Macquarie Business School ACCG923 Report: PPE Professional Judgment

This report analyzes the application of professional judgment in accounting for Property, Plant, and Equipment (PPE). It discusses key judgments and estimates made by BHP Billiton, a major mining company, in relation to its PPE, including exploration expenditure, development activities, and impairment assessments. The report compares BHP Billiton's approach with that of Boral Limited, a construction materials supplier, focusing on the appropriateness of their respective professional judgments in accounting estimates and policies. Furthermore, it explores how the accounting estimates and policies of PPE reflect the qualitative characteristics of financial information, as per the conceptual framework, highlighting the importance of relevance and faithful representation. The report concludes by emphasizing the significance of professional judgment in making informed accounting decisions and its impact on the reliability of financial statements. The analysis covers the application of professional judgment in the context of accounting policies and estimates for measuring Property, Plant and Equipment and a comparison of appropriateness of applying professional judgment in accounting estimates and policies of the PPE in BHP Billiton Group with the Boral Limited. Lastly, discussion is on reflection of qualitative characteristics of PPE accounting estimates and policies.

Running Head: ACCOUNTING
ACCOUNTING
Name of the Student
Name of the University
Author Note

1ACCOUNTING
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Application of Professional Judgment to Measure PPE........................................................2
Comparison of Appropriateness of Professional Judgment of PPE with another Company. 4
Accounting Estimates and Policies of PPE reflects Qualitative Characteristics of the
Financial Information.............................................................................................................4
Conclusion..................................................................................................................................5
Reference....................................................................................................................................7

2ACCOUNTING
Introduction
The financial statements represent the great sources of the information for the
financial position as well as business performance evaluation of the company. The judgment
of the management is dependent upon information base that is given at judgment time. The
judgment is subjective by its nature. Therefore, estimation outcomes may differ. The
managers of the company likes for presenting favorable image of economic reality of
company in financial statements, when complying with all principles of accounting that are
stated in the accounting standards. The selection of the accounting policy as well as
estimation techniques are intended for aiding consistency as well as comparability in the
financial statements (Jermakowicz, Reinstein and Churyk 2014).
Hence, this assignment aims to discuss the application of professional judgment to the
accounting policies and estimates for measuring Property, Plant and Equipment. Further,
comparison will be done on appropriateness of applying professional judgment in accounting
estimates and policies of the PPE in BHP Billiton Group with the Boral Limited. Lastly,
discussion will be on reflection of qualitative characteristics of PPE accounting estimates and
policies.
Discussion
a)
Application of Professional Judgment to Measure PPE
BHP Billiton is the largest mining as well as the resources companies, which is
headquartered in Australia and is listed in ASX. This company is engaged in exploration,
production, development as well as processing of the oil, gas and minerals. BHP Billiton is
the largest diversified company of natural resources. Moreover, recording of the Property,
plant and equipment is done at the cost less accumulated depreciation as well as impairment

3ACCOUNTING
cost (Bhp.com. 2019). Following are the key judgments and estimates made by the company
in relation to PPE of the company:
The expenditure of exploration as well as evaluation results in the certain items of the
expenditure that is being capitalized for the interest area where the judgment are made
that recoverable will take place by future sales or exploitations or where activities rare
judged for not reaching to the stage. It permits reasonable assessment of reserves
existence (PĂUNESCU 2015).
The activities of the development start after the sanctioning of project by appropriate
level of management. Management applies the judgment to determine when the
project will be economically viable (Wehrfritz and Haller 2014).
The management applies the judgment to determine components of ore body.
The judgment is required by management for the assessment of the indicators of the
impairment or the reversal of impairment as well as in determination of CGUs for the
purposes of impairment (Bhp.com. 2019). The impairment indicators may includes
changes in operating as well as economic assumptions of Group, including those,
which arises from the changes in the mine or reserves planning, price and demand
forecasts, updates to commodity supply of the Group or any possible additional
impacts from the emerging risks. The example of which are risks of climate changes
as well as transitions to the lower carbon economy (Kang, Trotman and Trotman
2015).
b)

4ACCOUNTING
Comparison of Appropriateness of Professional Judgment of PPE with another
Company
Boral Limited is major construction materials as well as building products supplier of
the country. The company is also having extensive operations in Asia as well as United
States. Following are the professional judgments applied to accounting policies and estimates
done by Boral Limited:
The estimation of the useful lives of the assets of the company has been based on the
historical experiences. Further, the assessment of the assets condition is done at least
at annual basis as well as it is considered against remaining useful lives. Whenever,
management considers necessary, they does adjustments to the useful lives
(Boral.com. 2019).
The comparison between the BHP Billiton and Boral Limited shows that the
professional judgment applied in the accounting estimates as well as policies of PPE for both
the companies is appropriate. It is because for both the companies, it shows that management
of the company is making judgment on PPE on the estimation of assets useful lives based on
their requirements. The management is applying the judgments for applying the criteria of the
recognition as and when required on the consistent basis (Glover and Prawitt 2014).
c)
Accounting Estimates and Policies of PPE reflects Qualitative Characteristics of the
Financial Information
The conceptual framework helps in identifying relevance as well as faithful
representations, as these two fundamental qualitative characteristics makes the financial
information useful. The relevancy of the financial information potentially affects or makes
the difference in the decision of the user (Bhp.com. 2019). Moreover, faithful representations

