Corporate Accounting

This document provides a comprehensive study material on corporate accounting, covering topics such as board composition, classification of expenses, profitability and stability ratios, future growth options, commitment to sustainability, and key uncertainties. It includes information on BHP Billiton Ltd and NAB, along with their financial performance and strategies.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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Table of Contents
Part B: REPORT..............................................................................................................................3
Classification of Expenses...........................................................................................................3
Profitability and Stability Ratios.................................................................................................4
Future Growth Options................................................................................................................5
Commitment to Sustainability and Environment Protection.......................................................6
Key Uncertainties Relating to the Future....................................................................................6
Section 2..........................................................................................................................................7
Social Contract and Its Implications............................................................................................7
Stakeholders if the Banks............................................................................................................8
Organizational Legitimacy..........................................................................................................8
Alternative Strategies...................................................................................................................9
Reference.......................................................................................................................................10

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Section I
Part A. BOARD COMPOSITION
1. There are total nine independent directors which also includes the non-executive directors
of the business of BHP Billiton ltd in accordance with the annual report of BHP Billiton
Ltd of 2018.
2. There are seven male directors and three female directors in the board of directors of
BHP Billiton ltd
3. The three directors of BHP Billiton ltd along with their experience are provided below:
(i) Ken MacKenzie is the chairman of BHP Billiton ltd and he is also an independent
director of the company who has been the director of the company since 2016 and
chairman since 2017. Ken MacKenzie has extensive global and executive experience
and a deeply strategic approach, with a focus on capital discipline and the creation of
long-term shareholder value. Ken Mackenzie has vast knowledge and experience as
he was Managing Director and Chief Executive Officer of Amcor Limited before this
company (Bhp.com. 2019)..
(ii) Andrew Mackenzie who is one of the Director of BHP Billiton ltd. Andrew
Mackenzie has a bachelor of science degree along with PHD degree which makes
him qualified. Andrew Mackenzie has over 30 years’ experience, including in oil and
gas, minerals, strategy and capital discipline over long-term cycles, technology and
global markets. He was also the CEO of the company in 2013
(iii) Anita Frew who is the director of BHP Billiton ltd. She has done Bachelors in Arts
and also has a degree in science. Anita Frew has an extensive breadth of non-

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executive experience in diverse industries, including chemicals, engineering,
industrial and finance.
4. There are two subsidiaries of BHP Billiton ltd which are BHP Billiton Finance Plc and
BHP Billiton (AUS) DDS Pty Ltd
Part B: REPORT
Classification of Expenses
As per stated in AASB 101/IAS 1, the company or any kind of entity who is classifying
its expenses by function must disclose some more information on the nature of expenses, the
company must also explain about the depreciation and amortization of expenses and the
expenses which occurred while providing benefits to the employee. The company or the entity
should choice wisely the nature of expense methods depends on the historical data of the
organization and also the factors regarding the industry. It also depends on the nature of the
company or any kind of entity. The above-mentioned methods provide an indication of those
costs that vary indirectly or directly with the level of sales of production of the company or
organization or any entity. The two methods have their own benefits and the company should
choose wisely keeping in mind about the suitability factors. The information provided by the
entity on the nature of expense helps to predict the cash flow position of the company and
addition disclosure is required with the classification of expense is used. As per nature of the
company and the business done in the kind of industry the BHP Billiton ltd follows actual
expense method. After keeping in mind, the industry and diversity of the company, they should
stick with that method only because the in actual expense method is the claiming expense related

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to the expenses made in the business. This not only helps the company to provide more accurate
financial statement but it also helped the company to realize the expense with utmost accuracy.
Another biggest advantage of these kind of expense method that the company’s cash flow will
show the expense with proper and actual value. This helps the company to prepare for the
expense part which is going to come in future.
Profitability and Stability Ratios
According to the annual report of BHP Billiton of 2018, the current profitability ratio and
stability ratio are provided below:
Profitability Ratio:
Profitability Ratios
Particulars
2018
(US$
M)
2017
(US$
M)
Operating Profit 15996 12554
Net Profit 7744 6694
Sales 43638 36135
Total Assets
11199
3
11700
6
Operating profit Ratio
36.66
%
34.74
%
Net Profit Ratio
17.75
%
18.52
%
Return on Total Assets 0.069 0.057
From the above-mentioned chart, it is evident that the company is not doing well in the
market at present in terms of profitability of the company (Easton and Sommers 2018). From the
above-mentioned calculation, we can see that the company has achieved as net profit ratio of
17.75% which is lower than the estimate from previous year. This shows that the management of

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the company needs to concentrate on increasing the profits generated by the business (Islam
2014). The return on assets of the business is shown to have slightly increased but the same
cannot be considered as favorable as it is still considerably low.
Stability Ratio:
Stability Ratios
Particulars
2018
(US$
M)
2017
(US$
M)
Total Liabilities
51,32
3 54280
Shareholder's Equity
60,67
0 62726
Earning before interest and Taxes 15996 12554
Interest Expenses 1,567 1,560
Debt to Equity Ratio 0.85 0.87
Interest Coverage Ratio 10.21 8.05
In terms of stability ratio, the debt-to-equity ratio and interest coverage ratio are being
calculated. It is evident from the above calculation that the company has slightly reduced the use
of debt capital in the business and therefore there is a fall in the estimate of debt equity ratio in
comparisons of last year by 0.87. This will impact the company not only in doing business but
the company has to face some serious problems regarding the debt which holds by the company
in the market (Babalola and Abiola 2013). The interest coverage ratio shows that the same has
increased from previous year which is a sign of more interest payments in the business.
Future Growth Options
As per the annual report of BHP Billiton ltd for the year 2018, the company has achieved
significant in terms of project development, growth and expansion of the business. The

