Corporate and Financial Accounting

This article provides a critical analysis of the regulation of financial reporting and accounting, the participation of the Australian accounting standard board in setting global accounting standard process, and equity items of BHP Billiton, Altura Mining, Evolution Mining, and Rio Tinto. It also includes a debt-equity analysis.

Running head: CORPORATE AND FINANCIAL ACCOUNTING
Corporate and financial accounting
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1CORPORATE AND FINANCIAL ACCOUNTING
Table of Contents
i) Critical Analysis of the regulation of financial reporting and accounting...............................2
i) Analysis of participation of the Australian accounting standard board in setting global
accounting standard process............................................................................................................4
ii) Equity items..............................................................................................................................6
iii) Debt – equity analysis...............................................................................................................9
References......................................................................................................................................11

2CORPORATE AND FINANCIAL ACCOUNTING
i) Critical Analysis of the regulation of financial reporting and accounting
The requirement for regulation of the financial accounting reporting occurs due to
numerous reasons. The IASB (International Accounting Standards Board) in its Financial
Reporting framework states that the main purpose of financial reporting is to give financial
information about reporting firm, which is vital for existing investors and lenders for making
decisions about offering resources to enterprise (Nobes 2014). This has significant number of
users that ranges from investor’s group, employee’s group, public analyst as well as government
adviser group to vital stakeholders. Edwards (2013) opines that it is necessary for the users to
utilize financial information as well as interpret systematically for making financial decisions.
Besides this, it also helps the potential investors for making important decisions relating to
investment. In absence of financial reporting regulation, the financial report can be prepared in
varied way by aligning to its needs (Watson 2015). Therefore, users can interpret varied financial
reporting in various ways. The financial report might be changed based on the change in material
in organizations financial position. Moreover, the contained financial information might be
ambiguous for the users to understand in proper way. Another vital aspect of regulating financial
reporting is the accounting framework. This framework relates the fundamental system that
makes this standard consistent via stating that the accounting reports are mainly based on
guidelines. The accounting practice varies among the nations and the accounting regulation is
needed for eliminating differences between making standard practice and accounting practice
(Botzem 2012). There are several advantages of regulating financial accounting reporting, which
are as under-

3CORPORATE AND FINANCIAL ACCOUNTING
 Protecting investors- Regulation of financial accounting reporting would increase the
confidence of investors in regards to the investment to be done. This is because the
investors are mainly concerned in realizing the fact that their investment are ensured via
reviewing correct as well as authentic information.
 Guidance- This is considered as another benefit for regulating financial information that
is involved in financial reports. Owing to complexity of financial world, it has been
becoming highly complex in creating standardized format for the organization. However,
the report that has been prepared through regulations will help to create standardized
format.
 Credible commitments – Another benefit of regulation of financial accounting reporting
mainly comes from the facts that it generates proper information and most of which
outcomes from reliable information. There must be effective enforcement that is imposed
by the regulatory regimes in comparison with voluntary regimes, which aids to generate
reliable disclosures and credible information.
 Comparability- Regulation of the financial report offers benefit of information
standardization, which can be attained in effective way when such financial reporting is
made on obligatory basis (Aasb.gov.au 2018).
Financial reporting and voluntary disclosure are the two main channels, which can be
utilized by the managers for communicating private information that is taken into account by
changes in stock price and liquidity. The managers of the organization use voluntary disclosure
for communicating proper knowledge regarding firm’s performance to the investors and
supplementing reporting. As the managers private information manly forms the voluntary
disclosures basis, they apt to be highly informative about earnings. Despite of having some

4CORPORATE AND FINANCIAL ACCOUNTING
advantages, few disadvantages exists in regulating financial reporting as well as accounting if the
managers are permitted to disclose voluntary information. These disadvantages are-
 Involvement of cost- Utilization of regulation such as accounting standards during the
preparation of financial statements needs high cost. However, the enterprises are needed
to change its processes involving- employees training, system upgrades and cost of labor.
 Financial statement mainly involves balance sheet, cash flow statement and income
statement that is prepared according to regulation as well as accounting standards.
Moreover, the managers try to avoid these steps while disclosing information voluntarily
(Henderson et al. 2015).
It has been observed from the above discussion that financial accounting and reporting
will increase the quality of reporting irrespective of few limitations.
i) Analysis of participation of the Australian accounting standard board in setting
global accounting standard process
The AASB (Australian accounting standard board) summarises the functions as well as
working power and its contribution to global standard setting procedure. Australia adopts
international financial reporting that aligns with strategic direction of financial reporting council.
However, the AASB work program involves IFRIC and IASB work program (Eccles et al.
2012). The international public industry accounting standard board work program is mainly
monitored by AASB. The activities given below are mainly undertaken by AASB in order to
make contribution in setting global accounting standards-
 It promotes IFRS with regard to Australia experience to adopt IFRS, which in turn helps
to transitioning jurisdictions. It is vital to avoid huge range of IFRS versions.

