Discuss About The Users Financial Statements About Adoption?
This report reflects the debt understanding on normative and positive theories of financial accounting. Each and every company needs to establish proper level of harmonization in domestic and international accounting standards. There are several companies such as BP Billiton Company, Wesfarmers plc and Morrison plc that have been running its business since very long time in Australia. However, due to the different accounting sets and standards, these companies have been facing several red flag while reporting its financial standardsIn this report, it is given that reporting frameworks of organization are depends upon the accounting standards and reporting framework of organization. It is observed that Accounting policies are the standard and specific rules, procedure and accounting implication which are used by accountant to prepare the accounts and financial reporting of organization. In this report study has been prepared how BP Billiton Company has been following IFRS rules and possible red flags faced by company in its reporting frameworks.
In this report BP Billiton Company has been taken into consideration to identify the estimates in accounting reporting and red flags in accounting and reporting of financial statement of company. It is Australian Conglomerate Company which has been providing oil and gas services on domestic and international level. This company has followed proper level of international financial reporting standards and endeavor towards harmonization in GAAP rules and regulation and application international accounting standard (Kieso, Weygandt and Warfield, 2010)
There are several financial and accounting policies followed by BP Billiton Company while accounting and reporting of financial statement (Irvine and Moerman, 2017).
BP Billiton Company has implemented proper rules and regulation while estimating its future events such as income tax payment, valuation of inventories management, joint venture transactions, commitment of company and identification of contingencies and other details (Clinton, Pinello and Skaife, 2014). BP Billiton Company has relies on the data and other details shown by its subsidiaries company while reporting its assets and liabilities in the consolidation statement of company. In addition to this, company has implemented proper level of international financial reporting standards while reporting its financial statement and other required documents with the international reporting authorities (Nobes and Stadler, 2015). There will be following outcomes which would be observed in the BP Billiton Company’s reporting frameworks.
There are several rivals such as Morrison plc, Wesfarmers Plc who have been following international financial reporting. However, the estimations used by all these companies are different from each other. Nonetheless, these all companies have been following proper level of international financial reporting problems with a view to establish harmonization in its domestic and international reporting frameworks (Mardini, Crawford and Power, 2015). In addition to this, other estimates such as inventory valuation, tax management and other investment projects which is considered by organizations in determined approach.
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Accounting rules |
BP Billiton Company |
Morrison plc |
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AS per IFRS-5 ( Rehabilitation and injecting of funds |
Company has implemented IFRS-5 provisos and rehabilitation and injecting money in the business operation of company has been determined as capital nature transactions of business (Cline, Garner and Yore, 2014). |
This company has bifurcated all its investment, investment in its business operation has been treated as revenue nature transaction and long term investment have been treated by company has capital nature transactions. |
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IAS-136 |
All the tangible and intangible assets are taken for impairment test on annual basis with view to showcase the true and fair view of assets. In addition to this, goodwill and other cash generating units will be used for impairment test. |
Impairment test is implemented by company whenever needs arise for the same. |
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ASSB- 5 |
It is evaluated that company relies on the estimates and values shared by subsidiaries companies while reporting its consolidated financial statement. |
All the financial statement and consolidated financial statement reporting is done after following proper level of IFRS rules and standard. |
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IFRS-23 (treatment of income tax payment |
Alt the tariff and traits paid by company is charged from the profit and loss. It is observed that company has charge all of its income tax payment as revenue expenses (Chen, Cumming, Hou, and Lee, 2016). |
Company has bifurcated all of its income tax payment and tariffs in two parts such as revenue expenses and capital expenditure. Current tax payment will be charged from the profit and loss accounts and deferred tax payment will charged as capital expenditure. |
It is considered that accountants of BP Billiton Company has measured all of its assets at estimated fair value (Christensen, et al. 2015). Interest payment and other provisions will be deducted from the profit and loss accounts of company. However, changes in accounting standard will also change the recording and classification of assets in determined approach. This will not only strengthen the reporting of company but also keep all the financial statement updated as per the newly introduced rules and regulation. In addition to this, it is also observed that self- insured liabilities of the BP Billiton Company is based on the number of estimates and management such as future inflation, return investment, application of accounting standard and valuation of assets and liabilities (Ball, Li and Shivakumar, 2015).
