Page 134 - Annual Report 2020

2.10 Risk and Audit Committee Report continued

Significant issues
In addition to the Group’s key judgements and estimates disclosed throughout the FY2020 Financial Statements, the Committee
considered these significant issues relating to financial reporting:
Carrying value of The assessment of carrying values of long-term assets development plans, operating and capital costs, the
long-term assets uses a number of significant judgements and estimates. impacts of climate change and COVID-19, discount rates
The Committee examined management’s review of and other market indicators of fair value.
impairment triggers and potential impairment charges The Committee concurred with management’s conclusion
or reversals for the Group’s cash generating units. on significant impairments recognised, including the
Specific consideration was given to the most recent short, impairment of Cerro Colorado, and that no impairment
medium and long-term price forecasts (including the reversals were appropriate.
significant petroleum price volatility observed to date Conclusions from these reviews are reflected in
in CY2020), expected production volumes and updated note 11 ‘Property, plant and equipment’ in section 5.
Samarco On 5 November 2015, the Samarco Mineração S.A (Samarco) Potential direct financial impacts to BHP Brasil
dam failure iron ore operation in Minas Gerais, Brazil experienced a The Committee considered:
tailings dam failure that resulted in a release of mine tailings, • changes to the estimated cost of remediation
flooding the community of Bento Rodrigues and impacting and compensatory programs under the
other communities downstream. Samarco is jointly owned Framework Agreement
by BHP Brasil and Vale S.A. • developments in existing and new legal proceedings,
BHP Brasil’s 50 per cent interest in Samarco is accounted on the provision related to the Samarco dam failure
for as an equity accounted joint venture investment. and related disclosures
Samarco’s provisions and contingent liabilities • the provisions recognised and contingent liabilities
The Committee reviewed updates to matters relating to the disclosed by BHP Brasil or other BHP entities
Samarco dam failure, including developments on existing Based on currently available information, the Committee
and new legal proceedings, and changes to the estimated concluded that the accounting for the equity investment
costs of remediation and compensation. in Samarco, the provision recognised by BHP Brasil
BHP Brasil’s loss from Equity Accounted Investments (including the decommissioning of the Germano tailings
includes impairments arising from working capital funding dam complex) and contingent liabilities disclosed in the
provided to Samarco and revisions to the Samarco dam Group’s Financial Statements are appropriate.
failure and Germano decommissioning provisions during
the year ended 30 June 2020. For more information, refer to note 4 ‘Significant
events – Samarco dam failure’ in section 5.
Closure and Determining the closure and rehabilitation provision Specific consideration was given to the results
rehabilitation is a complex area requiring significant judgement and of the most recently completed survey data and
provisions estimates, particularly given the timing and quantum characterisation activity, changes to current cost
of future costs, the unique nature of each site and the estimates and the appropriate inclusion of contingency
long timescales involved. in cost estimates to allow for both known and residual
The Committee considered the various changes risks. The Committee concluded that the assumptions
in estimates for closure and rehabilitation provisions and inputs for closure and rehabilitation cost estimates
recognised during the year, including a reduction were reasonable and the related provisions recorded
to the discount rates applied. were appropriate.
For more information, refer to note 14 ‘Closure and
rehabilitation provisions’ in section 5.
Impact of new The Group adopted IFRS 16/AASB 16 ‘Leases’ with effect • noted that the Group is in the process of evaluating
accounting from 1 July 2019. The Committee reviewed management’s the implications of the IFRS Interpretations Committee
standards analysis of the accounting outcomes and disclosure agenda decision ‘Income Taxes – Multiple tax
requirements for the Group, including the treatment consequences of recovering an asset’ and approved
of leases within the Group’s net debt definitions. that any changes to the Group’s accounting policy
In addition, the Committee: for income tax will be implemented from 1 July 2020
• considered and approved the early adoption, on a retrospective basis
for FY2020, of amendments to accounting standards For more information, refer to note 38 ‘New and
relating to interest rate benchmark reforms amended accounting standards and interpretations’
in section 5.
Impact of The Committee considered the impacts of the global • the impact on key judgements and estimates,
COVID-19 COVID-19 pandemic on the Group’s FY2020 financial particularly those relating to impairment
reporting, including: indicator assessments
• the recognition and disclosure of costs incurred by The Committee concluded that the management’s
the Group that are directly attributable to COVID-19 judgements and the disclosure of the COVID-19 directly
attributable costs were appropriate.

External Auditor Consistent with the UK and EU requirements in regard to audit
The RAC manages the relationship with the External Auditor firm tender and rotation, the Committee conducted an audit
on behalf of the Board. It considers the reappointment of tender process during FY2017 to appoint a new external auditor.
the External Auditor each year, as well as remuneration and In August 2017, consistent with the Committee’s recommendation,
other terms of engagement and makes a recommendation the Board announced it had selected EY to be the Group’s
to the Board. auditor from the financial year beginning 1 July 2019, subject to
The lead audit engagement partners for EY in Australia and shareholder approval, which was received at the AGMs in 2019.
the United Kingdom (together, ‘EY’) were appointed for During FY2019, the RAC received updates from EY on the audit
commencement from 1 July 2019. transition and preparation for commencement of its audit,
including EY’s process in meeting all relevant independence
Audit tender and transition criteria, audit plan for commencement from 1 July 2019 and
BHP confirms during FY2020 it was in compliance with the reports on any non-audit services.
provisions of The Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive Tender KPMG was the auditor during FY2019 and FY2018, and EY was
Processes and Audit Committee Responsibilities) Order 2014. the auditor during FY2020.

132 BHP Annual Report 2020