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 It attempts to act as leader in developing global standards by IPSASB and IASB and also
sets up their priorities as well as agenda (Preiato, Brown and Tarca 2015).
 It acts as active contributor that participates in activities relating to IASB meeting for
global standard letters. It takes part in national standard setters, standard setter groupings
and regional grouping for the national standard setters such as- AOSSG and NSS.
 It makes submission on IASB and an IPSASB consultative document that is predicted to
be taken into account in the Australian aspect and motivates the Australian constitutes to
participate for IASB and IPSASB process.
Reason behind IFRS is not compulsory for the member nations of IASB
The IFRS (International Financial Reporting Standards) refers to the accounting
standards that have been adopted as well as developed by the IASB board. Near around 120
nations as well as reporting jurisdictions are needed IFRS for domestic listed enterprise and
around 90 nations are conformed to IFRS (Chua, Cheong and Gould 2012). Moreover, the
business has the ability to aid comparison with the financial statements by implementing
specific reporting standard. According to SEC clearance 2015, this was the earliest date for
utilizing IFRS by public enterprise. SEC also states that if any nation does not pursue early
adoption, it might reconsider adoption later. In the present scenario, it might not be
mandatory for IASB member nations for adopting reporting standard owing to full
acceptance of proper outcome to lose quality level. Moreover, it can be believed that the
benefits might be outweighed by cost connected to IFRS adoption (Brüggemann, Hitzand
Sellhorn 2013).

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Owner’s equity
4 public limited entities those are listed on ASX under same industry considered for this
part are BHP Billiton, Altura Mining, Evolution Mining and Rio Tinto. All of these 4 entities
deal in the mining and energy sector.
ii) Equity items
BHP Billiton – equity items found in the balance sheet of the company under owner’s equity
section are listed below –
 Share capital – amount required by the entity for the purpose of carrying out its activities
are financed through share issue. The raised amount through share issue is known as
share capital. The entity that is limited through shares will have the share capital.
 Treasury shares – treasury stock are the part of shares kept by the company in its
treasury. Treasury share may come from the float part or outstanding shares before the
entity repurchase it.
 Reserves – reserves are the profits appropriated for specific purpose. Sometimes the
reserves are set up for purchasing the fixed asset, payment of the estimated legal
settlement, payment of bonus or payment of various obligations. Hence, funds
accumulated under reserves can be used for any purposes (BHP 2018).
 Retained earnings – it is the cumulative net profits or earnings for the entity after
payment of dividend. This amount is available for the purpose of re-investment in core
business of the company or making payment for the debt.
Equity changes for BHP Billiton –

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Items 2017 ($'m) 2016 ($'m) 2015($'m) 2014 ($'m)
Share capital $ 2,243.00 $ 2,243.00 $ 2,243.00 $ 2,255.00
Treasury shares $ -3.00 $ -33.00 $ -76.00 $ -587.00
Reserves $ 2,400.00 $ 2,538.00 $ 2,557.00 $ 2,927.00
Retained earnings $ 52,618.00 $ 49,542.00 $ 60,044.00 $ 74,548.00
Retained earnings were changed due to dividend payment and reserves were changed due
to payment of employee’s dues and contribution towards employees.
Altura Mining – equity items found in the balance sheet of the company under owner’s equity
section are listed below –
 Contributed equity – it is the element of total equity recorded by the organization.
Contributed equity can be further segregated into common stock and stakeholder’s
equity.
 Reserves – as explained for BHP Billiton
 Accumulated losses – it is the loss carried forward from the previous year with regard to
offset the future earnings. It reduces tax burden of the company for the years with profit
as accumulated losses are deducted from taxable profit (Alturamining.com 2018).
Equity changes for Altura Mining –
Items 2017 ($'000) 2016 ($'000) 2015($'000) 2014 ($'000)
Contributed equity $ 1,46,556.00 $ 1,05,840.00 $ 78,904.00 $ 74,562.00
Reserves $ 595.00 $ -240.00 $ 179.00 $ 492.00
Accumulated losses $ -90,460.00 $ -84,333.00 $ -53,672.00 $ -23,870.00
Contributed equity is changed due to share based payment shifted to equity and share
issued to the employees as bonus payment.

