Financial Reporting Disclosures and Analysis of PPE in Australia

This report examines the significance of financial reporting disclosures, particularly concerning Property, Plant, and Equipment (PPE), within the Australian corporate sector. It emphasizes the importance of providing relevant information to stakeholders, referencing the Conceptual Framework for Financial Reporting and AASB 116. The report evaluates BHP Billiton's compliance with PPE disclosure requirements. It covers the objectives of general purpose financial reporting, the characteristics of useful financial information, and the specific disclosure requirements for PPE. The analysis includes the recognition, measurement, and disclosure aspects of PPE, including cost and revaluation models, depreciation, and impairment. The report also discusses how disclosures align with the objectives of general purpose financial reporting, highlighting the impact of depreciation and impairment costs on investor decisions. The report provides insights into the accounting practices followed by the company and the extent to which they fulfill the disclosure requirements. The conclusion suggests improvements to enhance the quality and usefulness of financial information, such as clearly mentioning the accounting method followed and incorporating characteristics like comparability, predictability, and confirmatory value. The report is a valuable resource for students seeking to understand financial reporting practices in Australia.

Financial Reporting Disclosures in the Australian Corporate Sector

Executive Summary
This report emphasises on the importance of the fulfilment of PPE based on the Conceptual
Framework for Financial Reporting for the distribution of right kind of information to the
stakeholders of the company. BHP Billiton , an Australian multi-national company headquarter
at Melbourne , Victoria AUSTRALIA having 31 bn in revenue and listed in S&P / ASX will be
evaluated for the purpose of PPE disclosure requirements as per AASB 116(Parker,2011).

Table of Contents
Introduction:....................................................................................................................................3
a. Objective of general purpose financial reporting.........................................................................3
b. A discussion on latest annual report of in relation to disclosure requirements for PPE as per
AASB 116........................................................................................................................................5
c. A discussion on the fulfilment of the useful financial information distribution in relation to
disclosure of PPE as per AASB 116................................................................................................7
Conclusion:......................................................................................................................................8
Reference:........................................................................................................................................8

Introduction:
This business research report has been prepared to describe the importance of the fulfilment of
the objectives of general purpose financial reporting and also to describe the characteristics of
useful financial information (according to The Conceptual Framework for Financial Reporting)
for the distribution of right kind of information to the stakeholders of the company. In this
assignment discussion has been held on to what extent the company named BHP Billiton has
fulfilled the PPE disclosure requirements as per AASB 116(Parker,2011).
a. Objective of general purpose financial reporting
The basic objective of general purpose financial reporting [covering OB1-OB21 of the
Framework for Financial Reporting as per IASB,2010] is to distribute most useful financial
information to the investors &stake holders(lenders and the creditors) of that company(Costello,
2011).
These crucial decisions involve whether to buy, sell or hold equity and debt instruments of the
company or not and these decisions will be taken on the basis of clear and meaningful
financial data that will help them to assess the financial health of the company which and to
regulate their decisions regarding credit period &investments in that company.
Another objective of general purpose financial reporting is to represent the financial data to
the investors creditors and the other stake holders of the company in such a way so that they
can easily understand the degree of capability of the management of the company to discharge
their duties and according they can vote or reject the managers as per their efficiency or
inefficiency as presented in the financial figures of a useful report (Van et al.,2011).
However this report is not prepared for directly inform the value of the report generating
company to the stake holders of the company but offers the possible ways through which the
investors and creditors can estimate the possible value of the company.
The general purpose financial reports give a clear picture regarding the available sources of
fund as well as uses of fund of the company to help the stake holders to identify the possible
strength and weaknesses, level of liquidity & solvency of the company and scope of additional
investments & fund collection opportunities with respect to the reporting company. The
financial data that describes this kind of information help the stakeholders to assess the
possible future growth potential of the reporting organization (Zhang, and Andrew, 2014).
The report also describes the basis of accounting followed by the company. Because the
stakeholders of the company mostly prefer the accrual basis of accounting where the impact of a
cash transaction is recorded and reported under the period in which they occur even if the periods

