Current Issues in Accounting at Newcrest Mining Company

Running head: CURRENT ISSUES IN ACCOUTING NEWCREST MINING COMPANY 1
Current Issues in Accounting at Newcrest Mining Company
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CURRENT ISSUES IN ACCOUTING NEWCREST MINING COMPANY 2
Current Issues in Accounting at Newcrest Mining Company
Executive Summary
Issues surrounding the choice of accounting policy, measurement and disclosure when it
comes to financial reporting for a company has been characterized by a lot of recent
developments. The financial statement preparers including the accountants and directors for a
number of multinational companies today have seen the chance of employing a lot of creativity
in the process of recognition, measurement and disclosure of accounting records to influence the
accounting method being used so as to serve their personal interests. Newcrest company is not an
exception to this. This paper seeks to research on the choice of the accounting policy adopted by
Newcrest company in the process of recognition, measurement and disclosure of its accounting
records. In the research, the interactions between the disclosure strategy and the accounting
policy chosen and adopted by Newcrest company is considered. A lot of attention is also placed
on the ability of Newcrest company to choose voluntary disclosure of the financial performance
of the company over using creativity accounting to try and influence the figures to present a
better financial view of the company which might not be the case.
Introduction
There has been an increasing trend for companies to apply a variety of ‘favourable' rules
to be followed when it comes to the preparation and presentation of financial statements in
reporting today (Henderson, Peirson, Herbohn, Artiach & Howieson, 2014). Despite the fact that
there are only two widely known accounting methods being applied by accounting professionals,
that is accruals accounting and cash accounting, there is also a wide range of accounting policies
that different companies usually apply differently when recognizing revenues and charging

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expenses. This means that international accounting standards bodies such as IFRS, IAS, GAAP
and IASB do not deny firms the freedom of choosing between using an aggressive or a
conservative accounting policy.
The freedom in the choice of an accounting policy also applies when a company is
willing to make an additional voluntary disclosure such as sustainability reporting or not. In
some industries, companies are usually required to make use of the same accounting policy while
in others, uniformity in accounting policies used is not required. For instance, the choice of
accounting policy for large and complex businesses such as mining companies is usually very
important because there are a number of projects that require valuation and also the treatment of
those projects that have been undertaken but the complete payments for them have not been
received (Stadler & Nobes, 2014). Under an accruals accounting method, a company is not
required to recognize any receivables before actually being earned. Under cash accounting
method, the rules require that a company should earn revenue or incur expenses when money is
received or paid.
Since it may not be practicable to make use of cash accounting or accruals accounting
alone, many companies usually make use of both methods together so that there is recognition of
only the percentage of revenues or expenses that have been incurred/ paid or earned/ received
that corresponds to the proportion of the project being undertaken. By looking at the annual
reports of Newcrest mining company, this paper investigates the kind of communication being
conveyed by the company directors via voluntary disclosure and at the same time assessing the
factors that might have led the company towards choosing the kind of accounting policies
currently in use. Cases of creative accounting and the use of opportunistic behaviours in financial
reporting is also reviewed.

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Newcrest Mining Company
Newcrest company is one of the largest gold mining companies in the world having a
high value, quantity and quality of gold reserves, strong pipeline and operating mines. The
company operating in the Asia Pacific region has its origin dating back to 1966 when it used to
be a subsidiary of Newmont Mining Limited that was established in Australia. Its mission is to
deliver high quality and superior quality returns to its shareholder's through the exploration,
development and excavation of gold and copper mines. Its vision is to be the minor of choice in
the world by operating in a safe, efficient, responsible and profitable mining practice
(http://www.adenergy.com.au/, 2018). In terms of business activities, Newcrest has five
production geographic areas in Asia, Australia and the Pacific region with a strong pipeline of
green fields and brown fields of exploration projects and gold reserves that can be mined up to
25 years' times ("CRATER GOLD MINING: QUARTERLY ACTIVITIES REPORT For the
period ended 31 March 2018 | 4-Traders", 2018).
Financial Performance of Newcrest Company
In terms of ability to generate cash flows, Newcrest is well placed and it has the
capability of generating strong cash margins from the high-quality gold reserves assets it has
over a longer term. As one of the unhedged gold producers in the world, Newcrest company has
a sound balance sheet which is an indication of a strong operating cash flow coupled with a
technical capability when it comes to exploration of organic growth opportunities that presents
from time to time. Looking at the 2017 financial report of Newcrest company, the financial
strength of the company in a layman's language can be described as that that can enable the
company to deliver competitive returns for its shareholders over a long period of time. However,
some questions can be raised about the integrity of the figures since it is known that the company