There are several estimations which are adopted by the management debarment of BP Billiton Company. These estimations used by company may result to distortion or damages to the real value of organization. It is observed that if company does not use proper level of estimation in its reporting frameworks then it may result to showing false views of assets and liabilities of company. After evaluating the annual report of BP Billiton Company, it is observed that management department with the collaboration of accountants have charged all the hedge funds losses and other increased capital value from it profit and loss account which reduce the tax payment and profit of company as well. This level of accounting policies have been adopted by organization to put cap on its overall cash flow. It is further observed that inventory management and accounting policies adopted to manage the inventory may provide proper reporting frameworks.
BP Billiton Company has followed both GAAP rules and standards and IFRS rules while accounting and reporting of its financial data (Sytnik, 2014). For instance, plants and machinery has been recorded in the books of account at their cost value after implementing proper level of depreciation methods as per the IFRS rules and standard. Nonetheless, GAAP rules provides that all the intangible assets should be recorded at the lowest of following market value or cost value. This level of changes and amendment in the accounting standards may result to destruction of reporting frameworks. Therefore, BP Billiton Company has adopted both accounting GAAP and IFRS accounting standards while reporting it’s financial and accounting information in its books of accounts. BP Billiton Company has been disclosing all of its financial and non-financial information as per the AASB 101 (Brochet, Naranjo and Yu, 2016).
There are several estimations which are adopted by the management debarment of BP Billiton Company. These estimations and accounting implications used by company may result to distortion or damages to the real value of organization. Company has changed its estimation to hedge funds contracts and change in accounting estimates which will make changes in its overall profit and loss of organization. In addition to this, estimation used by company while deducting impairment loss may result to lower down the overall capital assets of company and show casing true and faire views of its business assets (Bischof, Brüggemann and Daske, 2014).
There are several estimates and judgments used by BP Billiton Company such as following FIFO method in management of inventories, deferred tax payment, impairment of tangible and non-tangible assets (Barth, 2013). This has shown that payment of tax and charging the same from profit and loss account of company is based on the estimation made by company in its annual report. Moreover, it is observed that if company face problem in complying with accounting and reporting frameworks after adopting GAAP rules and IFRS rules and standard then IFRS rules and standard will override the compliance requirement of organization. Nonetheless, all the estimates and provisional accounts created by BP Billiton Company should be based on the actuaries’ method of calculation and the contingency plans prepared (Aobdia, Lin and Petacchi, 2015). After evaluating the annual report of company, and adjustment made in its annual report, it is observed that company had complied with all the IFRS rules and estimations undertaken should be based on the reporting frameworks and stakeholder’s requirement for company’s reporting. There are several red flags which could be encountered by BP Billiton Company if it establish harmonization in its compliance and reporting frameworks.
There are several accounting issues and reporting problems which are faced by organizations while complying with accounting and reporting frameworks. Red flags in accounting report of BP Billiton Company could be defined as potential problems and threats faced by BP Billiton Company in the accounting and reporting of financial statement. There are several factors which could be identified by BP Billiton Company to evaluate the red flag in accounting report of BP Billiton Company (Atkins and Maroun, 2015). These red flags arise when BP Billiton Company reports its financial statement to its reporting authorities. It is observed that conflict or red flag arise when auditors of BP Billiton Company give remark on the accounting policies followed by organization. If company has followed FIFO method and has not disclosed proper level of information to its notes to accountant then it may destruct the valuation methods in determined approach.
The main problem or red flag in reporting frameworks of BP Billiton Company is related to revenue and capital expenditure allocation in its profit and loss accounts. It is evaluated that accountant of BP Billiton Company has charged all of its cost of capital from its profit and loss accounts by considering revenue expenses. This level of treatment has reduced its overall tax payment and reduced its overall profit. However, as per the IFRS rules and standards, BP Billiton Company needs to make proper level of bifurcation in its all expenses. Ideally expenses which provide benefits to company for more than one years should be treated as capital expenditure. However, Income tax expenditure and deferred tax payment are the critical terms and recording of these transactions is based on their nature. Deferred tax payment should be treated as capital expenditure and annual income tax payment may be charged by BP Billiton Company as revenue expenditure. This is one major Red Flag which BP Billiton Company has been facing in its reporting frameworks.
