Contemporary Issues in Accounting: Analysis of BHP Billiton's Financial Statements

This study presents an analysis of BHP Billiton's financial statements in relation to the conceptual framework of accounting issued by the Australian Accounting Standards Board. It covers diverse systems of accounting, critical review of objectives, and qualitative enhancing features of financial assertions. The study is 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. 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.

Running head: CONTEMPORARY ISSUES IN ACCOUNTING
Contemporary Issues in Accounting
University Name
Student Name
Authors’ Note

2CONTEMPORARY ISSUES IN ACCOUNTING
Introduction
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.
Critical review of objectives of conceptual framework issued by AASB
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

3CONTEMPORARY ISSUES IN ACCOUNTING
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.
Figure: Conceptual Framework (AASB)
(Source: Jessen et al. 2014).
Target user of General Purpose Financial Reports (GPFR)
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).

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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).

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Table: Assets of BHP Billiton
(Source: BHP Billiton | A leading global resources company 2018)
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.
Figure: Assets and Liabilities
(Source: Zhang and Andrew 2014).

6CONTEMPORARY ISSUES IN ACCOUNTING
Table: Assets and Liabilities
(Source: BHP Billiton | A leading global resources company 2018)
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.

7CONTEMPORARY ISSUES IN ACCOUNTING
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.
Table: Inventory
(Source: BHP Billiton | A leading global resources company 2018)
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.

8CONTEMPORARY ISSUES IN ACCOUNTING
Table: Receivables
(Source: BHP Billiton | A leading global resources company 2018)
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.
Table: Plant, Property as well as Equipment (PPE)
(Source: BHP Billiton | A leading global resources company 2018)

9CONTEMPORARY ISSUES IN ACCOUNTING
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.
Figure: Depreciation
(Source: Henderson et al. 2015)
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.

10CONTEMPORARY ISSUES IN ACCOUNTING
Table: Depreciation
(Source: BHP Billiton | A leading global resources company 2018)
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
Analysis of financial assertions as regards relevance as well as faithful representation
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

11CONTEMPORARY ISSUES IN ACCOUNTING
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.
Review of fundamental qualitative enhancing features of financial assertion
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.
Relevance
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.
Faithful Representation
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.

12CONTEMPORARY ISSUES IN ACCOUNTING

13CONTEMPORARY ISSUES IN ACCOUNTING
Review of enhancing qualitative features of financial assertions
Comparability:
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.
Verifiability
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.
Timeliness
As suggested by Zhang and Andrew (2014), timeliness indicates towards accessibility to
requisite information in a well timed manner by various decision makers.

14CONTEMPORARY ISSUES IN ACCOUNTING

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Understandability
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.

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