Discuss About The Disclosures In Australian Corporate Sector?
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).
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.
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:
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)
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
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)
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)
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).
Reference:
asx.com. (2017). Integritiy Resilience Growth,Annual Report-2016. [online] Available at: https://www.asx.com.au/asxpdf/20160921/pdf/43bb7y2c5d351b.pdf [Accessed 20 Sep. 2017].
Barth, M.E. and Landsman, W.R., 2010. How did financial reporting contribute to the financial crisis?. European accounting review, 19(3), pp.399-423.
Beest, F.V., Braam, G.J.M. and Boelens, S., 2009. Quality of Financial Reporting: measuring qualitative characteristics.
Bruce Pounder, C.M.A. and CFM, D.A., 2010. A common framework for accounting standards. Strategic Finance, 92(5), p.20.
Champion, C., 2009. Australian Infrastructure Financial Management Guidelines. Commonwealth Journal of Local Governance, (4), pp.129-137.
Christensen, J., 2010. Conceptual frameworks of accounting from an information perspective. Accounting and Business Research, 40(3), pp.287-299.
Costello, A.M., 2011. The impact of financial reporting quality on debt contracting: Evidence from internal control weakness reports. Journal of Accounting Research, 49(1), pp.97-136.
DeFond, M., Hu, X., Hung, M. and Li, S., 2011. The impact of mandatory IFRS adoption on foreign mutual fund ownership: The role of comparability. Journal of Accounting and Economics, 51(3), pp.240-258.
Hanlon, D., Navissi, F. and Soepriyanto, G., 2014. The value relevance of deferred tax attributed to asset revaluations. Journal of Contemporary Accounting & Economics, 10(2), pp.87-99.
Parker, D., 2011. Valuation of airports for financial reporting: fair value?. Journal of Property Investment & Finance, 29(6), pp.677-692.
Pilcher, R., 2009. Deconstructing local government performance and infrastructure measurement. Asian Review of Accounting, 17(2), pp.163-176.
Stanley, T. and Marsden, S., 2012. Problem-based learning: Does accounting education need it?. Journal of Accounting Education, 30(3), pp.267-289.
Tan?Kantor, A., Abbott, M. and Jubb, C., 2017. Accounting Choice and Theory in Crisis: The Case of the Victorian Desalination Plant. Australian Accounting Review.
The Conceptual Framework for Financial Reporting. (2010). IFRS Conceptual Framework, pp.A-21-A-51.
Van Greuning, H., Scott, D. and Terblanche, S., 2011. International financial reporting standards: a practical guide. World Bank Publications.
Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.
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