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Evolution Mining – equity items found in the balance sheet of the company under owner’s equity
section are listed below –
 Issued capital – issued capital is the number of shares that is issued by the entity to
shareholders. It is the allotted shares those are subsequently held by share holders. It
represents part of authorized capital that the company is authorised to sell through shares.
 Reserves – as explained for BHP Billiton
 Accumulated losses – as explained for Altura Mining
Equity changes for Evolution Mining –
Items 2017 2016 2015 2014
Issued capital $21,83,727.00 $17,70,987.00 $12,92,620.00 $10,48,424.00
Reserves $ 38,795.00 $ 29,363.00 $ 27,446.00 $ 18,219.00
Accumulated losses $ -94,270.00 $ 2,48,917.00 $ -1,95,506.00 $ 2,81,339.00
Issued capital has been increased due to contributions made to equity and accumulated
losses were changed due to dividend payment (Evolutionmining.com.au 2018).
Rio Tinto – equity items found in the balance sheet of the company under owner’s equity section
are listed below –
 Share capital – as explained for BHP Billiton
 Share premium – share is issued by the company at premium while the price at which the
shares are sold at more than its per value. This is common practice by any company as
the par value is the minimum value. Hence. Premium is the difference between the selling
price and par value (Riotinto.com 2018).
 Other reserves – as explained for BHP Billiton

9CORPORATE AND FINANCIAL ACCOUNTING
 Retained earnings - as explained above for BHP Billiton
Equity changes for Rio Tinto –
Items 2017 ($'m) 2016 ($'m) 2015($'m) 2014 ($'m)
Share capital $ 4,360.00 $ 4,139.00 $ 4,174.00 $ 4,765.00
Share premium $ 4,306.00 $ 4,304.00 $ 4,300.00 $ 4,288.00
Other reserves $ 12,284.00 $ 9,216.00 $ 9,139.00 $ 11,122.00
Retained earnings $ 23,761.00 $ 21,631.00 $ 19,736.00 $ 26,110.00
Changes in retained earnings took place due to share buyback and dividend payment.
Share capital changed due to share buyback.
iii) Debt – equity analysis
Evolution Mining
($'000)
BHP Billiton
($'m) Rio Tinto ($'m)
Altura Mining
($'000)
Debt 27.74% 46.39% 46.60% 35.53%
Equity 72.26% 53.61% 53.40% 64.47%
Total 100.00% 100.00% 100.00% 100.00%
Debt – equity position of the company is analysed for evaluating the leverage position of
the company. It states the firm’s financial position regarding the fund raised by the company
from creditors or the investors. Generally, the firms with aggressive approach prefer to borrow
major portion of its fund through borrowing (Heikal, Khaddafi and Ummah 2014). However,
debt percentage of 40% or below is considered as lower leverage. It can be identified from the
Evolution Mining as well as Altura Mining has moderate approach that is their debt percentage is
lower than 40%. However, BHP Billiton as well as Rio Tinto has quite aggressive approach as
compared to other.

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References
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/Policy_Statement_03-11.pdf [Accessed 19
Sep. 2018].
Alturamining.com., 2018. Altura Mining | Charging Forward with Lithium. [online] Available at:
https://alturamining.com/ [Accessed 21 Sep. 2018].
BHP., 2018. BHP | A leading global resources company. [online] Available at:
https://www.bhp.com/ [Accessed 21 Sep. 2018].
Botzem, S., 2012. The politics of accounting regulation: Organizing transnational standard
setting in financial reporting. Edward Elgar Publishing.
Brüggemann, U., Hitz, J.M. and Sellhorn, T., 2013. Intended and unintended consequences of
mandatory IFRS adoption: A review of extant evidence and suggestions for future research.
European Accounting Review, 22(1), pp.1-37.
Chua, Y.L., Cheong, C.S. and Gould, G., 2012. The impact of mandatory IFRS adoption on
accounting quality: Evidence from Australia. Journal of International accounting research,
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Eccles, R.G., Krzus, M.P., Rogers, J. and Serafeim, G., 2012. The need for sector‐specific
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Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.

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Evolutionmining.com.au., 2018. Evolution Mining – Australian Gold Company. [online]
Available at: https://evolutionmining.com.au/ [Accessed 21 Sep. 2018].
Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA),
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Preiato, J., Brown, P. and Tarca, A., 2015. A comparison of between‐country measures of legal
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Riotinto.com., 2018. Global home. [online] Available at: https://www.riotinto.com/ [Accessed 21
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Literature, 34, pp.1-16.

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