ACC706 - Accounting Theory & Issues: A Report on BHP Billiton

This report provides an analysis of BHP Billiton, a dual-listed company, focusing on its adherence to accounting theory and general purpose accounting principles. It discusses the conceptual framework adopted by BHP, highlighting its compliance with fundamental and enhancing guidelines. The report also explores the company's adherence to general purpose financial reporting, including disclosure practices and management judgments. Furthermore, it examines positive and negative issues faced by BHP, such as noise pollution and impairment evaluations, and how the company addresses these challenges. The report concludes that BHP effectively focuses on the conceptual framework and general purpose accounting principles, contributing to its competitive advantage and effective decision-making for stakeholders. Desklib offers a wealth of similar solved assignments and past papers to aid students in their studies.

Accounting Theory & Contemporary Issues
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BHP Billiton
Executive Summary
When it comes to the performance of a company, the concept of conceptual framework can
be viewed as a major character and definition of accounting. Conceptual framework applies
to various cases and can be reflected as a major statement of GAAP that provides an edge for
the evaluation of the practices. In this report, BHP Billiton, listed on the ASX 100 is selected
for the purpose of discussion and CF is discussion in the light of this company. Further,
GAAP positive and negative issues are discussed too. At the end it comes to the forefront that
it BHP has catered to the general purpose accounting principles that are beneficial to
stakeholders in effective decision-making
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BHP Billiton
Contents
Introduction...........................................................................................................................................3
Conceptual framework..........................................................................................................................4
General purpose accounting principle...................................................................................................5
Positive and negative issues faced by BHP............................................................................................6
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9
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BHP Billiton
Introduction
BHP Billiton is basically a dual listed company consisting of BHP Billiton Plc and BHP
Billiton Ltd. Although these entities prevail as distinct entities, yet they operate under a single
organization or group called as BHP Billiton that is a global resources company and
headquartered in Melbourne, Australia. Moreover, the company is primarily involved in the
production of several commodities like copper, iron ore, uranium, coal, etc. The company
remains focused on creating constant value for all the shareholders by maximizing the
operating margins and assuring effectiveness in relation to proper utilization of assets (BHP
Billiton, 2017). Nonetheless, coal, copper, and iron ore are the major sources of income for
the company even though it has prevalence in other essential minerals as well. Further, BHP
has adhered to the AASB standards and the underlying conceptual framework offered by the
board. Hence, the general purpose accounting principles are also taken due care of by the
company to bring larger corporate reporting parity (Choi & Meek, 2011). This report intends
to discuss the conceptual framework, general accounting principles, and both positive and
negative issues encountered by BHP in discharging its obligations. Therefore, the entire
report will cater to the fundamentals of BHP Billiton.
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BHP Billiton
Conceptual framework
In association with the company’s efficiency in discharging its responsibilities towards
adherence with the conceptual framework, it has fulfilled all the requirements for the same. In
other words, the company has adequately complied with the fundamental and enhancing
guidelines that are essential for the fulfilment of conceptual framework (Needles & powers,
2013). Besides, such adherence to the conceptual framework has allowed BHP to remain
competitive in the market by keeping the stakeholders informed about its situation. This
facilitates in proper decision-making on the part of stakeholders that is a positive indicator for
future progress (Douma & Hein, 2013).
In order to comply with the faithful representation characteristic of conceptual framework,
the company’s primary guidelines of the directors’ rules and regulations play a key role in
determining whether such attribute has been followed or not. Nevertheless, the independence
of directors is guided by the adherence of rules like US rules, UK rules, and Australia rules.
In addition to this, the directors are also duty bound to depict a true and fair view of the
company’s performance in the financials and to do so, fulfilment of requirements of the
Corporations Act 2001 remains mandatory. In addition, there is a guideline that permits the
company frame effective reporting controls and processes for releasing significant
information to their stakeholders in due course of time (BHP Billiton, 2017). Moreover, BHP
is also focused towards highest standards of disclosure by assuring that all investors are
offered timely and equivalent access to high quality information to facilitate effective
decision-making. This sheds light upon the fact that qualitative characteristics of conceptual
framework like timeliness, relevance, and reliability are duly catered by the company to
enhance the significance and meaningfulness of data present in the financials (Leo, 2011).
