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Background

Discuss about the Accounting Theory and Issues for Preparing Business Concerns.

The present study sheds light on the accounting theories and concepts and the way business concerns prepare and present their general purpose financial reports. The current study elucidates in detail the aims, objectives and background of three top 100 (Australia Stock Exchange-ASX) listed organizations, namely, BHP Billiton, CSR Limited and Woolworths Limited. In addition to this, the present study expounds in detail the conceptual framework of the three different organizations in order to carry out a comparative study of the framework for the preparation and presentation of financial statements.  Furthermore, the present study also explicates in details the contents of the three business concerns and carries out a comparative analysis between the three different companies. Subsequently, the current section carries out a relative study of the remuneration structure, conceptual framework along with different issues of the accounting of the three different companies.  Thus, it can be said that the current account illustratively a comparative statement of the accounting principles and issues with special orientation to the operations of BHP Billiton Limited, CSR Limited and Woolworths Limited.

BHP Billiton Limited is a publicly traded well known Anglo-Australian transnational mining, metals as well as petroleum corporation, publicly traded in the ASX (Bhpbilliton.com 2016).  BHP Billiton, headquartered in Melbourne, Australia is the largest mining corporation in the world enumerated by the market values of 2015 and is the fourth largest business concern in Australia in terms of revenue (Bhpbilliton.com 2016).

CSR Limited is a gigantic publicly listed Australian industrial corporation that operates in the building material industry. The company, headquartered in New South Wales, Australia, operates in Australia, New Zealand and United States and markets products such as glass, bricks plasterboard, insulation as well as aluminium (Csr.com.au 2016).

Woolworths Limited is a Australian retail giant that is publicly traded in the Australian Stock Exchange.  The company, headquartered in New South Wales, Australia, operates in the retailing industry and serves in Australia, New Zealand and India (Woolworthslimited.com.au 2016). Woolworths Limited is regarded as the second largest corporation in Australia in terms of revenue, only after the Perth based multinational Wesfarmers.  The company operates in different divisions that include the supermarkets, Food For less, liquor section, Petrol and General Merchandise among many others (Woolworthslimited.com.au 2016).

The aims and objectives of BHP Billiton are

To create long term value for the shareholders of the firm by means of discovery, acquirement, development as well as marketing of natural resources (Bhpbilliton.com 2016).

Aim

To own as well as operate huge, durable, low-priced, and expandable and at the same time upstream assets branched out in different commodities, geographies as well as market.

The aims and objectives of CSR Limited are

To deliver increased returns to shareholders by means of generation of growth in revenue and increase in profitability (Csr.com.au 2016)

To focus on targeted end markets with the assimilated as well as differentiated products and services with the aim to attain sustainable growth and higher margins with returns

The aims and objectives of Woolworths Limited are

To deliver growth year on year and to provide consistently strong returns to the shareholders of the corporation

To regain momentum in the supermarkets of Australia and to outperform in the liquor business

To make clear advancement in the Master’s path to productivity, acceleration of the lean retail model to compete in new environment, maintenance of disciplined portfolio management as well as capital allocation

The content of the company CSR Limited includes mission, overview, accounting as well as tax system, clients and memberships. The objective of the organizations is to enhance the value of the shareholders of the firm by ensuring persistent growth of the corporation. 

Comparison between companies

The three companies CSR Limited, Woolworths Limited and the BHP Billiton can be compared based on the usage of the accounting standards and principles and the performances of the corporation. The performance of the corporation can be analyzed based on the profitability and the potential for generation of revenue of the corporation (Rankin et al.  2012). As per the compliance declaration in the annual statement of the company CSR Limited, it can be hereby ascertained that the general purpose financial report of the company is in conformation with the Corporation Act 2001. In addition to this, the general purpose financial reports is also prepared after taking into consideration the implementation as well as interpretation of different accounting principles as stipulated under the Australian Accounting Standards Board. The measures comprise of underlying research as well as development expenditure, primary sales, general as well as administrative expends, underlying profit and cost of sales, operating profit, net profit and earnings per share (Horngren et al. 2012). The consolidated financial statements follow the concept of identifying trade receivables at fair value and thereafter are enumerated at amortized cost (Hong Yang 2012). Again, the inventories of the corporation CSR Limited is essentially valued at net realizable value or else cost whichever is inferior though the strategy is prudent but it understates profit. In addition to this, the corporation CSR Limited also follows the straight-line technique of depreciation that accurately replicates the treatment of asset (Arnold 2011). This helps in presenting true as well as fair value of different assets, liabilities, financial condition together with the profit and loss.

