Geological-Economic Audit: The Need for Integration into Federal Law "On Auditing Activities" No. 307-FZ
01.01.2023
201
Geological-Economic Audit and Federal Law №307: The Necessity of Integration
The significance of the resource base and the effect provided by rational subsoil use for the country's economy is a crucial factor determining its vitality. The concept of rationality includes essential factors such as geological, economic, environmental, and social ones. Thus, our state has been, in fact, a progenitor of the extended reporting form introduced abroad recently under the term ESG (a set of company management characteristics that involve the company in solving environmental, social, and managerial issues) for many years. Dynamic industry development in this field and experience accumulated due to the continuous activity of specialists in natural resource extraction have ensured primacy in the approach. The appearance of economically justified systems: "NAEN Code" for solid minerals and "PRMS" for hydrocarbon raw materials, has made it possible to compile reports of industry mining enterprises according to national standards recognized by all global financial institutions. The "NAEN Code" appeared in 2011, it is the result of integration approaches of all production, scientific, and state experts (the Ministry of Natural Resources of the Russian Federation and FBU GKZ played a leading role in its development). Later, in 2022, the first edition of PRMS (Petroleum Resources Management System), developed by the Association of Oil and Gas Engineers in conjunction with the Gubkin University of Oil and Gas, became a similar system for industry economic reporting in hydrocarbon extraction.
Based on modern global trends in reporting development and considering the practical results achieved in our country, it is becoming relevant to introduce and integrate a unified concept suitable for auditing enterprises in the extraction of mineral resources into the Federal Law "On Audit Activity" N 307-FZ. In this article, we will consider why exactly the geological-economic audit is the most suitable type for inclusion in the law, and why other types of audits, such as mining audit, geological-geological audit, subsoil use audit, and technical audit with geological-economic evaluation of subsoil use objects, are less preferable.
Currently, in the audit of the mineral resource base, having analyzed the majority of various sources, the following main types of audit can be distinguished:
- geological-economic audit;
- mining audit;
- geological-geological audit;
- subsoil use audit;
- technical audit with geological-economic evaluation of subsoil use objects.
Next, for a more detailed analysis of each of the types listed above, we will provide the most accurate definitions that describe their essence.
- Geological-economic audit is a systematic and independent process of analyzing and evaluating geological information, economic feasibility, and financial indicators of projects related to exploration, extraction, and use of mineral resources, as well as accompanying infrastructure and processes. The aim of this audit is to ensure the reliability and transparency of data, improve risk management, increase investment attractiveness, and ensure sustainable development of subsoil use enterprises.
- Mining audit is a systematic and independent process of evaluation, control, and verification of enterprises' activities in the mining industry with the aim of determining the compliance of their operations with established regulatory requirements, standards, rules, and procedures. This type of audit covers a wide range of aspects related to mining activities, including technical, environmental, social, economic, and legal components.
- Geological-geological audit is a systematic process of analyzing and evaluating geological data, resources, reserves, and economic efficiency of enterprises in the mining industry. The audit is aimed at determining the reliability of geological information, assessing risks and potential of projects, as well as controlling compliance with standards and best practices in the field of geology and mineral extraction.
- Subsoil use audit is a systematic and independent process of evaluation, control, and verification of enterprises engaged in exploration, extraction, and use of subsoil, with the aim of determining the compliance of their operations with established regulatory requirements, standards, rules, environmental, social, and economic criteria. The audit is aimed at ensuring rational, safe, and sustainable use of subsoil, compliance with legislation, and the interests of all stakeholders.
- Technical audit with geological-economic evaluation of subsoil use objects is a comprehensive and independent process of analysis, evaluation, and control of various aspects of enterprises engaged in the extraction and use of subsoil, including geological, economic, and technical characteristics. The aim of the audit is to determine the degree of compliance of projects and operations with established standards, rules, and procedures, as well as to assess risks, potential, and economic efficiency of deposit development and subsoil use.
