Impact of IFRS on Financial Reporting Quality

This assignment delves into the impact of International Financial Reporting Standards (IFRS) on financial reporting quality. Students are expected to analyze various research papers and studies that examine the influence of IFRS adoption on aspects such as accounting policy choice, fraud deterrence, and segment disclosure quality. The analysis should consider the perspectives of external auditors, preparers, and users of financial statements, as well as the role of internal control and monitoring mechanisms.

RUNNING HEAD: Accounting policies and estimates used by firm
1
Name of the Student-
Title- Accounting and reporting frameworks
University Name-

Accounting policies and estimates used by firm 2
Table of Contents
Introduction.................................................................................................................................................3
Accounting policies and GAAP rules followed by BP Billiton Company.......................................................4
Estimates used by BP Billiton Company...................................................................................................5
Estimates used by rivals...........................................................................................................................6
Comparison of accounting policies and estimates used by BP Billiton Company s and Morrison plc......6
Assesse accounting flexibility..................................................................................................................8
Evaluation of accounting strategies and policies.........................................................................................8
Changes in accounting estimates by the BP Billiton Company................................................................9
Suggestion for accounting policies and estimates prepared by BP Billiton Company............................10
Red flag in accounting report of BP Billiton Company...............................................................................10
Conclusion.................................................................................................................................................15
References.................................................................................................................................................16
Appendix...................................................................................................................................................19

Accounting policies and estimates used by firm 3
Introduction
This report reflects the debt understanding on normative and positive theories of financial
accounting. Each and every company needs to establish proper level of harmonization in
domestic and international accounting standards. There are several companies such as BP
Billiton Company, Wesfarmers plc and Morrison plc that have been running its business since
very long time in Australia. However, due to the different accounting sets and standards, these
companies have been facing several red flag while reporting its financial standardsIn this report,
it is given that reporting frameworks of organization are depends upon the accounting standards
and reporting framework of organization. It is observed that Accounting policies are the standard
and specific rules, procedure and accounting implication which are used by accountant to prepare
the accounts and financial reporting of organization. In this report study has been prepared how
BP Billiton Company has been following IFRS rules and possible red flags faced by company in
its reporting frameworks.
Present description of organization
In this report BP Billiton Company has been taken into consideration to identify the
estimates in accounting reporting and red flags in accounting and reporting of financial statement
of company. It is Australian Conglomerate Company which has been providing oil and gas
services on domestic and international level. This company has followed proper level of
international financial reporting standards and endeavor towards harmonization in GAAP rules
and regulation and application international accounting standard (Kieso, Weygandt and
Warfield, 2010)

Accounting policies and estimates used by firm 4
Accounting policies and GAAP rules followed by BP Billiton Company
There are several financial and accounting policies followed by BP Billiton Company while
accounting and reporting of financial statement (Irvine and Moerman, 2017).
 BP Billiton Company has adopted straight line and written down method to charge
deprecation on its assets. With the help of these depreciation methods, company could
reflect the true and fair view to reflects the true value of its assets as per the IFRS rules
and standards (Hussey and Ong, 2017).
 There is another implication which is related to AASB16 lease, BP Billiton Company has
made provision of right-of-use assets while reporting its underlying leased assets in the
business.
 All the assets and consolidation of financial statement of company has been done as per
the AASB-5 IFRS rules and accounting standards (Cairns, et al. 2011).
 With a view to showcase the true and fair view of assets of company, BP Billiton
Company has implemented impairment test in its business functioning. All the
impairment loss has been charged from the cash generating units of organization after
deducting the amount from the goodwill. (de Ricquebourg and Jonathan, 2013).
 BP Billiton Company has prepared its financial statement after following AASB 101.
 This level of reporting frameworks has allowed BP Billiton Company to increase the
transparency and effectiveness of financial statements in determined approach.
 AASB-117 has also been followed by BP Billiton Company to strengthen its accounting
and reporting of its leased assets to its stakeholders in determined approach.

