Accounting Framework

Discuss about the Contemporary Issues In Business Ethics.

The current study explicates in detail about diverse systems of accounting that can help in enhancing the systems of monitoring, analysing, controlling and at the same time directing functionalities of business. This study also assists in presenting analytical findings on accounting dimensions that can essentially focus on the requirements of analysing compliance to set rules as well as regulations of Conceptual Framework issued by the Australian Accounting Standards Board. In itself, this study is a comprehensive account directed to an Australian ASX Top 100 listed firm BHP Billiton illustrating effectiveness of the corporation to meet the requirements of the conceptual framework of accounting issued by Australian Accounting Standards Board (also simply referred to as AASB). In addition to this, the study at hand also presents critical analysis of both fundamental as well as enhancing characteristics of pecuniary statement of the firm.

BHP, previously referred to as BHP Billiton, is essentially an Anglo-Australian transnational that operates in the areas of mining, metals, natural gal, iron ore as well as petroleum among many others. The company serves in the metals and mining industry worldwide.

As suggested by Scott (2015), the main objective of general purpose financial reporting (GPFR) is present in detail important financial information as regards reporting business entity under deliberation. Essentially, pecuniary information is of great importance to various users of financial information. As such, the primary audience or in other words users of this financial information include financiers, both creditors as well as debtors along with many other stakeholders of the firm. These users require financial information for arriving at specific economic decisions that in turn might affect their own interests (DesJardins and McCall 2014). Primarily, these interests include judgment regarding purchasing, selling, retaining equity, acquiring funds, settling borrowed money and many others.

The primary users or else audiences of general purpose financial report are subsisting and probable investors, lenders along with creditors in framing decisions regarding pecuniary resources of the firm (Schaltegger and Burritt 2017).

Essentially, conceptual Framework shows the intention along with standards of general purpose financial report- (GPFR). Fundamentally, conceptual framework can be considered to be an effective instrument that can aid board of the company in enhancing financial standards based on particular principles, concepts as well as premises. Furthermore, it can also be hereby stated in this that persons accountable for preparation of GPFR can help in designing effective and all together reliable stratagems of accounting. Conversely, financial standards can aid in enhancing entire processes of implementation of distinct accounting scheme (Jessen et al. 2014).

Users of Financial Information

In essence, analysis of financial declarations of the corporation reflects conformation with the directives of “Conceptual Framework of Australian Accounting Standards Board”. In actual fact, this assists in acquiring complete understanding as regards purposes of financial assertions. Additionally, this also helps in understanding qualitative exclusivity that can consequently help in instituting effectiveness of financial pronouncements (Bridgett et al. 2015). Nevertheless, there are different constituents of financial pronouncements that can aid diverse users to make use of the amassed information to develop economic decisions as to buy/sell, handling equity, various instruments of debt, resolution and agreements of loans otherwise credit. Thus, it is the way by which financial pronouncements are said to satisfy and meet all the obligations as well as objectives of definite regulations. As correctly mentioned by Libby (2017), numerous financial items are stated in the pecuniary statements of firms namely, revenue, assets/liabilities and financial pronouncements namely assets and liabilities (taking in both current and non-current). Thus, users of financial information of firms can find out about capacity and financial assets of the corporation. In addition to this, the users can evaluate predictions of the firm in the upcoming period from assertions on potential cash flow. Also, this too assists in the processes of analysing efficacy of administration of the corporation in undertaking their responsibilities.

Asset: As per the financial declarations recorded during the period 2016, the total assets of the business concern are registered to be USD 118953 million. In addition to this, the assets of the firm BHP Billiton are necessarily expressed as Australian Dollars that are also the operational currency of the specific corporation. Nevertheless, the procedure of evaluation of assets mentioned in the financial pronouncements replicate the fact that assets of the firm can be classified as “held for sale”. This can be essentially enumerated at comparatively low value of the recognized cost weighed against fair value after deduction of the costs that is borne by the company for sales (Zhang and Andrew 2014).

Liabilities: As registered in the financial statement of the corporation BHP Billiton, liabilities of the business concern primarily stands at USD12340 million during the year 2016.

Equity: Thorough study of the balance sheet of the corporation BHP Billiton reveals that shareholders’ equity. The equity is registered to be USD 60071 million in the financial statement during the period 2016. As stated in the financial pronouncement of the corporation, derivatives expressed at particularly the fair value by way of profit/loss enumerated at fair value (Craig et al. 2017). So, the corporation utilizes diverse models on particularly accounting of derivatives that requires measurement at fair value.

Financial Statements

Inventory: As per the financial statement of the firm BHP Billiton, inventories of the corporation are necessarily valued at lower value of cost as well as net realisable value. In essence, this cost is mainly ascertained on the basis of mean costs (Yong et al. 2016). However, for various processed inventories of the firm, the cost is deduced based on the absorption cost. Total inventory is registered to be USD3411 million in 2016.

Accounts receivable: As per the annual report of the firm, trade receivables are necessarily recognised at fair value in the initial period and consequently at amortised cost utilizing effective interest methods subtracting allowance for impairment. According to the financial statements of the firm, the accounts receivable of the firm is recorded to be USD 3155 million during the year 2016. The pronouncement of the firm mentions that the trade receivables are necessarily measured at fair value. Consequently the firm presented at amortised cost utilizing effectual interest method, deducting allowance for specific impairment (Ryan et al. 2014). Particularly, collectability of firm’s trade receivables is analyzed continuously and at the date of reporting particular allowances are made for any type of doubtful receivables.

