Financial Reporting Disclosures in the Australian Corporate Sector

This research report analyzes the property, plant, and equipment (PPE) disclosures of BHP Billiton in its latest annual report and assesses its compliance with the requirements of AASB 116 and the qualitative characteristics of useful financial information. The report concludes that BHP Billiton has complied with all aspects of AASB 116 and the IASB conceptual framework.

Running head: FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN
CORPORATE SECTOR
Financial Reporting Disclosures in the Australian Corporate Sector
Name of the Student:
Name of the University:
Author’s Note:
Course ID:
ACCG224 S3 2018 SID

FINANCIAL REPORTING DISCLOSURES IN THE AUSTRALIAN CORPORATE
SECTOR
Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................3
1. Objective of general purpose financial reporting and qualitative characteristics of useful
financial information:.................................................................................................................3
2. Extent to which the latest annual report of BHP Billiton meets the disclosure requirements
for PPE as per AASB 116:.........................................................................................................4
3. Extent to which the PPE disclosures of BHP Billiton satisfy fundamental and enhancing
qualitative characteristics of useful financial information:........................................................5
4. Alignment of the PPE disclosures with the objective of general purpose financial reporting
and actions for improvement for BHP Billiton:.........................................................................6
Conclusion:................................................................................................................................6
References:.................................................................................................................................7
Appendix:...................................................................................................................................8
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Executive Summary:
The primary emphasis of the research report is to analyse the PPE disclosures of BHP
Billiton according to its latest annual report and whether it satisfies the objective of the
conceptual framework. It investigates and assesses the ways through which PPE obtains the
obligations of AASB 116 and qualitative characteristics. The PPE appearance accomplishes
the requirement of accounting standards and thus, BHP Billiton has complied with all aspects
of AASB 116 and IASB conceptual framework.
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Introduction:
The objective of the report is to provide faithful and accurate representation of the
financial statements, which is crucial for all business organisations owing to the effects on the
community status and self-assurance of the investors. The scope of the paper would initially
focus on elucidating the objectives of general purpose financial reporting along with
qualitative characteristics of valuable financial information. The second section would lay
stress on analysing the latest published annual report of an ASX listed organisation to
understand whether the same fulfils the PPE disclosures in accordance with AASB 116. For
this reason, BHP Billiton is taken into consideration, which is a leading organisation in the
Australian mining sector and it is involved in producing metallurgical coal, iron ore, uranium
and copper (BHP 2018). Thirdly, the paper would emphasise on ascertaining the extent to
which the disclosures on PPE meet the enhancing and fundamental qualitative characteristics
of financial information. Finally, the report would shed light on evaluating the alignment of
the PPE disclosures of the organisation with the general purpose financial reporting (GPFR)
objectives and accordingly, actions for improvement would be recommended.
1. Objective of general purpose financial reporting and qualitative characteristics of
useful financial information:
In accordance with “IASB OB1- OB21”, GPFR is the base of the conceptual
framework and it intends to provide financial information to the investors, users, lenders and
other creditors so that they could undertake effective investment decisions in an organisation,
which is BHP Billiton in this case (Aasb.gov.au 2018). The information obtained from GPFR
enables the investors in comprehending and undertaking straightforward methodology for
estimating the net cash flows and dividends in future. As a result, the investors could
understand the strengths and drawbacks of the organisation by using the liquidity ratio. For
instance, any changes in cash and property, plant and equipment (PPE) could have direct
impact on the liquidity ratio. With the help of this ratio, it is possible to analyse the existing
financial position of the organisation and its ability to generate money. In addition, it
provides non-financial information such as expectations of the management and economic
resources (Chand, Patel and White 2015).
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As per “IASB QC1- QC39”, there are two qualitative characteristics of financial
information, which include enhancing and fundamental qualitative characteristics. The
enhancing characteristics constitute of verifiability, understandability, comparability and
timeliness, which assist in improving the usefulness of financial information. On the other
hand, fundamental characteristics include faithful representation and relevance, which are
simple and crucial to prepare financial reports (Aasb.gov.au 2018).
In terms of fundamental characteristics, relevance denotes financial information that
could affect decision-making in case of omissions or misstatements and it is termed as
materiality as well. Secondly, faithful representation implies that the financial reports should
be complete, neutral and error-free.
In terms of qualitative characteristics, verifiability implies the faithful representation
of information, which would assist the users in reaching agreement within the financial
statements. Understandability denotes the characteristics of financial information along with
representing information in clear and understandable manner. Comparability enables the
users in identifying and gaining overview of the similarities and variations among items and
this is beneficial at the time of contrasting a similar item with a different organisation.
Finally, timeliness signifies that the organisation needs to complete the financial reports
within time for the decision-makers.
2. Extent to which the latest annual report of BHP Billiton meets the disclosure
requirements for PPE as per AASB 116:
According to “Paragraph 73 of AASB 116”, the financial statements need to disclose
the measurement bases used for its property, plant and equipment in order to ascertain the