Accounting policies and estimates used by firm 5
Estimates used by BP Billiton Company
BP Billiton Company has implemented proper rules and regulation while estimating its
future events such as income tax payment, valuation of inventories management, joint
venture transactions, commitment of company and identification of contingencies and other
details (Clinton, Pinello and Skaife, 2014). BP Billiton Company has relies on the data and
other details shown by its subsidiaries company while reporting its assets and liabilities in the
consolidation statement of company. In addition to this, company has implemented proper
level of international financial reporting standards while reporting its financial statement and
other required documents with the international reporting authorities (Nobes and Stadler,
2015). There will be following outcomes which would be observed in the BP Billiton
Company’s reporting frameworks.
 International investors and stakeholders will make easy interpretation of financial
statement of company.
 Consolidated financial statement of BP Billiton Company is prepared after following
AASB-5 and included all the estimates in its financial notes of accounts (Steman, 2016).
 BP Billiton Company has adopted international financial reporting standards and
establish harmonization in its GAAP rules.
 BP Billiton Company has implemented impairment test as per the IAS-136 provisions
and rules to report the value of its assets in its reporting framework’s.
 It has set estimation for liabilities for wages and salary including non-monetary
transactions and explained that all the transaction should be set off within 12 months
from the reporting period.

Accounting policies and estimates used by firm 6
Estimates used by rivals
There are several rivals such as Morrison plc, Wesfarmers Plc who have been following
international financial reporting. However, the estimations used by all these companies are
different from each other. Nonetheless, these all companies have been following proper level
of international financial reporting problems with a view to establish harmonization in its
domestic and international reporting frameworks (Mardini, Crawford and Power, 2015). In
addition to this, other estimates such as inventory valuation, tax management and other
investment projects which is considered by organizations in determined approach.
Comparison of accounting policies and estimates used by BP Billiton Company
s and Morrison plc
Accounting rules BP Billiton Company Morrison plc
AS per IFRS-5
( Rehabilitation and injecting
of funds
Company has implemented
IFRS-5 provisos and
rehabilitation and injecting
money in the business
operation of company has
been determined as capital
nature transactions of
business (Cline, Garner and
Yore, 2014).
This company has bifurcated
all its investment, investment
in its business operation has
been treated as revenue
nature transaction and long
term investment have been
treated by company has
capital nature transactions.
IAS-136 All the tangible and
intangible assets are taken for
Impairment test is
implemented by company

Accounting policies and estimates used by firm 7
impairment test on annual
basis with view to showcase
the true and fair view of
assets. In addition to this,
goodwill and other cash
generating units will be used
for impairment test.
whenever needs arise for the
same.
ASSB- 5 It is evaluated that company
relies on the estimates and
values shared by subsidiaries
companies while reporting its
consolidated financial
statement.
All the financial statement
and consolidated financial
statement reporting is done
after following proper level
of IFRS rules and standard.
IFRS-23 (treatment of
income tax payment
Alt the tariff and traits paid
by company is charged from
the profit and loss. It is
observed that company has
charge all of its income tax
payment as revenue expenses
(Chen, Cumming, Hou, and
Lee, 2016).
Company has bifurcated all
of its income tax payment
and tariffs in two parts such
as revenue expenses and
capital expenditure. Current
tax payment will be charged
from the profit and loss
accounts and deferred tax

Accounting policies and estimates used by firm 8
payment will charged as
capital expenditure.
Assesse accounting flexibility
It is considered that accountants of BP Billiton Company has measured all of its assets at
estimated fair value (Christensen, et al. 2015). Interest payment and other provisions will be
deducted from the profit and loss accounts of company. However, changes in accounting
standard will also change the recording and classification of assets in determined approach. This
will not only strengthen the reporting of company but also keep all the financial statement
updated as per the newly introduced rules and regulation. In addition to this, it is also observed
that self- insured liabilities of the BP Billiton Company is based on the number of estimates and
management such as future inflation, return investment, application of accounting standard and
valuation of assets and liabilities (Ball, Li and Shivakumar, 2015).
Evaluation of accounting strategies and policies
There are several estimations which are adopted by the management debarment of BP
Billiton Company. These estimations used by company may result to distortion or damages
to the real value of organization. It is observed that if company does not use proper level of
estimation in its reporting frameworks then it may result to showing false views of assets and
liabilities of company. After evaluating the annual report of BP Billiton Company, it is
observed that management department with the collaboration of accountants have charged all
the hedge funds losses and other increased capital value from it profit and loss account which

