Accounting Standard and Governance

Running head: ACCOUNTING STANDARD AND GOVERNANCE
Accounting Standard and Governance
Name of the Student:
Name of the University:
Author’s Note

1
ACCOUNTING STANDARD AND GOVERNANCE
Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................3
Implementation of AASB 16.......................................................................................................3
Effect on the Financial Statements..............................................................................................5
Ratio Analysis..............................................................................................................................6
Reporting of Environmental and Social Aspects.........................................................................9
Overall Impact of AASB 16......................................................................................................11
Summary for Investment Company...........................................................................................11
Conclusion.....................................................................................................................................12
Reference.......................................................................................................................................12

2
ACCOUNTING STANDARD AND GOVERNANCE
Introduction
The main purpose of this assessment is to analyze the annual reports of two companies
which are engaged in the same industry. The companies which are selected are Rio Tinto Ltd and
BHP Billiton ltd and for these companies, the annual report for 2017 is considered for the
purpose of analysis. The assessment aims to analyze the reporting standards which are followed
by the business for leases and whether the new standard on leases AASB 16 can impact the
reporting framework which is applied by both the companies. The assessment also involves
evaluating the environmental and social reporting which is undertaken by the management of the
company and whether the same is appropriate or not. The assessment would also be included
computation and analysis of key financial ratios which are useful in determining the financial
performance of the business. The computation of key financial ratios of the business would on
the basis of the annual reports of both the companies for the year 2017.
Discussion
Implementation of AASB 16
The changes which have been brought about in the reporting of leases which are shown
in the financial statements of the business. The changes have been brought in the accounting
standards for leases so as to improve the reporting process for operating leases and ensure that
proper disclosures are provided in the financial statements of the business. In earlier standard,
operating leases was not recognized in the financial statements and therefore there was a scope
for manipulations in the transactions which are included in the annual reports (Barone, Birt and
Moya 2014). The new standards require mandatory disclosure of operating leases in the balance

3
ACCOUNTING STANDARD AND GOVERNANCE
sheet of the business, In addition to this, the identification of leases can be appropriately done
with the help of AASB 16 and also lease payments can be done in an more efficient manner.
The changes in the leasing standard is expected to bring about more transparency in the
reporting framework and thereby also ensure that the financial aspects of the business are
appropriately reported. The changes would restrict any manipulations which was done when the
operating leases were not recognized in the financial statements of the company (Fitó, Moya and
Orgaz 2013). In the case of BHP Billiton, the annual report of the company shows that the
business does not have any operating lease but has financial lease which is on equipment. The
operating leases is on rental payments for which adjustment are showing in the income statement
of the business.
Figure 1: (Extract showing leases of the BHP Billiton ltd).
Source: (Bhp.com. 2018)
In the case of Rio Tinto Ltd, the annual report shows that there are certain financial leases
which is taken by the business for which appropriate disclosures are provided in the annual
report of the business (Dakis 2016). The management of the company has mining properties on