The two listed companies taken for the analysis is BHP billion Ltd and Bougainville Copper Limited. The BHP billion Ltd is a multinational petroleum, mining and metals company with it’s headquarter located in Melbourne, Australia having total assets worth 124.6 billion (Asx.com.au 2016). Bougainville Copper Limited is an Australian gold, copper, silver mining company and its headquartered is in Papua New Guinea. The annual reporting of both the companies has been analyzed with respect to the standard of AASB. Whether the reporting system of the companies complies with the requirement of AASB standards. As per the standards, the reporting of the financials of the companies are prepared according to the framework for the general purpose, which is designed in a way to meet the needs of the users of the common financial information. The framework is a compliance framework or it is said that it is a fair framework. Here, the analysis would be in reference to the reporting requirement of those concerned with the governance of corporations and of the accountants. The person who has the obligations related to the accountability and the strategic direction of the entity is the one charged with governance of corporations (Careyetal 2014).
AASB conceptual framework and requirements and whether the chosen entity complies with it.
The requirements of the AASB standard for the reporting entity with reference to the conceptual framework and governance of corporations is discussed below.
The financial statements of the reporting entity have to be prepared from the entity’s perspective as whole rather than the perspective of the investors, creditors or the lenders. The entity preparing the unconsolidated financial statements needs to disclose how it can obtain the consolidated statements. The entity when selecting the measurement basis, factors considered while selecting should be provided. The information disclosed in an effective and efficient way in the financial statement make it more relevant. It is a contribution to the representations of the assets, liabilities, expenses and income in a faithful way (Bond et al. 2016).
The statements of the financial information are a primary source of information regarding the financial performance of the entity. For example, the expenses and income in the statement of profit and loss, depicts the entity’s financial performance. However, such items could be reported outside profit and loss statement and included in other comprehensive income. When expense and income relates to the liabilities or assets measured at current values.
If the concerned entity’s purchasing power of the capital invested or the maintenance of such capital, then financial capita concept is to be adopted by the entity. If the entity is concerned with its operating capability, then the physical concept of capital is to be used. The financial statements of the reporting entity should provide depict the nature of unrecognized items or the recognized items that is consistent with the definition and the risk associated with the element. The information about the risks associated with the assets and liabilities of the reporting entity would help in assessing the stewardship of the management towards the resources of entity and also the ability of the entity to generate cash flows (Chandetal 2015).
The approach of the company to the critical global challenges is based on their charter values. The organization is compliant with all the rules and regulations, which is vital to their operations. It also ensures that the risks arising from non-compliance is minimized. The purpose of the financial report for the current year that is 2015, has been prepared in accordance with the requirements of the Australian Corporations, Act 2001 and UK companies Act, 2006. The reporting framework also complies with the Australian Accounting Standards, which is being equivalent to IFRS that is International Financial Reporting standards. The interpretations of the report is as per it is issued by the AASB for the year 2015. The accounting standard adopted by the company for the first time which include the amendment to AASB/132 of the financial instruments and this clarify the criteria of offsetting the financial liabilities and assets. IFRIC level 21 is that the liability of paying a levy is recognized when such activities gets triggered for which the payments is occurring. Such adoptions of amendments did not have any material impact and therefore it does not have made any restatement to the prior year financial statement (Zhuang 2016).
The company also complies with the AASB 15 ‘Revenue from contracts with the customers’, under which the time of recognizing the revenue and the amount to be recognized have been modified relating to its determination. It is based on the principle that the entity recognizes the revenue so that the transfer of services and goods to the promised customer has been depicted. The company also complies with the new accounting standards of AASB 9’ Financial instruments’ under which the measurement and classification of financial assets has been modified. It is based on the approach of principle based for the asset classification and the model of business and the characteristics of cash flow in which the asset is held drive it. The financial statements have been drawn based on the principles of the historical costs. However, some other financial assets and then financial instruments relating to derivatives are carried at a fair value. The noncurrent assets classified as held for distribution or sale are measured at the fair value minus costs or the carrying value whichever is lower. The financial statements have been incompliance with the AASB 5 for the Non-current asset held for sale and discontinued operations. This is depicted in the statements, which is restated for the same effect since the financial year 2013. The entity accounts of BHP Billion plc are prepared according to the standards of UK companies Act, 2006 (Aasb.gov.au 2016).
Figure 1: showing the Director’s declaration
(Source: created by author)
Figure 2: showing the Market disclosure
(Source: created by author)
Figure 3: showing the Remuneration report
Source: (created by author)
The base salary is reviewed annually but the salary of CEO would remain would not be revised. The scorecard weighting has been increased because of the importance of the remuneration committee placed on safety. The percentage of the attributable profit remained unchanged.
The company prepares it financial statements according to the standards of PNG companies Act, 1997 and with the International financial standard reporting. The statements have been prepared under the convention of “historical cost as per the revaluation of financial assets available for sale”. When the financial statements are prepared in conformity with the standards of international financial standard reporting then it requires the estimates of certain critical accounting. In the process applying the accounting policies, the company needs to exercise its judgments. The assets of mines were originally stated at director’s valuation or costs and subsequently depreciated at the rate considered appropriate by the company (Bhpbilliton.com 2016).