Accounting policies and estimates used by firm 9
reduce the tax payment and profit of company as well. This level of accounting policies have
been adopted by organization to put cap on its overall cash flow. It is further observed that
inventory management and accounting policies adopted to manage the inventory may
provide proper reporting frameworks.
BP Billiton Company has followed both GAAP rules and standards and IFRS rules while
accounting and reporting of its financial data (Sytnik, 2014). For instance, plants and
machinery has been recorded in the books of account at their cost value after implementing
proper level of depreciation methods as per the IFRS rules and standard. Nonetheless, GAAP
rules provides that all the intangible assets should be recorded at the lowest of following
market value or cost value. This level of changes and amendment in the accounting standards
may result to destruction of reporting frameworks. Therefore, BP Billiton Company has
adopted both accounting GAAP and IFRS accounting standards while reporting it’s financial and
accounting information in its books of accounts. BP Billiton Company has been disclosing all of its
financial and non-financial information as per the AASB 101 (Brochet, Naranjo and Yu, 2016).
Changes in accounting estimates by the BP Billiton Company
There are several estimations which are adopted by the management debarment of BP
Billiton Company. These estimations and accounting implications used by company may
result to distortion or damages to the real value of organization. Company has changed its
estimation to hedge funds contracts and change in accounting estimates which will make
changes in its overall profit and loss of organization. In addition to this, estimation used by
company while deducting impairment loss may result to lower down the overall capital assets
of company and show casing true and faire views of its business assets (Bischof,
Brüggemann and Daske, 2014).

Accounting policies and estimates used by firm 10
Suggestion for accounting policies and estimates prepared by BP Billiton
Company
There are several estimates and judgments used by BP Billiton Company such as
following FIFO method in management of inventories, deferred tax payment, impairment of
tangible and non-tangible assets (Barth, 2013). This has shown that payment of tax and
charging the same from profit and loss account of company is based on the estimation made
by company in its annual report. Moreover, it is observed that if company face problem in
complying with accounting and reporting frameworks after adopting GAAP rules and IFRS
rules and standard then IFRS rules and standard will override the compliance requirement of
organization. Nonetheless, all the estimates and provisional accounts created by BP Billiton
Company should be based on the actuaries’ method of calculation and the contingency plans
prepared (Aobdia, Lin and Petacchi, 2015). After evaluating the annual report of company,
and adjustment made in its annual report, it is observed that company had complied with all
the IFRS rules and estimations undertaken should be based on the reporting frameworks and
stakeholder’s requirement for company’s reporting. There are several red flags which could
be encountered by BP Billiton Company if it establish harmonization in its compliance and
reporting frameworks.
Red flag in accounting report of BP Billiton Company
There are several accounting issues and reporting problems which are faced by
organizations while complying with accounting and reporting frameworks. Red flags in
accounting report of BP Billiton Company could be defined as potential problems and threats
faced by BP Billiton Company in the accounting and reporting of financial statement. There
are several factors which could be identified by BP Billiton Company to evaluate the red flag