In addition to the above, another major factor in relation to conceptual framework of
accounting is the company’s compliance with the Joint Ores Reserves Committee. The reason
behind this can be attributed to the fact that such guideline ensures that both internal and
external users are confident of the company’s efficiency of affairs. Further, such guidelines
are primarily for public reporting in association with mining, exploration, etc and the same is
duly fulfilled by BHP, thereby facilitating in better decision-making on the part of users. In
addition, there is also a risk management guideline within the framework of BHP that plays a
vital role in management and identification of potential risks so that long-term value can be
created for the stakeholders (BHP Billiton, 2017). Besides, the prevalence of functions of
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BHP Billiton
internal control also assist in preventing the impact of such risks through fulfilment of
required guidelines and requirements. Overall, such control function within the group can
assist in minimizing the feasibilities of risks and additional surveillance of aggregate
procedures. Nonetheless, these guidelines have assisted BHP in complying with its
requirements of disclosure, thereby paving a path for the fulfilment of requirements of
conceptual framework for financial reporting. Furthermore, it can also be seen that the
company has provided relevant details of both current and past years performance that can be
easily compared by users in determining whether progress is achieved or not (Petersen &
Plenborg, 2012). With the prevalence of such details, BHP has also fulfilled the requirements
of comparability and understandability on the part of users because provision of past and
present details can allow them in making better decisions (Merchant, 2012).
General purpose accounting principle
From the annual report of BHP Billiton, it is observable that there is enough disclosure of
relevant financial and non-financial information that can be beneficial to the stakeholders in
their decision-making process. Further, the company has also described its underlying
performance by disclosing the ideologies of its alternate performance measures. However,
BHP has not included specific data in its financial statements to the extent provided by UK
and Australian Law (BHP Billiton, 2017). This is because any matter related to impending
matters and developments in negotiation course can result in significant injury to BHP’s
prejudicial interests. Moreover, such disclosure can be misguiding as it is premature in nature
and is related to commercially sensitive contracts, thereby resulting in undermining
confidentiality betwixt suppliers and the company on a whole. Overall, the categories of
information not included in the company’s annual report consists of estimates and forward-
looking anticipations prepared for internal management. Further, data related to the
company’s assets susceptible to change, information associated to commercial contracts and
pricing modules, etc are also excluded (Carmichael & Graham, 2012). Therefore, with the
inclusions and exclusions of significant segments in the company’s financial statements, it is
observable that the aspect of enhanced disclosure measures has been adequately addressed to
fulfil the requirements of General Purpose Financial Reporting (Peteersen & Plenborg, 2012).
Furthermore, the preparation of financials of the company has been completed in accordance
with the significant IFRS standards. Besides, there are various management judgements and
policies of accounting that has been utilized for the preparation of GPFR reports or
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BHP Billiton
statements (BHP Billiton, 2017). For instance, the mining affairs of the company is
widespread across countries and exposed to various regimes of tax that prevail across nations.
Hence, it becomes the company’s duty to pay all their taxes in relation to royalties, profits,
etc. Moreover, all details of the same can be found in notes to financial statements of the
company. Similarly, in relation to contingent liabilities, there are several liabilities on the
back of commitment and economical resources being diversified to associates, joint ventures,
and subsidiaries (Laux, 2014). Furthermore, in relation to PPE, the same is recorded at cost
less impairment expenses and accumulated depreciation. Such expenses are the fair value of
consideration to acquire the asset at their respective acquisition dates and comprises of direct
costs of bringing the asset to the required location. Similarly, when it comes to intangibles
and goodwill, the same has been identified by the company in their annual reports so that the
objective of GPFR can be effectively addressed. In relation to this, wherein the fair value of
paid consideration for a procurement of business exceeds the fair value of liabilities, assets,
and procured contingent liabilities, the difference is treated as goodwill (BHP Billiton, 2017).