Content of Companies

On the other hand, the management of the Woolworths Limited prepares and presents the General Purpose Financial Reports in accordance with the Corporation Act 2001 and the Australian Accounting Standards as well as Interpretations, International Financial Reporting Standards (IFRS) (Woolworthslimited.com.au 2016). In addition to this, the financial statements also conform to other obligations of law. Again, the consolidated financial declarations are also prepared essentially in the Australian Dollars that happens to the functional currency of the company. Furthermore, the consolidated financial declarations are also organized based on the historical cost excluding certain assets as well as liabilities that are measured at fair value as expounded in different accounting strategies (Bragg 2011).

The management of BHP Billiton Limited prepares as well as presents consolidated financial statements as per the International Financial Reporting Standards as was issued by the International Accounting Standards Board and outlined in the section 41 “Basis of preparation and measurement” to the financial statements in the financial reports. In addition to this, the management of the company also makes use of different non-IFRS measures that can help in the process of examination of the performance.  Again, as per the annual financial statements of the company “BHP Billiton Limited”, the basis of preparation as well as measurement also conforms with conditions (Bhpbilliton.com 2016).

The companies can also be compared based on different measurement of performance of companies. The structure for preparation as well as presentation of financial declarations reflects the fact that different items that raise the economic benefits are essentially included as the income and different items that decrease the economic benefit of the firm represents the expenses of the firm in the income statement of the corporation (Devi and Hooper 2012). Again, the analysis of different items of financial performance can include the revenue and profitability.  The analysis of the financial reports in the annual statements of the company BHP Billiton Limited reflects the fact that the revenue of the company during the year 2015 was registered to be US $44638 million (Bhpbilliton.com 2016). The consolidated income statement of the company reveals the fact that the revenue has decreased from US $56762 registered during 2014 to US$44638 in 2015. Again, the consolidated financial statements also reveal the fact that the revenue generation of the corporation has declined consistently throughout the three-year period.

Again, the annual statement of the BHP Billiton reveals the fact that the attributable profit of the corporation was recorded to be US $ 2884m, US $1384 m, US $ (1312) m, US $269 m and US $ (1512) m (Bhpbilliton.com 2016).  However, the dividends of the company have increased throughout the five-year period of 2011 to 2015. The dividend of BHP Billiton Limited has reached US$6.6 billion (Bhpbilliton.com 2016). This reflects the fact that the cash flow of the corporation has also declined during the period 2015 as the sales revenue has declined on one hand and the dividend payout has increased. Again, the assets of the corporation have also decreased from US $151413 in 2014 to US $124580.  Finally, it can be said that the attributable profit, revenue and the dividend declaration of the corporation can be considered as the performance measurement criteria for the corporation.

Discussion

 Consolidated Income Statement of BHP Billiton Limited

Figure 1: Consolidated Income Statement of BHP Billiton Limited

(Source: Bhpbilliton.com 2016).

Again, the analysis of the financial performance of Woolworths Limited includes the examination of the revenue and the net profit of the firm from the income statement of the corporation. The total revenue of the firm was recorded to be $60868 million during the year 2015 (Woolworthslimited.com.au 2016).  The revenue of the firm declined to $60868 from $ 60952.2 million recorded during the year 2014.  Again, the profit of Woolworths Limited was also recorded to be $2146 million during 2015 that declined from the figure of the year ago period (Woolworthslimited.com.au 2016). As such, on a statutory basis, after replication of the influence of important items, net profit after tax decreased 12.5% to $2,146 million (Woolworthslimited.com.au 2016). The total dividend paid by the corporation during the period 2014 was $907.1 million that increased to $912 million in the year 2015. Therefore, it can be hereby ascertained that although the profit for the year declined in 2015 as compared to the previous year 2014, the company declared greater dividend during the year 2015.  the dividend declaration per share of the company increased from $122 in 2011 to $126 in 2012 per share. Thereafter, it increased to $133 in 2013 and to $137 in 2014 and subsequently to $139 in 2015 per share (Woolworthslimited.com.au 2016). The financial performance of the company Woolworths Limited can be regarded to be disappointing. On the other hand, the revenue of the corporation CSR Limited has increased from $1746.6 million in 2014 to $2023.4 million in 2015. However, the profit for the duration of the corporation CSR Limited increased from $80.5 million in 2014 to 146.5 million in 2015 (Csr.com.au. 2016). However, the analysis of the balance sheet of the company CSR Limited also reveals the fact that the total asset of the corporation also increased during the period 2015 as compared to the previous year’s figure (Csr.com.au. 2016).