Accounting policies and estimates used by firm 11
in accounting report of BP Billiton Company (Atkins and Maroun, 2015). These red flags
arise when BP Billiton Company reports its financial statement to its reporting authorities. It is
observed that conflict or red flag arise when auditors of BP Billiton Company give remark on the
accounting policies followed by organization. If company has followed FIFO method and has
not disclosed proper level of information to its notes to accountant then it may destruct the
valuation methods in determined approach.
Monitor revenue and capital expenditure of company
The main problem or red flag in reporting frameworks of BP Billiton Company is related
to revenue and capital expenditure allocation in its profit and loss accounts. It is evaluated
that accountant of BP Billiton Company has charged all of its cost of capital from its profit
and loss accounts by considering revenue expenses. This level of treatment has reduced its
overall tax payment and reduced its overall profit. However, as per the IFRS rules and
standards, BP Billiton Company needs to make proper level of bifurcation in its all expenses.
Ideally expenses which provide benefits to company for more than one years should be treated as
capital expenditure. However, Income tax expenditure and deferred tax payment are the critical
terms and recording of these transactions is based on their nature. Deferred tax payment should be
treated as capital expenditure and annual income tax payment may be charged by BP Billiton
Company as revenue expenditure. This is one major Red Flag which BP Billiton Company
has been facing in its reporting frameworks.
Determination of depreciation amount to identify the true value of assets
It is considered that charging depreciation on the company’s assets is fully depends upon
the management’s discretion. BP Billiton Company has charged all of its assets through straight

Accounting policies and estimates used by firm 12
line method which may cause problem. It is observed that when company charges depreciation
through SLM method then it does not make full amount of depreciation from its assets. However,
depreciation amount charged is deducted from the profit and loss of company. In order to
showcase true and fair view of assets company needs to change its SML depreciation
charring method to written down value method. (Jaggi, et al. 2016).
Inventory valuation method
It is observe that as per the IAS-3 each and every listed company needs to follow FIFO
and LIFO method to manage its inventory in the business functioning. BP Billiton Company
has followed FIFO method to manage its inventory. It is considered that following FIFO method
will strengthen the inventory management of organization. BP Billiton Company use all the
inventories and management of business in FIFO and LIFO method to maintain inventories in its
reporting frameworks. With the help of LIFO method, BP Billiton Company has This FIFO
method has increase its overall turnover by 30% as compared to last five years. In addition to
this, this FIFO method will also change its overall profit and inventory which increase the
overall cost of productions to reduce the tax implication. Adoption of FIFO and LIFO
method depends upon the management discretion and inventory management techniques
followed by company.
Changes in net income, cash flow and related party transactions impact
As per the IAS24, BP Billiton Company should not enter into related party transactions to
which it has pecuniary and other materialistic relation. Nonetheless, transactions such as
offering remuneration, tax payment and other losses may be charged by company by passing
special resolution in the general meeting allowed payment to directors without passing

Accounting policies and estimates used by firm 13
special resolutions. All the transactions and events entered by BP Billiton Company with the
related party transactions have been done through passing special resolution in meeting and
disclosing the same details in notes to financial statement. In addition to this, company has
also noted down all the contingent expenses and other payments by recording all of its assets
in the notes of accounts and by adding justification in the attached appendix of annual report.
It has been observed that company needs to disclose all of its assets and liabilities after
applying proper IAS standards and GAAP rules in determined approach. BP Billiton
Company has also followed proper level of foreign exchange management policies with a
view to comply with the foreign exchange management policies and frameworks. These
foreign management policies and accounting standards have been followed by company to
increase the overall reporting framework in effective manner. However, main red flag arise
in accounting and reporting of organizations in case of related party transactions,
implementing depreciating method and following proper inventory management technique.
The main impact of related party transactions could be seen by observing the net inflow and
outflow of cash. It is considered that companies use related party transactions to make
business transactions below the arm length price. BP Billiton Company has put cap on all the
financial transactions by following related party provisions and notes of IAS standards. This
assist in curbing the manipulation in profit and loss of company. These adopted IAS
standards and applicable rules has made proper level of compliance program and delivered
effective reporting of financial statement in determined approach.