following:
 Gross carrying amount
 Depreciation methods
 Depreciation rates or useful lives
 Gross carrying amount and accumulated depreciation at the start and end of the year
 Reconciliation of the carrying value at the start and end of the year (Aasb.gov.au
2018)
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From the annual report of BHP Billiton in 2018, PPE is recorded at cost after
deduction of impairment charges and accumulated depreciation. Cost is treated as the fair
consideration value provided for purchasing the asset during construction or acquisition and it
comprises of the direct expenses to bring the asset into location along with required operating
conditions and the projected future expenses of closure and facility rehabilitation (Bhp.com
2018). The projection of residual lives, depreciation methods and useful lives of PPE of BHP
Billiton could be found from its annual report (Refer to Appendix, Figure 1).
“Paragraph 77 of AASB 116” states the kind of evidence needed for disclosure
during PPE revaluation. BHP Billiton does not use this method; instead, it adjusts the residual
value as well as useful lives at the end of each reporting year. Thus, the accounting policy
information and representation of balance sheet statement from the annual report of BHP
Billiton does not fulfil the necessary disclosure in accordance with this paragraph.
3. Extent to which the PPE disclosures of BHP Billiton satisfy fundamental and
enhancing qualitative characteristics of useful financial information:
The PPE disclosures of BHP Billiton meet the fundamental characteristics and
majority of enhancing characteristics with nearly entire compliance of the accounting
standards. The fundamental characteristics contain material and predictive values along with
faithful representation without material error (Bond, Govendir and Wells 2016).
At the time of assessing the annual report, the carrying values of PPE at the end of
2018 have been stated clearly in the balance sheet statement (Refer to Appendix, Figure 2).
This makes it easy in estimating the future economic benefits of PPE. On the other hand, the
financial reports have clear outline of the PPE items of the organisation or disclosure of the
depreciation methods used. This implies that BHP Billiton has ensured faithful representation
indicating some errors in the 2018 annual report.
When it comes to enhancing qualitative characteristics, the significant ones include
timeliness and understandability for BHP Billiton. With the help of timeliness, the investors
and users could undertake decisions of whether to invest in the organisation (Crawford, Lont
and Scott 2014). As BHP Billiton is perceived as one of the biggest global mining
organisations, it is obvious that it would earn enormous amount of profit and it forms the key
to the investors. However, it could be accomplished only when the organisation publishes its
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financial reports timely. From the fundamental perspective, understandability implies easy
interpretation of information in the financial reports (Newberry 2015). The PPE format in the
balance sheet must be easily understandable and for the accounting policy sections, it
provides the definitions with few types of particular accounting terms (Refer to Appendix,
Figure 3).
4. Alignment of the PPE disclosures with the objective of general purpose financial
reporting and actions for improvement for BHP Billiton:
It has already been analysed that GPFR intends to deliver correct financial
information for lenders, creditors and investors for estimation of future economic
performance (Perera and Chand 2015). In addition, disclosure of economic resources is
crucial as well, as the same would aid the investors in identifying the strengths and
drawbacks of the organisation. From the 2018 annual report of BHP Billiton, the book
amount of PPE is disclosed and as a result, the investors could compute the liquidity ratio
easily to understand the current financial position of the organisation.
From the above discussion, it is evident that BHP Billiton has complied with relevant
accounting standards that could be validated by the independent audit report. In addition, it
has provided clear explanation of the existing use of depreciation methods and useful life
projections. Thus, the only recommendations for the organisation include keeping the audit
report in hand at all times and the disclosure of the kind of PPE it obtains in the balance sheet
statement.
Conclusion:
To infer, it could be stated that the annual report of BHP Billiton has complied with
the PPE requirement of AASB 116 as well as the IASB conceptual framework. The
organisation has adopted accounting policies for the depreciation methods along with useful
life projections to adhere to the accounting standards. Hence, it could be stated that BHP
Billiton is a good example to record and follow the accounting policies for PPE in accordance
with AASB 116 and IASB.
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References:
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 27 Dec. 2018].
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/SAC2_8-90_2001V.pdf [Accessed 27
Dec. 2018].
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/SAC3_8-90_2001V.pdf [Accessed 27
Dec. 2018].
BHP., 2018. BHP | A leading global resources company. [online] Available at:
https://www.bhp.com/ [Accessed 27 Dec. 2018].
Bhp.com., 2018. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed 27 Dec. 2018].
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by
Australian firms and whether they were impacted by AASB 136. Accounting &
Finance, 56(1), pp.259-288.
Chand, P., Patel, A. and White, M., 2015. Adopting international financial reporting
standards for small and medium‐sized enterprises. Australian Accounting Review, 25(2),
pp.139-154.
Crawford, L., Lont, D. and Scott, T., 2014. The effect of more rules‐based guidance on
expense disclosure under International Financial Reporting Standards. Accounting &
Finance, 54(4), pp.1093-1124.
Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public
Money & Management, 35(5), pp.371-376.
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Perera, D. and Chand, P., 2015. Issues in the adoption of international financial reporting
standards (IFRS) for small and medium-sized enterprises (SMES). Advances in
accounting, 31(1), pp.165-178.
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Appendix:
Figure 1: Depreciation-related estimations and judgements of BHP Billiton
(Source: Bhp.com 2018)
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Figure 2: Consolidated balance sheet statement of BHP Billiton in 2018
(Source: Bhp.com 2018)
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Figure 3: PPE disclosures of BHP Billiton in 2018
(Source: Bhp.com 2018)
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