Plant, Property as well as Equipment (PPE): According to the financial assertions of the corporation, the plant, property as well as equipment of the corporation BHP Billiton is registered to be USD 83975 million. Nonetheless, PPE of the firm is registered at cost and deduction of accumulated depreciation as well as charges of impairment (Henderson et al. 2015). In particular, cost can be considered as the fair value of specific consideration provided to acquire the asset during the period of acquirement or else construction and takes direct costs for getting the asset to the location.

Depreciation: According to the financial pronouncements of the corporation BHP Billiton, it can be hereby mentioned that depreciation as well as amortization expends were registered to be USD (8871) million.

The recorded figure for depreciation shows that depreciation decreased by around USD 497 million owing to decrease in overall depreciable base of asset at specifically onshore US because of impairments recorded in the past. The administration of the corporation indicates towards different items of PPE barring only the land that are not depreciated. Essentially, the depreciation rate of different owned assets are enumerated for allocation of different owned assets that are enumerated after deduction of approximated residual value over the expected economic life of the firm’s asset (Henderson et al. 2015). Furthermore, assets of the corporation are normally devalued from the date of acquirement regarding internally produced assets from the time from definite assets can be implemented.

Analysis of the Financial Statements

Treatment of leases: Assets of the firm that are held under lease lead to receiving considerably all the risks as well as rewards of ownership. These are capitalized as plant, property as well as equipment at the lower of the value. The operating lease rentals are recorded to be USD (528 million). There are equipment leases and assets are held under lease. This lead to group accepting all the risk considerably and rewards of various ownerships can be capitalized as particularly plant, property as well as equipment (Scott 2015). Operating lease as mentioned in the report are not capitalised and payments for rent are included in the income statement

Schaltegger and Burritt (2017) suggests that characteristics of effective financial information comprises of relevance together with faithful representation of specific information as regards finances of business segments. Jessen et al. (2014) suggests that relevance point out towards financial information that aids in comprehending variations in diverse economic decisions. Evaluation of financial information in the annual report of the corporation BHP Billiton aids in comprehending variations in different financial decisions. Furthermore, faithful representation of different economic occurrences is presented in numerical terms or else narrative.

As rightly indicated by Libby (2017), fundamental qualitative characteristics of monetary information delivered in financial assertions take account of relevance together with faithful representation of specific monetary information.

As rightly indicated by Zhang and Andrew (2014), relevance of information in financial statements can help in delivering economic decisions of a variety of users in case if that has definite predictive value. Financial declaration presenting important information can assist in evaluating variations in economic judgment. Furthermore, it necessarily takes in predictive value aside from confirmatory value.

As correctly mentioned by Libby (2017), faithful representation helps in replicating economic situations presented as a body of literature otherwise numerals. In order to be of use, financial information in actual fact has the obligation to be both relevant and faithful representation. Exhaustive analysis of financial declarations of financial assertions of the corporation BHP Billiton states about a certain confidence level of consumers, diverse economic dimensions of Australia, particular dimensions of growth, important information on partners of business together with influence of worldwide business forces.

Enhancing qualitative characteristics of financial assertions of corporations points out towards distinct information as regards a particular reporting unit. This can help all the audience or the users in detecting and realizing current similarities and differences among diverse things of accounting. As rightly indicated by Craig et al. (2017), there are different functionalities of a business help in undertaking comparative analysis of significant financial information and review of worldwide functional setting. In actual fact, numerals reflecting specific dimensions for instance, operating margin of corporation, rate of growth of revenue and global potential among many others considered for different time periods can help in comparability.

Depreciation and Treatment of Leases

Verifiability reflects towards faithful replication of monetary information that represents economic happenings faithfully (Bridgett et al. 2015). In addition to this, financial information of BHP Billiton certainly conforms to the regulations stated under particularly Corporation Act of 2001 along with listing standard laid down under Australian Stock Exchange. In particular, monetary assertions presented by the corporation also represent that the management has adopted particular strategies of arrangement and presentation of diverse disclosures.

As suggested by Zhang and Andrew (2014), timeliness indicates towards accessibility to requisite information in a well timed manner by various decision makers.

Review of financial assertions aids in replicating notes to monetary assertions together with accounting policies. In essence, this too can assist in enhancement of understandability of requisite information (Yong et al. 2016). The entire system of presenting and arranging financial assertions of the corporation take into account a definite theoretical structure under conceptual framework as issued by Australian Accounting Standards Board.

Conclusion

In conclusion it can be said that the above study helps in evaluating financial items mentioned in economic assertions of the corporation BHP Billiton together with accounting dimensions. Also, this study also helps in gaining insight regarding specific issues correlated to evaluation of financial information with orientation to rules of AASB. Furthermore, this study also helps in comprehension of nature of association between dimensions together with different economic decisions.

References

BHP Billiton | A leading global resources company. 2018. BHP Billiton. Retrieved 14 April 2018, from https://www.bhpbilliton.com

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Ryan, C., Mack, J., Tooley, S. and Irvine, H., 2014. Do Not?For?Profits Need Their Own Conceptual Framework?. Financial Accountability & Management, 30(4), pp.383-402.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in Accounting, 35, pp.62-74.

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.