of actual cash receipt & payment differs and thus deliver a clear assessment of the impact of
financial transaction over the asset liability position of the company
The cash flow information of the report explains the pattern of cash earning and expenditure and
the synchronization between the receipts and payments of cash (Bruce et al.,2010).
The qualitative characteristics of useful financial information[covering QC1-QC39 of the
Framework for Financial Reporting as per IASB,2010] requires that the financial information of
the financial report should be presented with sufficient amount of relevance and honesty so that
the report can bring some differences in the decisions taken by the users of that report with
respect to the company. (Beest et al.,2009). The information of the report should be material in
nature so that omission of that information will badly affect the decision making process of the
user. The information of the report must contain high degree of predictive and confirmatory
vale(DeFond et al.,2011) so that the information can be used for making future financial
prediction and the data is well conformed by the relevant respondents. The data information of
the report should also posses the characteristics of comparability, verifiability, timeliness and
understandability which are considered as the fundamental qualitative characteristics that must
be present in the information of a general purpose financial report.
b. A discussion on latest annual report of in relation to disclosure requirements for PPE as
per AASB 116
This accounting standard describes the accounting principles that are to be followed while
accounting for property, plant and equipment both at the time of recognition and also during the
subsequent treatment through the choice of two methods; cost and revaluation. (Hanlon
et .al.,2014).
The key reporting requirements of the company are as follows:
1. The Assets recognition to be done when the future benefits will flow in to the enterprise
and the cost of the asset can be measured with sufficient reliability
2. After initial measurement the asset will be measured at cost where the cost will include
the followings:
 The cost of preparing the asset ready for its intended use[ delivery, site preparation,
installation]
 The cost of restoring a site ( dismantling and removal cost)(as per AASB 137)
 The expense of bearing the interest if the asset is a qualifying asset (as per AASB
123)
3. For measurable assets the cost will be considered as the fair value of the asset
4. Once the recognition of the asset has been done after that the asset will be measured by
using either the revaluation or the cost model

5. Under the cost model the following principles will be applied:
 Asset will be carried at cost less of accumulated depreciation and impairment losses
 During the depreciation calculation, each part of the asset will be depreciated
separately if possible
 Depreciation cost must be included in the profit and loss account(Champion, 2009)
6. Requirements of the revaluation model:
 Revaluation should be carried at regular in intervals so that the fair value and the
carrying amount does not differ
 If one asset is revalue then all the assets of this asset class must be measured via
revaluation method.
 An increase due to revaluation will be credited to the equity under asset surplus and
a decrease due to revaluation will be considered as expense(Pilcher, 2009)
7. Disclosure requirements:
 For property, plant, and equipment of each class the “basis for measuring the
carrying amount”,” depreciation methods including the life and rate of the asset”,”
gross carring value of the asset and the accumulated depreciation and impairment
losses” are to be disclosed(Tan‐Kantor et al.,2017)
Here we are going to discuss that to what extent the chosen company BHP Billiton [ASX listed
global resource company operating in the “materials sector”] is meeting the disclosure
requirements for PPE as per AASB 116
 As per the annual report-2016 of the company both in 2015 and 2016 the property plant
and equipment of the company were being recognized at cost less of accumulated
depreciation and impairment charges
 At the time of acquisition the cost of the asset will be considered as the fair value of the
asset
 At the time of construction of an asset the cost of the asset will be considered as the fair
value of the asset
 The cost of the asset includes the followings:
 The direct cost for bringing the asset to the location
 The cost needed for preparing the asset in to the necessary operation
 Estimated future cost of closure & rehabilitation of that asset

From the above discussion it can be seen that BHP Billiton strongly follows the 1,2,3,4,7 of the
disclosure requirements for PPE as per AASB 116 (The Conceptual Framework for Financial
Reporting, 2010)
Figure-1: Valuation of PPE -2015, 2016, BHP Billiton
(Source: asx.com, 2017)
c. A discussion on the fulfilment of the useful financial information distribution in relation
to disclosure of PPE as per AASB 116
From the discussion in section-B it can be seen that the disclosure made by BHP Billiton
regarding the measurements of property, plant and equipment has got sufficient materiality. As
the information describes the whole process of asset valuation in brief and omission of this
information will not allow the user to properly understand how the company value their assets
and how the cost of the PPE has been calculated for their representation in the balance
sheet(asx.com, 2017)
d. A discussion on to what extent disclosures on PPE align with the objective of general
purpose financial reporting

 Disclosures on PPE by BHP Billiton fulfil the following objective of general purpose
financial reporting
 The volume of the depreciation and impairment cost will help the investors of the
company to understand the future volume of the cost that the business has to incur for
maintaining the assets of the company(asx.com, 2017)
 The high depreciation cost with respect to an asset class indicates either inefficient
maintenance operation to the part of the company or purchase of low quality asset.
 On the basis of this information the investors will decide how much to invest in the
company and the creditors will decide that what should be the most suitable credit period
that can be offered to the company
 The investors will be able to assess the possible impact of increase in asset price over the
economic resources of the company(The Conceptual Framework for Financial Reporting,
2010)
Conclusion:
The improvement of the PPE disclosure report of the company requires the following initiatives:
As per the objective of general purpose financial reporting the method of accounting [whether
the cash or accrual basis of accounting] that is followed by the company has to be clearly
mentioned.
In order to enhance the quality characteristics of an useful financial information, the company
should add comparability, predictability and confirmatory to the report (Stanley and Marsden,
2012).

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