Allowable deduction peculiar to the extractive industry. (3 marks)
ii) Approved Rehabilitation Fund and the tax treatment of contributions into the fund and expenses incurred in respect of rehabilitation under the Income Tax Act, 2015 (Act 896). (3 marks)
iii) The tax treatment of relevant financial costs included in the costs incurred in respect of minerals and mining operations under the Income Tax Act, 2015 (Act 896). (4 marks)

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  • 15 Marks

AAA – Nov 2013 – L3 – SB – Q3 – Audit of Specialized Industries

Identify seven key audit concerns in the extractive industry, focusing on labor issues, community impact, and compliance with regulations.

XYL Limited has been granted a license to operate in the extractive industry in the middle belt of the country, where there is an abundant mineral resource called Topaz. This mineral is in great demand in the manufacturing industries of Western Europe.

Due to the need for heavy equipment requiring intensive capital outlay, indigenous companies could not invest in the sector. Moreover, the technical expertise required in mining this product is not locally available.

The company was not only granted the license but also granted a pioneer status. The local community where operations take place supply the necessary labor, both skilled and unskilled. After a year, the workers’ union found out that they were paid far less than what the company is paying in similar operations in nearby countries. As a result of labor union activities, many workers were retrenched, and the company started making use of locals who had just completed secondary school education. Union activities were proscribed.

Being an extractive industry, the local people were affected as they could no longer carry out their economic activities as before.

Your firm has just been appointed as auditors of XYL Limited after three years of operation.

You are required to:

Explain SEVEN areas of concern that would be of interest to you as auditor and provide reasons for their importance. (15 Marks)

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  • 30 Marks

PSAF – Nov 2018 – L2 – Q1 – Regulatory and Institutional Framework

Discuss actions against companies with non-compliant financial reports, calculate NEITI unspent funds, outline NEITI functions and procedures for appointing auditors.

The Federal Government of Nigeria is committed to the principle of transparency and accountability in all its financial activities. The country has diverse sources of revenue which include natural resources, ranging from iron-ore, crude oil, zinc, tin-ore, and coal. In order to enhance its agenda of “zero tolerance for corruption,” the country established, among others, the Nigeria Extractive Industry Transparency Initiative Commission (NEITI) with the sole aim of reducing corruption in the extractive industry. The establishment of the commission was backed by an Act of National Assembly in 2007.

The commission normally carries out annual audits of accounts of companies in the extractive industry after obtaining their statements of accounts on a regular basis. Records available to NEITI revealed that five out of fifty-two companies in the industry failed to render their statements of accounts for the year 2016; another eight companies rendered falsified statements of accounts, while thirty-nine companies rendered accurate statements of accounts.

The records of receipts and expenditures of NEITI revealed total receipts of N2,396,581,900 in 2016, out of which N1,998,500,770 was expended on the commission’s activities up to December 31, 2016.
Further scrutiny of the accounts revealed receipts of gratification by some government officials in the eight companies that presented falsified statements of accounts. There were also expenses on frivolous overseas tours allegedly for attending seminars and workshops.

In line with the Act that established the commission, the audit reports on the financial activities of the companies in the extractive industry have been sent to the President and the National Assembly.

Required:
a. Discuss five actions that should be taken against the companies that failed to render their statements of accounts and those that rendered falsified statements of accounts.
(7½ Marks)
b. Calculate the unspent amount by the commission as at December 31, 2016 and the treatment of the unspent amount.
(4 Marks)
c. Outline five functions of NEITI as contained in the Act that established it and indicate the members of the National Stakeholder Working Group (NSWG) as contained in the NEITI Act, 2007.
(12½ Marks)
d. Explain six procedures for the appointment of auditors and publication of reports as contained in Section 4 of NEITI Act, 2007.
(6 Marks)

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  • 10 Marks

AT – MAR 2024 – L3 – Q5a – Minerals and Mining

Discusses allowable deductions, rehabilitation fund treatment, and financial costs in the mining sector.

You have been invited as a student of Taxation to speak at a stakeholder workshop on mining and mineral operations in the extractive industry. In the letter of invitation, the Organisers indicated that you are to submit a detailed write-up of your presentation on the following issues.

Required:
i) Allowable deduction peculiar to the extractive industry. (3 marks)
ii) Approved Rehabilitation Fund and the tax treatment of contributions into the fund and expenses incurred in respect of rehabilitation under the Income Tax Act, 2015 (Act 896). (3 marks)
iii) The tax treatment of relevant financial costs included in the costs incurred in respect of minerals and mining operations under the Income Tax Act, 2015 (Act 896). (4 marks)

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