Comparative Table of Definitions
|
Geo-economic audit |
Mining audit |
Subsoil use audit |
Mining-geological audit |
Technical audit with a geo-economic assessment of subsoil use objects |
|
|
Goal |
to assess resources and reserves of minerals, as well as economic feasibility and efficiency of field development. Ensure reliability and transparency of data, sustainable development of companies. Determine the profitability of investments. Forecast investment risks. |
to check and monitor compliance with regulatory requirements, standards, and rules in the mining industry, including technical, environmental, and social aspects |
control of compliance with legislation in the field of subsoil use, licensing requirements, and environmental standards. |
to assess the quality of geological data, resources, and reserves of mineral raw materials, as well as to evaluate the correctness of the application of geological and field methods and standards |
to identify technical risks, optimize processes, and evaluate the economic efficiency of projects based on technical data and indicators |
|
Focus |
on the analysis and evaluation of geological information and the economic feasibility of projects, including the analysis of economic indicators such as capital expenditures (CAPEX), operating expenses (OPEX), discounted cash flow (DCF), internal rate of return (IRR) and others |
on technical, operational, and managerial aspects of the mining enterprise, studying and evaluating processes of extraction, ore processing, transportation, as well as compliance with safety standards and environmental norms. On assessing the efficiency and reliability of equipment, technologies, and management systems |
on compliance with legislation, licensing conditions, environmental, and technological norms |
focus on the analysis of geological, geophysical, geochemical and geotechnical data, as well as assessment of competence and reliability of data on resources and reserves |
focus on the analysis of technical components of projects, such as equipment, technologies, and processes, followed by a geo-economic evaluation |
|
Stakeholders |
investors, shareholders, regulators, government bodies and organizations monitoring the development of the mineral resource base. Interest in evaluating the potential of deposits, the economic viability of projects and their impact on the environment |
mining industry enterprises, workers, contractors, equipment suppliers, environmental and public groups. Interest in assessing the technical, operational, and managerial aspects of mining enterprises, as well as safety and environmental responsibility |
government bodies, environmental and supervisory organizations |
geologists, mining engineers, government bodies and insurance companies, who need to ensure the accuracy and reliability of geological information and resource estimation of the deposit |
investors, shareholders, regulators, government bodies and organizations monitoring the development of the mineral resource base, it may also include various specialists with in-depth knowledge in the fields of geology, technical safety, mining, metallurgy, ecology and economics, as well as representatives of research institutions and consulting firms. |
|
Compliance with standards and regulation |
based on international standards for resource and reserve assessment (for example, JORC, NI 43-101, PERC, etc.), as well as on national standards (for example, NAEN Code) and legislation in the field of geology and subsoil use |
oriented on checking compliance of mining operations with accepted standards, legislation, and rules, including technical, environmental, and social aspects |
ensures the compliance of subsoil users' activities with legislative requirements, license terms, and contracts, including checking the correctness of tax and fee calculation and payment, compliance with environmental protection requirements, as well as other conditions stipulated by the law |
is involved in assessing the quality and reliability of geological data, as well as the conformity of research methods and data processing to international reserve reporting standards |
based on international standards for resource and reserve assessment (for example, JORC, NI 43-101, PERC, etc.), as well as on national standards (for example, NAEN Code) and legislation in the field of geology and subsoil use, but with a focus on technical and engineering norms and requirements |
|
Methods and approaches |
economic modeling, geological analysis, evaluation according to reporting standards, statistical analysis, financial methods |
methods of control and verification oriented towards compliance with legislation, standards, and rules in the mining sector |
verification of documentation, inspections on deposits, analysis of compliance with legislation |
geological methods, analysis of geophysical and geochemical data, and comparison with industrial standards and methods of resource and reserve assessment |
evaluation of technologies, equipment, infrastructure, analysis of costs and revenues, as well as risk analysis |
|
Audit outcomes |
providing information about the potential economic efficiency and risks of the project that can affect investment decisions and deposit development strategy, including recommendations for improving management, risk management, and increasing investment attractiveness |
outcomes relate to processes and practices used in mining operations, including safety, ecology, waste management, and social issues |
identification of violations of the legislation, licensing conditions, and environmental norms, as well as development of recommendations for their elimination |
identification of potential problems in geological information and resource assessment, offering recommendations for improving data quality and reducing geological risks |
providing information about the technical condition of the project, its economic assessment, and possible measures for optimizing processes and reducing costs |
Next, we will consider the main differences between the above types of audits and geological-economic audit, as the most promising concept for further use:
Mining Audit: Mining audit is primarily focused on assessing the processes of mining. It does not cover all the complex aspects that a geological-economic audit includes, such as the economic evaluation of projects and environmental aspects.
Mining-Geological Audit: This type of audit is oriented towards geological and mining aspects of enterprises' activities, but does not take into account the economic and environmental consequences of their operations. Geological-economic audit, on the other hand, provides a more complete picture, assessing the effectiveness and economic viability of projects, as well as their compliance with environmental requirements.
Subsoil Use Audit: Subsoil use audit is focused on checking compliance with legislation in the field of subsoil use and assessing the resource base of enterprises. However, it does not provide a comprehensive evaluation of all aspects of activities related to subsoil use, including economic
Technical Audit with Geological-Economic Evaluation of Subsoil Use Objects: This type of audit combines technical aspects and geological-economic evaluation of projects. However, it does not provide a comprehensive approach, leaving out the environmental aspects of enterprises' activities.
Conclusion
Therefore, unlike other types of audit, geological-economic audit provides a more comprehensive and detailed study of subsoil use objects in the necessary plane and allows defining long-term development and investment strategies. Geological-economic audit is a comprehensive type of audit, which combines geological, economic, technical, and environmental aspects of evaluation and control over subsoil use. This type of audit allows assessing the efficiency and economic feasibility of subsoil use projects, as well as compliance of companies' activities with the requirements of legislation.
The inclusion of the concept of geological-economic audit in the Federal Law "On Audit Activity" No. 307-FZ will ensure a more complete and comprehensive control over the activities of enterprises in the field of subsoil use. Unlike other types of audit, geological-economic audit takes into account all important aspects such as geology, economy, technology, and ecology, and provides for the definition of long-term development and investment strategies. This contributes to a more efficient use of the resource base, enhancing the competitiveness of the industry.