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management of the company anticipates that the business would be further expanding in scale of
operations in future as the business has some exciting projects in hand. The company have a
pipeline of potential growth projects that could create significant shareholder value over the long
term, in particular in conventional oil, copper and coal. It is also anticipated that the same would
be generating appropriate revenue for the business in the long run. In addition to this, the
management of the company specifies in the annual report of the business that it would be
entering phase 2 of the Mad Dog project which is expected to generated 140,000 gross barrels of
crude oil per day. Therefore, it can be said that the future growth option of the business is shown
to be appropriate.
Commitment to Sustainability and Environment Protection
The management of BHP Billiton is dedicated towards sustainability practices in a
business and effectively responds to the needs of the community. The strategy of BHP Billiton is
focused on long term creation of value and therefore sustainability forms an integral part of the
business plan of the company. The board has set up a sustainability committee who is
responsible for managing the activities of the business in a sustainable manner. The company is
also dedicated to the principle of accountability for all actions of the business and thereby
maintains transparency in the operations of the business. The management of BHP Billiton also
follows safety policies and can be regarded as one of the few companies who has a goal of zero
fatalities. BHP Billiton has comprehensive governance, risk management, policies and processes
to help reduce the potential impact of the operations of the business on the environment.
Key Uncertainties Relating to the Future
The company has considered amount of future plan for that reason they have made
considerable changes in the operations of the business for improving the business structure. The

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annual report of the business shows that the management of the company has incurred losses due
to the Samarco dam failure for which a legal proceeding is in effect. There is an uncertainty in
such a situation whether the business would have to pay legal fines for the damages in addition
to the losses which is already incurred by the business.
Section 2
Social Contract and Its Implications
Social contract refers to a contract which is established in a community of people and
they should effectively live together in a supporting and moral manner. The social contract
theory establishes a responsibility on every member to act in the best interest of the community
and should contribute to the needs of society. It is a known fact that the there exist a social
contract between society and banks (Lacey and Lamont 2014). The banks are responsible to
contribute to the needs of the society as it is to be noted that banks operate in the society itself. A
social contract is not a written contract but it is what the community expects from the banks.
Some of the implied terms which are associated with the social contract of the between
banks and the community at large are listed below in details:
 The rate cuts which is received by the banks from the Reserve bank of India should be
passed on to the customers so that the society can benefit from the policy change (Skyrms
2014).
 Banks are expected to deduct any charges from the clients on a realistic manner so that a
fairness and transparency is maintained in the operations of the business

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In terms of explicit conditions, the banks are expected to assist the government whenever it is
required by the government of the country. In addition to this, the banks are also required to
accept and provide loans to individuals and businesses as per the requirements of such entities
(Cooper 2017).
Stakeholders if the Banks
The stakeholders who are mostly affected by the activities of the banks are businesses,
employees, government and the society at large benefit greatly if regulations are brought about in
the services and operations of the banking sector. The banks play a vital role in developing an
economy and therefore the bank should be made responsible for all the activities of the business.
In case the structure of banks is regulated, more businesses would be encouraged to start up new
business in order to promote industrial development in the country
(Financialservices.royalcommission.gov.au. 2019). The people in general also depends on
banking sector for funds which are used for different domestic purposes
Organizational Legitimacy
The organizational legitimacy theory states that the businesses need to appropriately
needs to contribute to the needs of the society and it is considered to be a central concept of
organizational research. The misconducts which has taken place in the banking sector has
introduced the regulations by the Royal Commission (Australian Financial Review. 2019).
As per the investigation which has been conducted by the Royal commission, National
Australian Bank has been charged for misconduct regarding the fees which the bank took from
customers for fakes insurance of the people. The management of NAB has taken appropriate
steps for strengthening the governance of the business and thereby ensure that such a misconduct

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does not takes places in future (Australian Financial Review. 2019).. In such a case, stakeholder
theory can be applied which states that the banks should consider the well being and interest of
the stakeholders before taking any decision regarding the business.
Alternative Strategies
The NAB needs to follow regulations which are suggested by Royal commission and also
follow sustainability practices in a business. The management of the company needs to undertake
appropriate policies which can help the management of the company to take initiative to win
back the confidence of the public. The bank needs to demonstrate that the bank is dedicated
towards the needs of the business.

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Reference
Australian Financial Review. (2019). Banking royal commission final report: Hayne singles out
NAB. [online] Available at: https://www.afr.com/business/banking-and-finance/banking-royal-
commission-final-report-hayne-singles-out-nab-20190203-h1aszp [Accessed 15 May 2019].
Australian Financial Review. (2019). Banking royal commission: Where NAB went wrong on fee
for no service. [online] Available at:
https://www.afr.com/business/banking-and-finance/banking-royal-commission-where-nab-went-
wrong-on-fee-for-no-service-20190205-h1avui [Accessed 15 May 2019].
Australian Financial Review. (2019). Banking royal commission: Where NAB went wrong on fee
for no service. [online] Available at:
https://www.afr.com/business/banking-and-finance/banking-royal-commission-where-nab-went-
wrong-on-fee-for-no-service-20190205-h1avui [Accessed 15 May 2019].
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Bhp.com. (2019). [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf?la=en [Accessed 15 May 2019].
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.

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Financialservices.royalcommission.gov.au. (2019). Reports . [online] Available at:
https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final [Accessed 15 May
2019].
Islam, M.A., 2014. An analysis of the financial performance of national bank limited using
financial ratio. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting and
Transport, 2(5), pp.121-129.
Lacey, J. and Lamont, J., 2014. Using social contract to inform social licence to operate: an
application in the Australian coal seam gas industry. Journal of Cleaner Production, 84, pp.831-
839.
Skyrms, B., 2014. Evolution of the social contract. Cambridge University Press.