ACC706 Accounting Theory and Issues

Analysis with application to General Purpose Financial Reporting by corporations. Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting. The summary report should include data extracted from  the General Purpose Financial Report relevant to the material analysed.Consider how this drives culture with organisations including a desire to obtain profit to receive bonus payments.

This study deals with a company named as BHP Billiton that operates in the mining sector (Bhpbilliton.com. 2016). The assignment brings out the facts behind the issues that are present the remuneration report of the company that need urgent attention. The study has explained the governance structures that take into consideration factors that adhere by the rules and guidelines as presented in the annual reports of BHP Billiton (Ifrs.org. 2016). There has been proper explanation on the concept such as prudence, conceptual framework and their benefits so that it can be understood that these aspects widely affects the functioning of business enterprise (Miller and Power 2013).

On analyzing the remuneration report of BHP Billiton, it was found out that the board members of the company was finding ways for giving responsibility to one of the remuneration committee that is named as People Policy Committee (Henderson et al. 2015). There is a reason to why remuneration rates are set up at obtainable levels so that future performance and the applicability can be properly utilized by any accounting firm. Remuneration Committee has the responsibility to engage the fundamental recommendation in accordance with Australian Stock Exchange (Bebbington, Unerman and O'Dwyer 2014). It is thereby understood after looking at the auditor report of BHP Billiton those rates on remuneration takes into consideration on matters relating to activities where the Board of Directors engages in preparing the reports in accordance to the Section 30A of the Corporation Act that was enacted in the year 2001 (Kim et al. 2013).

Short-term decision making skill

It was mentioned in the standard named as IFRS 8 operating segments on matters relating to determination of facts that depends upon the internal reporting business enterprise (Deegan 2013). It is the case when CFO of firm engages in strategic decision-making process that takes into consideration allocation of resources in the above-mentioned accounting segments. It depends upon the executives that help in valuing the operating segments that relates with the segments of internal reporting (Bonin 2013).

Conceptual framework is one of the frameworks that deals with understanding the facts behind the financial declarations for the company named as BHP Billiton (Deegan 2012). Furthermore, the general reason if the fiscal reports are to expand after taking into account the integration and understanding of different philosophy of secretarial as set under the AASBTherefore, the general purpose of the monetary reports is conventional with the “AASB Conceptual Framework” (Harrison and Van der Laan Smith 2015).

AASB issues such as lease accounting 

From the annual reports of BHP Billiton, it was clear to gather facts on lease accounting where it is prepared in accordance with the AASB (Kim, Liu and Zheng 2012). In this way, lease actually explains the dependency fulfillment where it takes into consideration the given financial properties that are present in a business enterprise. It is necessary to understand how to utilize the properties in correct form. It is the case when judgment needs assessment of current arrangements of supplier after bringing restrictions on lease accounting. Identification has to be made regarding the issues that have been used from the failed cases but efforts need to be made for assessing the group enforcement and supply compulsions (Crawford and Lepine 2013). It is the accounting standard that focuses upon the facts on effect of implementing proper quality standards that has been sourced from the products and process that has practically no control over the asset utilization. It is necessary to take an account on each of the purchase that is price after viewing the physical admittance especially in case of supplier assets (Henderson.et al. 2015).

General purpose of financial reports 

From the annual report of BHP Billiton, it can be found out that the company has spent $4.5 billion especially for developmental activities (Bebbington, Unerman and O'Dwyer 2014). In that case, the petroleum continued in involving in the active development for looking at the stock of the company. It is the price of crude oil that has dropped over time when Henry Hub gas price had reduced with the figures. The reason behind the decrease is the supply and increased inventory levels during the past years (Legislation.gov.au. 2016).

Accounts receivable

From the figures that are extracted from the financial report of BHP Billiton, accounts receivables are deemed to have past due as in case of impairment after referring it to Group norms based on terms and conditions of business organization (Messier 2016). Some of the terms and conditions are used based on cash agreements that refer to the customer credit quality as well as getting through the present market conditions. It is where the receivables can be get classified into past due that depends upon the payments as agreed by the customers. It is thereby necessary to identify the movements in the impaired trade receivables for the company as the financial figures are taken from the financial statements of the company (Crawford and Lepine 2013).

From the annual report of BHP Billiton, it can be stated that PPE impairment comes around $366 to $3449 for the year 2016 (Chen et al. 2013). In addition, it has been viewed that reason for exposure is the fact that it reduces ability of the firm for supporting the cash balance. This is where it is stated the fact regarding the financial reports of business enterprise where estimation are made depending upon the growth rate and transactions that are well-performed by business during specified time. As far as retained earnings of BHP Billiton are concerned, it actually drops out the values because the company had generated lower amount of profit. It is thereby noted that there is misstatements present where the external auditors make use of AASB standards that are laid down for auditing purpose as well as identification of indiscretions as presented in the financial declarations (Miller and Power 2013).