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has not been recently operating as well when compared with some of its competitors (Smith &
St., 2018). For instance, the gold production for Newcrest company in 2017 was 2381 thousands
of ounces which are a drop of 2% from 2016 which was at 2439 thousands of ounces. When it
comes to copper, the production in 2017 was 83 tons while in 2016 it was 83 tones. This is just a
1% increase. It is therefore questionable for the company to have reported a higher EBITDA of
1408 in 2017 from 1292 in 2016 (an increase of 9 %) and yet the production of the major mineral
resources was a bit low (Newcrest 2017 Annual Report, 2017). Exhibit 1 shows a descriptive
performance of the mineral production in 2016 and 2017.
The choice of Accounting Policy and Issue of Creative Accounting at Newcrest
Mining Company
Despite the fact that the financial reports of Newcrest company show how the firm is
performing well, a closer look at the financial statement reports indicates that there might be
some factors that lead the company's management to choose ‘favourable' accounting policies
with a motive of indicating better financial performance than it should have been. The concept of
choosing one accounting policy over another because of some hidden motives is known as
creative accounting (Henderson, Peirson, Herbohn, Artiach & Howieson, 2014). From a number
of researchers that have been conducted on well-performing companies in the world, the findings
have shown that there are quite a number of companies that usually exploit all the loopholes that
exist in accounting and financial reporting regulations so as to gain an advantage through those
loopholes ("Creative Accounting, Fraud and International Accounting Scandals", 2018). Creative
accounting, therefore, compels a firm to present its financial statements with figures which are
misleading or might not be true in the light of the true and fair value of the company (Kuepper,
2018). The manner in which Newcrest has valued its unexplored mineral resources is really

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questionable. Exhibits 2 and 3 shows the estimated assets overview for the company which are
located in different geographical locations(Newcrest 2017 Annual Report, 2017).
Factors That Might Have Influenced Newcrest Company to Use Creative Accounting
In any well financially stable company such as Newcrest, there is usually some tendency
for management to make use of some creativity in the way the books of accounts are prepared so
that the financial performance of the company continues to be viewed as better than before. This
practice of exploiting all the possible ways of alternative accounting recognition and disclosure
usually comes up with a lot of bias (Ciesielski & Weirich, 2015). For instance, there is some
possibility that Newcrest company might have overestimated the value of gold and copper
reserves that are currently being mined so as to create a better financial view (Kuepper, 2018).
The consequences of overestimation can be profound but because of the fundamental motives
that are being eyed, the management and financial statement preparers usually ignore this for the
sake of the following constraints.
 The management of Newcrest company is at a pressure of looking for more funds to
finance new projects with significant metal endowments. The projects that are currently
being evaluated by Newcrest includes the Wafi-Golpu in New Guinea and Namos in Fiji.
The motive behind creativity in accounting, in this case, is to attract investors by making
the financial statements to look better, therefore, dubbing potential investors to buy
shares.
 Newcrest is currently exploring a number of green fields in Indonesia, Australia, PNG
Côte d’Ivoire and Fiji which are projects that requires a lot of finances, thereby creative
accounting could help the company get loans from banks and other lenders (Quarterly
Exploration Report - Newcrest Mining Limited, 2017).