Select a set of financial statements for a group of companies. Read the annual report including the financial statements of the group and write a memorandum to the board of directors clearly explaining some of the technical aspects of consolidation
Your team is required to explain the financial statements of the group of companies you have selected to the board of directors making sure you bring to their attention any unusual or interesting information.
Brief overview of the company
The company of British petroleum is an multinational oil company headquartered in London. It is one of the seven globally famous gas and oil business. It is the sixth largest energy company in the world in terms of market capitalization. The company of British petroleum has been listed in the London stock exchange and is a constituent of FTSE 100 index. At present the British petroleum deals with other countries too that includes Europe, North and south America, Asia, Australia and Africa.
British petroleum Group and its operations
- The composition and subsidiaries: The two main subsidiaries of British petroleum is Amoco and Castrol.
- Joint Ventures: The British Petroleum has joint ventures with AMPM, Aral and Wild Bean café. Each of the the ventures have different kind of activities and has its own heritage, personality and performance. According to the annual report, this includes the main investment that has been taken place in the financial year 2017.
- The main operations of the group: The group operates in in more than 70 nations worldwide in producing oil and gas on land and onshore. The groups main objective is to spread the energy around the globe. It manufactures and markets fuels and raw materials that are used in the products including phone to food packaging. In addition to that the group participates in finding out new access to discover additional resources and replenish the development options and renew the portfolio.
Consolidated financial statement
The reasons for which British petroleum decided to prepare the consolidated financial statement are as follows:
- In order to supply the relevant information to investors in the parent entity.
- To enable group comparison with similar companies.
- To assist the accountability discharge by the group management.
- Moreover, the as per IAS 27 that deals with consolidated and separate financial statement an entity must consolidate another entity, for the disclosures such as process of change in ownership and technique for separate financial statement(Chen, et al., 2015).
Sources of finance and ownership
- The share capital identifies the nominal value that is aggregate of all ordinary and preference shares in issue, that includes the treasury shares.
- Equity: The company is funded by equity in the financial year of 2017 of 21049696 each at 25 cent that amounts to $5263 million.
- Moreover there has been issue of cumulative preference shares which is 7233 shares at 8% interest and 5473 at 9% that amounts to $21 million in total.
- There has been issue 1614657 of treasury shares that amounts to $403 million
- The has been issue of ESOP of 9705 shares that amounts to $2 million.
- the group is owned by the directors of the British petroleum which is the parent company.
Disclosures of British petroleum
The disclosures of the Company regarding the following is has been revealed on the annual report and the sustainability report of the company. It is the process of releasing the relevant information of the company that can influence the investment decisions. T makes the investing fair as per the Securities and Exchange commission.
- Corporate governance: The operating management system of BP brings together the requirements on health, safety, security, the environment, social responsibility and operational reliability, as well as related issues, such as maintenance, contractor relations and organizational learning, into a common management system.
- Audit committees: The committee monitors the effectiveness of the group’s financial reporting, systems of internal control and risk management and the integrity of the group’s external and internal audit processes.
- Sustainability: BP uses the Global Reporting Initiative (GRI) G4 guidelines, a comprehensive set of indicators covering all dimensions of sustainable development.
- The portion of non controlling interest of the equity ownership in a subsidiary that is not attributable to the parent company who has a controlling interest and consolidates the subsidiaries financial results with its own(Ryerson et al. 2016).
- The non control interest is found as per IFRS 12 is accumulated at the financial year end and it is found in the notes to accounts under the head of equity in the annual report.
- In the chosen company of British petroleum there is no non controlling interest found in the annual report.
Other disclosures in BP
- Goodwill and acquisition: the Goodwill is an intangible assets that takes place when one company purchases another company for a premium value. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment. The goodwill account can be found in the assets portion of a balance sheet of the company. BP has a goodwill of $11551million in the year of 2017.
- Gains and bargains: The gains and bargains includes the assets that are acquired for a less fair market value.in this case a corporate entity is required acquired by another for an amount that is less than the fair market value of its net assets. It is disclosed as a gain in the income statement(Tricker and Tricker 2015).
- Impairment: The process of Impairment test is theanalysis of whether the items from balance sheet are worth the stated amount in the balance sheet. The amount in the balance sheet shall be reduced if impairment test signifies lower value(Holden, Linnerud and Banister 2017). The testing for impairment can be applied for tax accounts as well as commercial that is audit accounts. The BP has an impairment of $1216 million.
Foreign Currency Transactions
- The concept of foreign currency deals with the settlement either by payment or receipt in a foreign currency. In case the rates of the exchange changes there is a gain or a loss on the exchange(Johansson, Hjelström and Hellman 2016). In the British Petroleum there is no foreign currency dealing as per the annual report.
- The foreign currency transactions are recorded in the accounts receivables at the time of gains and debits on accounts payable in case of loss(McCahery, Sautner and Starks 2016).
- The subsidiaries in the company of British Petroleum are Castrol and Amoco, both are headquartered in UK. Hence there is no foreign subsidiary.
Suggestions for Disclosures
- There can be a disclosure of seven effective communication principle that could be included in the general disclosure standard or described in the guidance that is non-mandatory
- The Possible approaches to improve objectives of disclosure and requirements in the Standards of IFRS.
- Fair presentation principles and performance disclosures measures and non-IFRS information in financial statements, to make sure that such information are not misleading.
- Chen, W., Zheng, R., Zeng, H., Zhang, S. and He, J., 2015. Annual report on status of cancer in China, 2011. Chinese journal of cancer research, 27(1), p.2.
- Ryerson, A.B., Eheman, C.R., Altekruse, S.F., Ward, J.W., Jemal, A., Sherman, R.L., Henley, S.J., Holtzman, D., Lake, A., Noone, A.M. and Anderson, R.N., 2016. Annual report to the nation on the status of cancer, 1975-2012, featuring the increasing incidence of liver cancer. Cancer, 122(9), pp.1312-1337.
- Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.
- McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-2932.
- Holden, E., Linnerud, K. and Banister, D., 2017. The imperatives of sustainable development. SustainableDevelopment, 25(3), pp.213-226.
- Le Blanc, D., 2015. Towards integration at last? The sustainable development goals as a network of targets. Sustainable Development, 23(3), pp.176-187.
- Barkemeyer, R., Holt, D., Preuss, L. and Tsang, S., 2014. What happened to the ‘development’in sustainable development? Business guidelines two decades after Brundtland. sustainable development, 22(1), pp.15-32.
- Johansson, S.E., Hjelström, T. and Hellman, N., 2016. Accounting for goodwill under IFRS: A critical analysis. Journal of International Accounting, Auditing and Taxation, 27, pp.13-25.