It is considered that charging depreciation on the company’s assets is fully depends upon the management’s discretion. BP Billiton Company has charged all of its assets through straight line method which may cause problem. It is observed that when company charges depreciation through SLM method then it does not make full amount of depreciation from its assets. However, depreciation amount charged is deducted from the profit and loss of company. In order to showcase true and fair view of assets company needs to change its SML depreciation charring method to written down value method. (Jaggi, et al. 2016).
It is observe that as per the IAS-3 each and every listed company needs to follow FIFO and LIFO method to manage its inventory in the business functioning. BP Billiton Company has followed FIFO method to manage its inventory. It is considered that following FIFO method will strengthen the inventory management of organization. BP Billiton Company use all the inventories and management of business in FIFO and LIFO method to maintain inventories in its reporting frameworks. With the help of LIFO method, BP Billiton Company has This FIFO method has increase its overall turnover by 30% as compared to last five years. In addition to this, this FIFO method will also change its overall profit and inventory which increase the overall cost of productions to reduce the tax implication. Adoption of FIFO and LIFO method depends upon the management discretion and inventory management techniques followed by company.
As per the IAS24, BP Billiton Company should not enter into related party transactions to which it has pecuniary and other materialistic relation. Nonetheless, transactions such as offering remuneration, tax payment and other losses may be charged by company by passing special resolution in the general meeting allowed payment to directors without passing special resolutions. All the transactions and events entered by BP Billiton Company with the related party transactions have been done through passing special resolution in meeting and disclosing the same details in notes to financial statement. In addition to this, company has also noted down all the contingent expenses and other payments by recording all of its assets in the notes of accounts and by adding justification in the attached appendix of annual report. It has been observed that company needs to disclose all of its assets and liabilities after applying proper IAS standards and GAAP rules in determined approach. BP Billiton Company has also followed proper level of foreign exchange management policies with a view to comply with the foreign exchange management policies and frameworks. These foreign management policies and accounting standards have been followed by company to increase the overall reporting framework in effective manner. However, main red flag arise in accounting and reporting of organizations in case of related party transactions, implementing depreciating method and following proper inventory management technique. The main impact of related party transactions could be seen by observing the net inflow and outflow of cash. It is considered that companies use related party transactions to make business transactions below the arm length price. BP Billiton Company has put cap on all the financial transactions by following related party provisions and notes of IAS standards. This assist in curbing the manipulation in profit and loss of company. These adopted IAS standards and applicable rules has made proper level of compliance program and delivered effective reporting of financial statement in determined approach.
Conclusion
It is evaluated that Accounting policies are the standard and specific rules, procedure and accounting implication that needs to be followed by accountants and management department of listed companies to prepare the accounts and financial reporting of organization. Accounting policies and measures reflects the proper level of accounting frameworks and reporting standards which should be followed by BP Billiton Company for the betterment of its reporting frameworks. After evaluating the annual report of company, it is observed that company has established proper level of harmonization in IFRS standard and GAAP standards. If company finds any conflict and problem while complying with the reporting frameworks and reporting of financial statement in GAAP rules and IFRS standards then it should follow IFRS rules and regulation in its reporting frameworks. Now in the end, it could be inferred that if BP Billiton Company finds any sort of identified red flags then it should adopt strict accounting policies to mitigate possible problems in preparing financial statement after following IFRS rules and standards in determine approach. If BP Billiton Company adopts proper level of IFRS rules and regulations in effective manner then it will mitigate all the red flags and reporting issues in determined approach.
References
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Atkins, J. and Maroun, W., 2015. Integrated reporting in South Africa in 2012: Perspectives from South African institutional investors. Meditari Accountancy Research, 23(2), pp.197-221.
Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement information prepared under IFRS: Evidence from debt contracts around IFRS adoption. Journal of Accounting Research, 53(5), pp.915-963.
Barth, M.E., 2013. Global comparability in financial reporting: What, why, how, and when?. China Journal of Accounting Studies, 1(1), pp.2-12.
Bischof, J., Brüggemann, U. and Daske, H., 2014. Fair value reclassifications of financial assets during the financial crisis.
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Clinton, S.B., Pinello, A.S. and Skaife, H.A., 2014. The implications of ineffective internal control and SOX 404 reporting for financial analysts. Journal of Accounting and Public Policy, 33(4), pp.303-327.
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