5ACCOUNTING
provides the information that faithfully represents the economic phenomenon, which
allegedly helps in representing ideally neutral, complete as well as free from error
(Stafievskaya et al. 2015)
In case of BHP Billiton, the disclosure made by company regarding accounting
estimates as well as policies of PPE reflects qualitative characteristics of the financial
information as per conceptual framework. The company discloses that the property; plant and
equipments are recorded at the cost less impairment charges as well as accumulated
depreciation (Bhp.com. 2019). Further, the company considers the cost as fair value for
acquiring assets at the time of their construction or acquisitions as well as it includes the
direct costs for bringing assets to the location and conditions that are necessary for
operations, estimated future costs of the closures as well as rehabilitation of facility (Grenier,
Pomeroy and Stern 2015). Therefore, using the fair value method for PPE shows that the
information provided by it provides relevant as well as representative faithful information.
Further, the company is also making disclosures regarding key judgments and estimates,
which helps the users for understanding the recognition as well as measurement criteria used
by the company. However, the applications of these measures are largely up to the discretion
as well as professional judgment of the management (Childs et al. 2014).
Conclusion
Therefore, it is analyzed that the professional judgment is application of the
accumulated knowledge as well as experiences that are gained with the help of relevant
accounting or the auditing training using ethical standards. It results in making the informed
decisions about courses of action that is appropriate in the specific situations, for instance
audit mission or accounting of the economic transactions by observing the principles of
accounting. Further, it has been analyzed that both, BHP Billiton and Boral Limited is
applying the professional judgments to accounting policies and estimates for measuring the

6ACCOUNTING
property, plant and equipment for application of the criteria of recognition that is firm
specific. Moreover, the application of professional judgment in accounting estimates and
policies of PPE of BHP Billiton has been appropriate in comparison to Boral Limited. Lastly,
it can be said that the disclosures made by BHP Billiton Group regarding accounting
estimates as well as policies of the PPE helps in reflecting the qualitative characteristics of
financial information as per conceptual framework.

7ACCOUNTING
Reference
Bhp.com. 2019. [online] Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2019/
bhpannualreport2019.pdf [Accessed 29 Sep. 2019].
Boral.com. 2019. [online] Available at:
https://www.boral.com/sites/corporate/files/media/field_document/ID-18056-BLD-Boral-
FY19-Annual-Report-FINAL.pdf [Accessed 29 Sep. 2019].
Childs, K., Frick, P.J., Ryals Jr, J.S., Lingonblad, A. and Villio, M.J., 2014. A comparison of
empirically based and structured professional judgment estimation of risk using the structured
assessment of violence risk in youth. Youth violence and juvenile justice, 12(1), pp.40-57.
Glover, S.M. and Prawitt, D.F., 2014. Enhancing auditor professional skepticism: The
professional skepticism continuum. Current Issues in Auditing, 8(2), pp.P1-P10.
Grenier, J.H., Pomeroy, B. and Stern, M.T., 2015. The effects of accounting standard
precision, auditor task expertise, and judgment frameworks on audit firm litigation
exposure. Contemporary Accounting Research, 32(1), pp.336-357.
Jermakowicz, E.K., Reinstein, A. and Churyk, N.T., 2014. IFRS framework-based case
study: DaimlerChrysler–Adopting IFRS accounting policies. Journal of Accounting
Education, 32(3), pp.288-304.
Kang, Y.J., Trotman, A.J. and Trotman, K.T., 2015. The effect of an audit judgment rule on
audit committee members’ professional skepticism: The case of accounting
estimates. Accounting, Organizations and Society, 46, pp.59-76.
PĂUNESCU, M., 2015. Revenue Recognition and Measurement. Accounting Principles vs.
Tax Rules for Romanian Entities. Audit Financiar, 13(121).

8ACCOUNTING
Stafievskaya, M.V., Nikolayeva, L.V., Kreneva, S.G., Shakirova, R.K., Semenova, O.A.,
Larionova, T.P. and Filyushin, N.V., 2015. Accounting risks in the subjects of business
systems. Review of European studies, 7(8), p.127.
Wehrfritz, M. and Haller, A., 2014. National influence on the application of IFRS:
Interpretations and accounting estimates by German and British accountants. Advances in
accounting, 30(1), pp.196-208.