The company has not adopted the new standards of “IFRS 9 / AASB 9”on the financial instrument on the classification and measurement of liabilities, financial assets, recognition of impairment losses and hedge accounting. The company has not adapted to the new standards because the interpretations are not mandatory for the company has not early adopted the reporting period of the year 2015 and therefore it. The entity is of the view after conducting investigations that the amended standards would not have any material impact on the future or the current reporting periods and on the foreseeable transactions (Dakis 2016).
From the above analysis of the selected two companies, BHP Billion Ltd and Bougainville Copper Ltd prepare their financial statement, which complies with the AASB standards. However, there are some new standards set by the AASB, which is not incorporated by these companies in the preparation of the financial statements. BHP billion Ltd has adopted the standards set by AASB under section 132 and IFRIC 21 but there are no material impacts on the BHP Billion group. However, it is investigated by the company that other standards would have impact in the financial year commencing in 2016, so it would adopt its accounting requirements with standards set by AASB. On the other hand, Bougainville Copper Ltd does not consider the adoption of the new standards mandatory, as it would not have any material impact on the future or current reporting period of the entity (Bcl.com.pg 2016).
Figure 4: showing the Director’s report
Source: (created by author)
Figure 5: showing the Auditors report
(Source: created by author)
Figure 6: showing the Remuneration report
(Source: created by author)
Addressing the disparity in corporate reporting through the inclusion of prudence in the conceptual framework
Prudence is vital in achieving neutrality and it acts as caution under the event of uncertainty. When company exercise prudence, it means that the liabilities and expenses are not understated, also the income and assets are not overstated. Prudence helps in addressing the disparity in the corporate reporting of the entity in a number of ways. Prudence helps to address the concern of the investor’s downside risks and the entity exercising prudence would be able to align the interest of managers and shareholders thus reducing moral hazard. The revision of the term prudence would help in addressing the reporting disparity as need was felt to counteract a possible bias towards optimism by management, which is possible by exercising prudence. This would ensure that not all the gains are recognized and the losses are recognized without sufficient justification. Including prudence in recognizing the assets and liabilities is more transparent that the prudence that is potentially unquantified in measurement. When the items are measured at historical costs then in order to recognize the profit and the value of asset, a proper degree of prudence needs to be imparted. However, the extra element of prudence should not be injected in the valuation because it will lead to the unquantified element of bias (Mazhambe 2014).
BHP Billion Ltd prepares the financial statements according to standards of the “Australian Corporations, Act 2001” and “UK companies Act, 2006”. While Bougainville Copper Ltd complies with the accounting standard of the PNG companies Act, 1997 and with the International financial standard reporting. The reporting of both the companies complies with the Australian Accounting Standard Board, but the new standards have not been incorporated into the reporting of both the companies for the current year of financial reporting. The financial statements are drawn on the historical cost basis for both the companies. However, BHP Billion Ltd complies with the new standards but there was no material impact on the operations of the BHP group but it may have impact on the commencing year. On the other hand, Bougainville Copper Ltd found the new standards are not mandatory (Mandatory 2014).
The reporting entity should comply with the Australian Accounting standards in order to reflect the fair presentation of its financial performance. The company should comply with the requirement of Australian accounting in a way that it does not conflict with the objectives of the framework. Unless the Australian accounting standards requires it, the reporting entity should not offset the liabilities, income, assets or expense. The entity complying its financial statements with the accounting standards is ought to represent its financial positions, cash flow fairly and this is because it would provide useful information to the stakeholders of the company in evaluating and making decisions about the allocation of the resources that are scarce to the company.
After going through the above analysis of the two ASX listed companies, it may be concluded that the companies are preparing the financial statements according to the standards of the AASB. However, there are some new standards, which the companies are not adhering to and this is because the standards set does not have any material impact on the companies. The standards are not included in both the company’s current reporting of financials. However, in the commencing reporting period, BHP Billion would incorporate the new standards unlike Bougainville which considers the new standards not mandatory.
Aasb.gov.au.(2016). Accounting standards. [online] Available at: https://www.aasb.gov.au/Pronouncements/Current-standards.aspx [Accessed 14 Aug. 2016].
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.
Carey, P., Potter, B. and Tanewski, G., 2014. AASB Research Report No.
Chand, P., Patel, A. and White, M., 2015. Adopting International Financial Reporting Standards for Small and Mediumâ€sized Enterprises. Australian Accounting Review, 25(2), pp.139-154.
Cheung, E.W.Y., 2014. Readability of financial reports and IFRS adoption in Australia.
Dakis, G.S., 2016. Upcoming changes to contributions and leasing standards. Governance Directions, 68(2), p.99.
Grüber, S., 2014. Intangible Values in Financial Accounting and Reporting: An Analysis from the Perspective of Financial Analysts. Springer.
Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012.Financial Accounting. Pearson Higher Education AU.
Mazhambe, Z., 2014. Review of International Accounting Standards Board (IASB) Proposed New Conceptual Framework: Discussion Paper (DP/2013/1). Journal of Modern Accounting and Auditing, 10(8).
Zhuang, Z., 2016. Discussion of ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136’. Accounting & Finance, 56(1), pp.289-294.
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