Liabilities

Liabilities concerns with the aspects that means deduction of an unethical valuation where there is proper evaluation of assets and liabilities of business enterprise (Bebbington, Unerman and O'Dwyer 2014). BHP Billiton actually engages in finding out the loopholes and inflates ways so that they are competitively advantageous than others after taking consideration on assets and liabilities of the company. It is the IASB standards that help in discarding the prudence as shown in the financial accounting and this brings effective actions that is needed for valuation activities and give rise to reduction of manipulation in the business accounting firm (Kim, Liu and Zheng 2012).

Leases

BHP Billiton had been involved in lease accounting and had involved in classifying the leases that include finance leases and operating leases (Kim, Liu and Zheng 2012). The company actually uses finance leases as the contracts help in specifying the legal obligations as and when required. There are main features that are present that transfer given rewards ad risks that connects with the ownership of lessee in an effective way.

Taxation 

BHP Billiton has total taxation expenses around $3.1 billion year 2016 as the information is extracted from the annual report of the company (Bebbington, Unerman and O'Dwyer 2014).

Transfer Pricing 

BHP Billiton has appointed Committee who are responsible to assess the measurement and tax disclosure that depends upon the contingent liabilities and royalty provisions at the same time. This factors takes into consider that transfer pricing estimates widely affects the taxes and royalties payable in different jurisdictions (Kim, Liu and Zheng 2012).

Prudence 

The concept on prudence explains the pleasing quality that is needed to be taken into account and considered as an important element as presented in the financial report. It is noted that business enterprise engages in manipulating as well as misreading the prudent that supports personal gain for any business organization (Bebbington, Unerman and O'Dwyer 2014).

It can be understood from the above definition of prudence that the concept is popular as in case of financial reporting (Bebbington, Unerman and O'Dwyer 2014). Any changes made to the prudence concept will lead to deducing of unethical procedure where the usage is identified after drafting the financial reports that brings authentication of financial position in the business organization. It is the concept of the prudence that makes it possible where the company can get hold of reliable information that leads to financial stability as a whole (Kim, Liu and Zheng 2012). There are even some drawbacks that are present in the prudence concept that directly leads to violation in the fiscal theoretical framework.

This framework reveals the fact regarding the financial statement preparation that depends upon the financial declarations after keeping into account some of the uncertainties and acts for the financial events like doubtful receivables as well as useful life of assets (Bebbington, Unerman and O'Dwyer 2014). In this particular framework, it is easy to gather facts on the uncertainties that can be found out from close corporate disclosures through prudence exposure. It is because of the conceptual framework that prudence takes cautious degree for deciding over the judgment that depends upon the high level of uncertainty of actions (Kim, Liu and Zheng 2012).

Need for revising the conceptual framework 

There is a need for revising or updating the conceptual framework that are implemented in any business organization (Bebbington, Unerman and O'Dwyer 2014). In that case, there has been removal of IASB references that actually remain dependent upon the main aspect of Prudence that need proper updation of developmental factors. There is a need for bringing revised conceptual framework that exudes the concept of Prudence as it misinterpret the data and other financial components that is presented in the financial statements of BHP Billiton (Kim, Liu and Zheng 2012).

Advantages and disadvantages of financial reporting 

It is important to consider the fact that financial reporting has been explained in accordance with the concept on prudence (Bebbington, Unerman and O'Dwyer 2014). This is further explained with the help of conceptual framework as it brings out the real cause of using consistent approach through use of information and the action neutrality at the same time. There are various mistakes that are found in the financial reports and takes into account by the auditors and financial accountant who looks at the financial statements of the company (Kim, Liu and Zheng 2012). There are forbidden aspects that are identified in the conceptual framework. On other hand, problem with the financial reporting is that there is a sense of biasness noted that hugely affects the financial performance of accounting firm and needs to be corrected for smooth functioning of business enterprise (Chen et al. 2013).

Conclusion 

Entire study is based on analyzing the financial position and issues that prevails in the mining sector companies named as BHP Billiton. The financial analysis has been conducted for the year 2016 and information has been extracted from the company website of BHP Billiton. The concept on prudence has been explained in the study and its importance as it directly gets liked with the financial reporting. There are different attributes that are explained in the study starting from the remuneration report issues, short-term decision making and AASB lease accounting.

 Therefore, remuneration report of BHP Billiton has been properly explained through bringing out actual facts that connects with the above questions mentioned in the report. The above study explains as what are issues that are faced by BHP Billiton while operating in the mining sector. It makes it guaranteed that the fiscal declaration of the association are represented according to the IFRS. Furthermore, the borrowings are resolute at fair value along with it the payables at amortized cost. Though, the goodwill imitates the gaining expense over the fair assessment. In addition, the equity tools are also recognized at fair value after the first gratitude. The study properly gave emphasis upon the working of the company and the issues that they face over a period of time.

Reference List

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