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Mine Sweeper (MS) is a coal mine exploration company. Recently, one of mine
reserve had a land slide, killing fifty mine workers and injuring ninety of them.
Although the cause of the land slide is still being investigated by the authority,
negative press reporting has created the perception that MS has generally ignored
safety measures at the mine reserve, exposing the company’s thousands of workers
in different coal mine across the country. An international human right group called
BEWARE has publicly stated they will stage organized protests at each mine,
starting in two weeks’ time and until MS agree to improve work site safety
conditions. They also demanded MS to take up insurance cover for each worker to
compensate them in terms of injury or fatality. A formal letter of demand has been
served and a copy of the letter has been published in major news papers. An
environmental protection group Preserve and Protect (PAP) also joined in and
claimed that the company generally ignored sustainability. PAP claimed that MS has
poor environmental practices such that the impact of the business on environment
is not sustainable and the environmental footprint is getting larger. The chief
executive is puzzled why there is a concern of sustainable development and the
company is doing extremely well financially, with huge cash and coal reserves and
strong order books.
The result of internal investigation on the land slide was also discussed. Preliminary
investigation showed that the land slide was possibly caused by a diversion of flow
of an underground river. The diversion could have been caused by the drilling
activities on land right above the river. The risk manager reported that the possible
cause of the land slide identified in this internal report is not one of the risks
identified and recorded in the risk management system. This is because the
company has never in the past done any coal mine exploration or extract in areas
with underground rivers. The internal audit manager highlighted a memo from a
site engineer sent to the operations manager Bo Bian one month before the land
slide happened. The memo expressed serious concerns on the presence of an
underground river beneath the exploration site. Recommendations such as detailed
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P1 Mock Exam
The chief accountant May informed the meeting that a provision of $5m has been
included in the latest accounts (unaudited – the external audit will commence one
month later) taking into account potential cleanup costs and compensation because
of the land slide. Because of this, the results this year most likely will show a net of
$4m instead of a profit of $1m.
The chairman of the board Alan Madog is particularly unhappy with accusation from
PAP on the alleged poor environmental practice. He believed it is unjustified claim
because MS has been spending money and resource dedicated to protect the
environment. The company even has annual external audit on the environmental
management system. The public relations manager Lucy suggested this could be
due to PAP and the general public is not aware of MS’ efforts in environmental
protection. Lucy suggested transparency and environmental reporting will help to
manage such reputation risk. The chief accountant suggested the company uses full
cost accounting to quantify the environmental costs MS incurred for this
environmental reporting purpose. The environmental cost from the accounting
system will not show the full extent of environmental cost. Everybody in the
meeting is confused by May’s statement.
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P1 Mock Exam
The meeting went on to debate whether the audit of risk management should be
conducted by the internal audit department or outsourced to external expert. After
the meeting, the chief executive suggested to the chief accountant that the
provision of $5m is premature and should be removed from the accounts until the
picture is a bit clearer. Otherwise, the financial performance will not permit the
usual performance bonus for everybody in the company and there will be adverse
impact on the share price. It is thus in the best interests of the company for the
provision to be removed. May is now experiencing a conflict in her mind now but
could not exactly say what the conflict is.
Required:
a. Sustainability
b. Sustainable development
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