Accounting policies and estimates used by firm 14
Conclusion
It is evaluated that Accounting policies are the standard and specific rules, procedure and
accounting implication that needs to be followed by accountants and management
department of listed companies to prepare the accounts and financial reporting of
organization. Accounting policies and measures reflects the proper level of accounting
frameworks and reporting standards which should be followed by BP Billiton Company for
the betterment of its reporting frameworks. After evaluating the annual report of company, it
is observed that company has established proper level of harmonization in IFRS standard and
GAAP standards. If company finds any conflict and problem while complying with the
reporting frameworks and reporting of financial statement in GAAP rules and IFRS standards
then it should follow IFRS rules and regulation in its reporting frameworks. Now in the end,
it could be inferred that if BP Billiton Company finds any sort of identified red flags then it
should adopt strict accounting policies to mitigate possible problems in preparing financial
statement after following IFRS rules and standards in determine approach. If BP Billiton
Company adopts proper level of IFRS rules and regulations in effective manner then it will
mitigate all the red flags and reporting issues in determined approach.

Accounting policies and estimates used by firm 15
References
Aobdia, D., Lin, C.J. and Petacchi, R., 2015. Capital market consequences of audit partner
quality. The Accounting Review, 90(6), pp.2143-2176.
Atkins, J. and Maroun, W., 2015. Integrated reporting in South Africa in 2012: Perspectives from
South African institutional investors. Meditari Accountancy Research, 23(2), pp.197-221.
Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement
information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal
of Accounting Research, 53(5), pp.915-963.
Barth, M.E., 2013. Global comparability in financial reporting: What, why, how, and
when?. China Journal of Accounting Studies, 1(1), pp.2-12.
Bischof, J., Brüggemann, U. and Daske, H., 2014. Fair value reclassifications of financial assets
during the financial crisis.
Cairns, D., Massoudi, D., Taplin, R. and Tarca, A., 2011. IFRS fair value measurement and
accounting policy choice in the United Kingdom and Australia. The British Accounting
Review, 43(1), pp.1-21.
Chen, J., Cumming, D., Hou, W. and Lee, E., 2016. Does the external monitoring effect of
financial analysts deter corporate fraud in China?. Journal of Business Ethics, 134(4), pp.727-
742.

Accounting policies and estimates used by firm 16
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What
determines accounting quality changes around IFRS adoption?. European Accounting
Review, 24(1), pp.31-61.
Cline, B.N., Garner, J.L. and Yore, A.S., 2014. Exploitation of the internal capital market and the
avoidance of outside monitoring. Journal of Corporate Finance, 25, pp.234-250.
Clinton, S.B., Pinello, A.S. and Skaife, H.A., 2014. The implications of ineffective internal
control and SOX 404 reporting for financial analysts. Journal of Accounting and Public
Policy, 33(4), pp.303-327.
de Ricquebourg, D. and Jonathan, A., 2013. The usefulness of direct cash flow statements under
IFRS. University of Leeds.
Hussey, R. and Ong, A., 2017. Corporate Financial Reporting. Springer.
Irvine, H. and Moerman, L., 2017. Gambling with the public sphere: Accounting’s contribution
to debate on social issues. Critical Perspectives on Accounting.
Jaggi, B., Allini, A., Rossi, F.M. and Caldarelli, A., 2016. Impact of accounting traditions,
ownership and governance structures on financial reporting by Italian firms. Review of Pacific
Basin Financial Markets and Policies, 19(01), p.1650001.
Kieso, D.E., Weygandt, J.J. and Warfield, T.D., 2010. Intermediate accounting: IFRS
edition (Vol. 2). John Wiley & Sons.

Accounting policies and estimates used by firm 17
Mardini, G.H., Crawford, L. and Power, D.M., 2015. Perceptions of external auditors, preparers
and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of
Applied Accounting Research, 16(1), pp.2-27.
Nobes, C.W. and Stadler, C., 2015. The qualitative characteristics of financial information, and
managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business
Research, 45(5), pp.572-601.
Steman, J., 2016. The post adoption impact of IFRS 8 on segment disclosure quality: evidence
from European and Australian listed firms (Master's thesis, University of Twente).
Sytnik, O.E., 2014. Comparative analysis of the guidelines for the preparation of financial
statements in accordance with IFRS and formed the Russian accounting rules. Сборник научных
трудов Sworld, 27(2), pp.27-31.

Accounting policies and estimates used by firm 18
Appendix

Accounting policies and estimates used by firm 19