Conceptual Framework for BHP Billiton

This article analyzes the conceptual framework of accounting for BHP Billiton, the largest mining company in the world. It discusses how financial statements are used by stakeholders and the difference between fixed and flexible classification of assets and liabilities.

Running Head: Accounting Theory
Accounting Theory
Conceptual Framework for BHP Billiton
Laptop04011
[Pick the date]

Accounting Theory 1
Contents
Background......................................................................................................................................2
Scope................................................................................................................................................2
Preliminary analysis findings..........................................................................................................3
List of evidences..............................................................................................................................4
References........................................................................................................................................5

Accounting Theory 2
Background
The organization chosen for the analysis is BHP Billiton that is a large-scale petroleum
extracting organization. BHP is an Australian organization that is present in the metal and
mining industry. The company is a dual listed public company that has its headquarter in
Victoria. The organization was found in the year 1885 and is the largest mining company present
in the world in terms of market capitalization. The company earned revenue of US$52.8
billion in the previous year that accounts the profitability enjoyed by the organization. Talking
about mining industry of Australia, it should be noted that this industry plays a significant role in
economy of the country as export, royalty, employment etc. activities are implemented in the
environment (BHP 2018).
The industry has delievered overall $250 billion in exports to the Australian economy in the year
2018. So, it can be analysed that the business functions performed by the organization BHP are
large scale and extensive. The company works with around 10000 employees in 25 nations. The
company is listed on Australian Stock Exchange along with London Stock Exchange and
Johannesburg Stock Exchange. The company was reshaped in the year 2001 after the merger of
Broken Hill Proprietary and Billiton. The merger of both the organization helped the
organization to become one of the world’s largest diversified resource organizations. The
company is world’s largest producer of silver, uranium, aluminium, manganese, copper, iron ore,
nickel, and titanium minerals. The organization has market capitalization of worth USS$ 166
billion and net operating cash flow of US$17.9 billion (Bell 2019).
Scope
The accounting theory chosen to analyse the functions of the company BHP Billiton is
‘Conceptual framework of accounting’. Conceptual framework refers to the process of ideas and
objectives that help the organization to create consistent set of rules and standards for them. This
process gives effectiveness to the accounting activity of the organization as rules and standards
set the functions, limit and nature of the financial accounting system and statements of the
organization. This process provides strong and conceptual frameworks to the organization so as

Accounting Theory 3
to capture real and authentic accounting information for the organization (Richardson, et. al.,
2015).
This concept is suitable for the business because it will help the company BHP Billiton to
analyse the ways in which they can collect the materialistic information from the scattered details
about the company. Further, it will help the large business entity to develop conceptual
frameworks to record to functions of the business and represent true financial statements to the
people. Based on the large scale functioning of the company, it type of framework would be
most appropriate as will identify the functions of business and will help the managers to record
them in the most appropriate manner (Macve 2015).
Preliminary analysis findings
Different stakeholders employ the information disclosed about the statement of financial position
in different ways. The financial statement of the company details about the current profitable
position of the company along with the net income and cash flow activities of the business. The
financial statements of the company BHP disclose the profitable activities of the business along
with information about their assets and liabilities. This information is employed by different
people in different ways (Flower, and Ebbers 2018). Like, the investors of the organization make
use of information given in financial statements so as to perceive growth in the performance of
the company. These people take decisions in the environment while considering the growth in
the performance of the business. This information would employed by the management of BHP
Billiton to refer the growth of the company and make decisions based on the profits or losses
incurred by the organization (Schroeder, Clark, and Cathey, 2019).
The customers use this information to analyse the financial position of the organisation in the
external international environment and evaluate whether they should continue purchasing the
products from organization or not. The government agencies study the financial statements of
BHP Billiton to predict the future taxes of the large-scale organization and find out that whether
the company is paying taxes appropriately or not. The conceptual framework under this case will
help the company BHP Billiton to prepare the financial statements in such a way that right
message is perceived by different stakeholders of the organization. In addition, they do not face
difficulty in finding the resourceful information in the statement (Robinson, et. al., 2015).

Accounting Theory 4
Fixed format of classification of assets and liabilities of the organization involves the process in
which the information is recorded in the same way it has happened in the environment. Under
the fixed format, the organization does not modify the classification of assets and liabilities
based on their relation with the business. For instance, a liability for the organization BHP
Billiton is not actually a liability for the business, but still the company will record it in the
liability segment in fixed format. However, in case of flexible format, the business can modify
the information based on their characteristics in relation to the company (Barker, and Schulte
2017). Under this format, the management might not record the given liability in the liability
section because of its nature in relation to the company. In fixed format, all the assets and
liabilities are classified in the way they have occurred without any modification. In fixed
classification, it important for the organization to record the details in the same way it is present
and according to fixed conceptual framework as well. However, in flexible classification of
assets and liabilities the management can slightly mould the classification depending upon the
nature of the assets. Not all assets and liabilities have same nature for every business but they
cannot be adjusted in fixed format. So, in flexible format the business can easily make
adjustments for such assets and liability based on their functioning in the company (Williams,
and Dobelman, 2017).
List of evidences
 Financial statements of BHP Billiton
 Online Journals
 Books

Accounting Theory 5
References
Barker, R. and Schulte, S., 2017. Representing the market perspective: Fair value measurement
for non-financial assets. Accounting, Organizations and Society, 56, pp.55-67.
Bell., T. (2019) Company Profile: BHP Billiton [online]. Available from <
https://www.thebalance.com/company-profile-bhp-billiton-2340279> [Accessed on 25
September 2019].
BHP., (2018) Annual Report 2018 [online]. Available from <
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf> [Accessed on 25 September 2019].
Flower, J. and Ebbers, G., 2018. Global financial reporting. Macmillan International Higher
Education.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. UK: Routledge.
Richardson, P., Dellaportas, S., Perera, L. and Richardson, B., 2015. Towards a conceptual
framework on the categorization of stereotypical perceptions in accounting. Journal of
accounting literature, 35, pp.28-46.
Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. US: John Wiley & Sons.
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. US: John Wiley & Sons.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book
Chapters, pp.109-169.