Similarly, taxation, recognition of revenue, trade receivables, etc also form part of the
financials of the company that sheds light on the fact that they have looked after the General
Purpose Accounting Principles, thereby facilitating in proper decision-making on the part of
stakeholders. Besides, it is also fair to assume that the company’s reported financial position
and performance is effectively accurate in nature because efficient management judgement
and accounting policies has been used. Moreover, BHP has also been in alignment with the
significant regulations associated to reporting that are in their place. However, if a broader
framework like Triple Bottom Line and GRI (global reporting initiative) had been adopted by
BHP, it would easily highlight the environmental and social expenses related to the mining
business through GPFR.
Positive and negative issues faced by BHP
The current negative issues encountered by BHP are associated to its mineral and petroleum
projects. For example, in relation to noise pollution, the contractors at the site are facing
hearing loss issues. However, the company has been facing issues to attain full oversight of
such contractor noise-induced hearing loss in its various segments owing to limited data
access and regulatory regimes (Davies & Crawford, 2012). Furthermore, the company
identified a major issue with the onshore US impairment evaluations that were conducted in
2015. Such issue was due to a failure to differentiate betwixt specific assumptions and
assumptions of market participants that includes the application of deferred income taxes in
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BHP Billiton
ascertaining impairment of onshore assets of US. Further, one negative issue is the spreading
of company’s products to every corner of the world through regular research of growth
options (BHP Billiton, 2017).
However, such issue of spreading the products of the company is also positive in nature
because this can assist in sustaining the global economic development, thereby paving a path
for better revenues and growth. Furthermore, the company has also been facing issues in
relation to procurement of natural resources but this has allowed it to focus on international
opportunities, thereby paving a clear path for international expansion and emergence of
international markets (Parrino et. al, 2012). Besides, this issue has also encouraged the
company to focus on joint ventures, acquisitions, and mergers. For example, many grass roots
projects of exploration were completed by the company in Chile and US, thereby
representing expansion into the foreign and emerging markets. This is the reason why BHP
still observes this issue as a major component within its business strategy or model and
actively focuses on new opportunities around the world. This can be proved by the fact that
BHP has its prevalence in more than hundred countries (BHP Billiton, 2017). Overall,
selection of emerging markets could not be possible for BHP if it had not undergone the
issues of procuring natural resources from remote locations. This is the reason why it attained
the advantage of selecting the countries in which it shall function and places where focus
must be on the resources, thereby permitting competitive advantage.
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BHP Billiton
Conclusion
BHP Billiton has effectively focused on the conceptual framework of corporate reporting and
for such purpose; it has also catered to the general purpose accounting principles that are
beneficial to stakeholders in effective decision-making. Even though BHP faces stiff
competition from other players in the market, yet compliance with such requirements has
granted it a competitive advantage over others. This is the sole reason why it has attained a
prominent place in the market and doing business in an effective manner. However, there are
various issues that are faced by the company and if not taken due care, it shall face negative
implications. Considering the situation it is imperative for BHP to take due care for every
instances. Besides, the strategies built by the company to enter international markets to avoid
future complications is a positive indicator that additional value will be created for all the
stakeholders, thereby paving a path for proper dealing with the financial down turns in future.
Overall, the company has been effective in its strategies and its focus on materialistic
segments can easily assist in outperformance of other primary players. Further, this will lead
to grabbing up of more opportunities and create a favourable position for the company
despite the cut throat competition.
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BHP Billiton
References
BHP Billiton. (2017). BHP 2017 Annual report and accounts. https://www.bhp.com/media-
and-insights/reports-and-presentations [Accessed 31 August 2018]
Carmichael, D.R. and Graham, L. (2012) Accountants Handbook. Financial Accounting and
General Topics, John Wiley & Sons.
Choi, R.D. and Meek, G.K. (2011) International accounting. Pearson .
Davies, T. and Crawford, I. (2012) Financial accounting. Harlow, England: Pearson.
Douma, S., & Hein, S. (2013) Economic Approaches to Organizations. London
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. [online]. 44(4), 380-382.
DOI: 10.1080/00014788.2014.897867
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from:
http://dx.doi.org/10.1108/01140581211283904 [31 August 2018]
Needles, B.E. & Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken,
NJ: Wiley
Petersen, C. and Plenborg, T. (2012) Financial statement analysis. Harlow, England:
Financial Times/Prentice Hall
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