Page 248 - Annual Report 2020

3. Our assessment of key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current year and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit, and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit on the financial statements as a whole, and in forming our opinions thereon, and we
do not provide separate opinions on these matters. For each matter below, our description of how our audit addressed the matter is provided
in that context.
We have fulfilled the responsibilities described in Section 11 titled Auditors’ Responsibilities for the Audit of the financial statements of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures
performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report.

Samarco dam failure provisions recognised and contingent liabilities disclosed
Losses in the period attributable to the dam failure (pre-tax and finance costs): US$0.1 billion (2019: US$1.0 billion)
Provisions: US$2.1 billion (2019: US$1.9 billion)
Contingent liability disclosure in Note 33
Why significant How our audit addressed the key audit matter
Refer to Note 3 ‘Exceptional items’, Note 4 ‘Significant The primary audit procedures we performed, amongst others, included
events – Samarco dam failure’ and Note 33 the following:
‘Contingent liabilities’ • We assessed the design of and tested the operating effectiveness of the
There are a number of significant judgements and internal controls over the Samarco dam failure accounting and disclosure
disclosures made by the Group in relation to the process. This included testing controls over:
Samarco dam failure and the Germano dam – The determination of the provision for the remediation of the Samarco
decommissioning, including: dam failure, including significant assumptions such as the cost estimate
• Determining the extent of the Group and BHP Billiton to remediate, the nature and extent of remediation activities, and the
timing of the cash flows; and
Brasil Ltda’s legal obligation to continue to fund the
costs associated with the Samarco dam failure, and the – The Group’s review of the legal claims and determination of associated
quantification of the continued obligation required by legal provision and related contingent liability disclosures.
the Governance Agreement, Framework Agreement and • We assessed the key assumptions used to determine the provision
Preliminary Agreement; recorded by the Group in relation to potential funding obligations by:
• Determining the costs of the decommissioning of the – Understanding the impact of any legal decisions on the number and
Germano dam complex; compensation category of impacted peoples;
• Determining the status, accounting treatment and – Inquiring with the BHP subject matter experts for the various remediation
quantification (if applicable) of the legal claims against programs regarding the cost estimate to remediate the environment,
BHP Group Limited, BHP Group Plc, BHP Billiton Brasil residents’ wellbeing and infrastructure damaged by the dam failure;
Ltda and Samarco; – Evaluating the qualifications, competence and objectivity of the Group’s
• Disclosures relating to the contingent liabilities relating subject matter experts involved in the determination of the cash flow
to the various legal claims and other circumstances that estimates by considering their qualifications, scope of work and
represent exposures to Samarco and the Group. remuneration structure;
We identified the Samarco dam failure provisions – Comparing the nature and extent of remediation activities described
in the Framework Agreement to the activities included in the cash
recognised, and contingent liabilities disclosures as a flow forecasts;
key audit matter as auditing these estimates is complex. – Selecting a sample of cost estimates included in the provision
There is a high degree of estimation uncertainty, together and considering the underlying supporting documentation, such
with a wide range of reasonable outcomes. Significant as court decisions;
judgement is required in relation to assessing the
completeness and measurement of the estimated cash – Assessing the period in which a provision change was recorded by
outflow related to the provisions and contingent liabilities, understanding when the event that caused the change occurred;
including the probability of the outflow. This is due to: – Assessing the Germano dam decommissioning provision, with the
• The significant size of the potential claims, combined assistance of our subject matter specialists, as part of our audit
with the multi-jurisdictional legal and regulatory locations; procedures reported in the Closure and Rehabilitation Provisions
• High degree of judgement and estimation around key audit matter below; and
certain key assumptions in the provision, including: – Evaluating the historical accuracy of prior year’s forecasted cash flows
– Cost estimates of remediation and compensation by comparing to the current year’s actual cash flows.
requirements for the Samarco dam failure; • We read the claims and assessed their status and considered whether they
– The number and compensation category of impacted now represented liabilities through:
peoples entitled to compensation; – Inquiries with BHP’s external and internal legal advisors, senior
– Nature and extent of remediation activities; and management, Group finance, and members of the Executive Leadership
Team, with respect to the ongoing proceedings;
– Timing of cash flows. – Inspection of correspondence with external legal advisors; and
– Independent confirmation letters received from external legal advisors.
• We assessed the disclosures regarding the environmental and legal
contingent liabilities as included in Note 33, and the relevant disclosures
regarding the significant events relating to Samarco dam failure as
included in Note 4 against the disclosure requirements of the relevant
accounting standards.
Our procedures were performed by the Group engagement team.
Key observations communicated to the Risk and Audit Committee
• We reported that the Samarco dam failure provisions are reasonable and that the increase in the cost estimates were a result of new
information obtained during the period.
• We reported that the contingent liabilities disclosures related to the Samarco dam failure are appropriate.

246 BHP Annual Report 2020