Accounting Policies Estimates BHP Billiton

Discuss About The Accounting Policies Estimates Bhp Billiton?

Introduction

This report reflects the key understanding on the financial reporting of BHP Billiton Company. In this report, it is reflected that each and every company prepare their financial reporting as per the IFRS rules and standards in which they have to make estimation in their financial statement.  In this report, BHP Billiton Company has been taken into consideration.

Present description of organization

It is an Australian company which has been selling gas and oil products to its clients. The main reporting issues and changes in BHP Billiton Company has arisen due to changes in estimation prepared in its financial statements. This report has shown the incidents of iron ore operations of Samarco Mineração S.A in Minas Gerais, Brazil in BHP Billiton Company (Ball, and Shivakumar, 2015).  

Accounting policies and GAAP rules followed by BHP Billiton Company

BHP Billiton Company has followed GAAP Rules and IFRS accounting standards in its reporting frameworks with a view to increase its overall efficiency (Aobdia, Lin and Petacchi, 2015).

• BHP Billiton Company has charged written down value method to reflect true and fair view of its assets as per the IAS-16.
• In addition to this, all the lease transactions has been recorded as per AASB16 rules and standards. BHP Billiton Company in its annual report has adopted provision of right of use assets in reporting of its underlying leased assets.
• BHP Billiton Company has been filling its consolidated financial statement as per the AASB-105 in its reporting frameworks (Cairns, et al. 2011).
• As per the IAS-136, BHP Billiton Company has been implemented impairment test and charged its impairment loss from its goodwill and other cash generating units.
• AASB-117 has been followed by BHP Billiton Company to record its leased transactions and reporting of its estimation done (BHP Billiton Company, 2015).

Estimates prepared by BHP Billiton Company before incidents of iron ore operations of Samarco Mineração S.A in Minas Gerais, Brazil.  

The financial statement of BHP Billiton Company has been prepared with FRS 101 requires the use of critical accounting estimates. There are several future estimates that have been followed by BHP Billiton Company in its financial reporting frameworks such as income tax payment, valuation of assets, investment in subsidiaries, income tax expenses and foreign exchange transactions. However, it is observed that when BHP Billiton Company did not face the incidents of iron ore operations of Samarco Mineração S.A in Minas Gerais, Brazil then at that time company was having general estimations in its reporting frameworks. Ideally, it focused on preparing provision, foreign exchange transaction, income tax payment and subsidiaries company investment (Barth, 2013). The main estimation was done by company for reporting of its liabilities for wages and salary that includes non-monetary transaction set off 12 months from the reporting period. In addition to this, BHP Billiton Company did not follow proper CSR rules and regulations which resulted to failure to install eco system safety mechanism to reduce the negative impact of Samarco incident (Atkins, J. and Maroun, W., 2015).

Estimates prepared by BHP Billiton Company after incidents of iron ore operations of Samarco Mineração S.A in Minas Gerais, Brazil.  

After occurring of this event, the financial statement of BHP Billiton Company has been prepared by adopted preliminary agreements rules and regulations in its reporting frameworks. However, this incident has resulted to high value destruction in its annual turnover throughout the time. There are several new estimations has been adopted by BHP Billiton Company such as creation of contingent provision, preparing separate liability discharge account and increasing the CSR amount in its business functioning. However, as per the IAS-137, the impairment test implemented by company on periodic basis has charged all of its decreased value of assets from goodwill and remaining amount has been charged from its cash generating unit. In addition to this, hedge funds created by BHP Billiton Company has also increased by $ 1.3 billion in its estimations prepared as per the IFRS rules and standards. In addition to this, framework reporting of company has also been changed after entering into agreement with the Brazilian Authorities in determined approach. This level of change in its reporting frameworks (Bischof,  Brüggemann and Daske, 2014).

Red flag in accounting report of BHP Billiton Company

BHP Billiton Company has observed several red flags while charging the loss arise from Samarco incident. Company has charged this Samrco loss from its all cash generating units after implementing the impairment test as per the IAS-136. In addition to this, company has also prepared reserve and provisions to cover up its future contingent liabilities (BHP Billiton Company, 2017).  However, company has faced problems and issues in complying with the GAAP rules and IFRS standards. As per the GAAP Rules Company should re-evaluate its assets and liabilities only on periodical basis. On the other hand, company could implement impairment test as per needs and estimations prepared by company, if IFRS rules and regulations followed. BHP Billiton Company has identified these problems and issues in its reporting frameworks while reporting financial statement to financial reporting authorities. BHP Billiton Company did not follow CSR rules and issues in its reporting frameworks which resulted to destruction of proposed eco system to mitigate the negative impact of hazardous occurring (BHP Billiton Company, 2017).

There are several financial issues which company has faced in its reporting frameworks

BHP Billiton Company should have maintained reserve and provisions under the federal government agreement and frameworks in its reporting frameworks to mitigate the negative impact of hazardous happening in society.

Company should have charged its loss as capital expenditure to reduce the negative impact on its profit earning capacity and should have deposited all of its penalties and loss in the escrow account.

Company should have complied all the rules and regulation of preliminary agreement prepared by it with other authorities while complying with the reporting standards (Cairns, et al, 2011).

Conclusion

After evaluating the annual report of BHP Billiton Company before 2015 and after 2016, company has filled various red flags. BHP Billiton Company needs to established proper level of harmonization in its domestic and international business reporting frameworks in determined approach after complying with the rules and instruction given under the federal government rules and regulations.

References

Aobdia, D., Lin, C.J. and Petacchi, R., 2015. Capital market consequences of audit partner quality. The Accounting Review, 90(6), pp.2143-2176.

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.

BHP Billiton Company, 2015, Annual report, Retrieved on 30^th September, 2017 from

BHP Billiton Company, 2017, Annual report, Retrieved on 30^th September, 2017 from

Bischof, J., Brüggemann, U. and Daske, H., 2014. Fair value reclassifications of financial assets during the financial crisis.

Cairns, D., Massoudi, D., Taplin, R. and Tarca, A., 2011. IFRS fair value measurement and accounting policy choice in the United Kingdom and Australia. The British Accounting Review, 43(1), pp.1-21.