Comparison of the financial position of the three corporations in terms of revenue

Particulars

2015 USD million

BHP Billiton

$44636

Woolworths Limited

$60868

CSR Limited

$2023.4

Comparison of the financial position of the three corporations in terms of dividend declaration

Particulars

2015 (Amount in million $)

BHP Billiton

6600

Woolworths Limited

912

CSR Limited

68

As per the annual statement of the company Woolworths Limited, the remuneration structure of the report upholds the achievements of definite business outcomes that can ensure delivery of value of the shareholders (Devine 2012). The remuneration framework of the company Woolworths Limited includes the total fixed remuneration, variable reward that constitutes the total reward potential. The total fixed remuneration includes the base salary, superannuation and the car as well as other benefits. However, the variable reward includes the short term incentive plan and the long term incentive (Doupnik and Perera 2012). The short term incentive plan of the company that is essentially linked to the performance of the firm declined to 0.14% in 2011, 0.12% in 2012, 0.14% in 2013, 0.13% in 2014 and finally to 0% in 2015 (Woolworthslimited.com.au 2016).  

Comparison between companies

 CEO remuneration of Woolworths Limited

Figure 2: CEO remuneration of Woolworths Limited

(Source: Woolworthslimited.com.au 2016)

The long term incentive plan enumeration remains same with previous years that is the weighted 50% as against comparative total shareholder return (TSR) as well as 50% as against cumulative average EPS (Woolworthslimited.com.au 2016). However, the performance period for the long term incentive plan is reduced from 5 years to 3 years.  the long term incentive plan is also linked to performance of the firm.  The company Woolworths Limited has the People Policy Committee that oversees the remuneration policies of the organization (Woolworthslimited.com.au 2016).  Again, the independent auditor of the firm, Deloitte, declares that the remuneration report of the firm are prepared and presented in compliance with the 300A Corporation Act 2001.  As per the report, it can be hereby ascertained that the management of the company makes payment of $3806 during the year 2015 to the chief executive officer (Woolworthslimited.com.au 2016).

Linkage of remuneration with the performance (EBIT) of Woolworths Limited 

Figure 3: Linkage of remuneration with the performance (EBIT) of Woolworths Limited

(Source: Woolworthslimited.com.au 2016)

On the other hand, the analysis of the remuneration report of BHP Billiton Limited replicates the fact that the company has a remuneration committee oversees as well as monitors the remuneration strategy of the firm. This committee also formulates the remuneration strategy that supports the implementation as well as achievements of the group and aligns the same with the ongoing performance of the corporation (Duska et al.  2011). The remuneration strategy of the firm follows the charter that too in turn can serve the interests and enhance the value of the shareholders of the corporation (Freeman 2011).  Like the remuneration structure of the Woolworths Limited, the remuneration framework of BHP Billiton Limited is also directly linked to the performance of the corporation.  However, the remuneration report of BHP Billiton Limited is essentially governed by different legislations in the nation UK and Australia (Bhpbilliton.com 2016).  The company therefore follows the UK Companies Act 2006 along with the large as well as the Medium Sized Companies as well as Groups for the formulation of the remuneration report in UK (Bhpbilliton.com 2016). Nevertheless, in Australia, the remuneration report follows the requirements of the Australian Corporation Act 2001, Australian Accounting Standards along with the IFRS.  As per the remuneration report, the components of the remuneration consists of the base salary, pension, benefits, short term as well as long term incentive. The total remuneration of the CEO is registered to be USD 4582000 in 2015. However, the remuneration of the CEO during the financial year 2014 was recorded to be USD 7988000.

Comparative assessment of the Financial Performance

 Remuneration structure of CEO of BHP Billiton

Figure 4: Remuneration structure of CEO of BHP Billiton

(Source: Bhpbilliton.com 2016).

As per the annual statement of the corporation CSR Limited, it can be hereby ascertained that the management of the company prepares the remuneration report in compliance with the 300A of the Corporations Act 2001 as well as the Corporations Regulations 2M.3.03. The variable fraction of the remuneration of CSR Limited is also related to the performance of the firm. The remuneration report reveals the fact that the total remuneration of the CEO is recorded during the latest year. The elements of the remuneration structure also differ from the remuneration reports of the other two corporations. The components of the remuneration of the CSR Limited include the salary, taxable benefits as well as annual bonus (Csr.com.au. 2016)

 Remuneration of CEO

Figure 5: Remuneration of CEO

(Source: Csr.com.au. 2016)

The CSR Limited is a for profit entity listed in the Australian stock Exchange. The annual statement of the company comprises of the financial declarations of the group as well as its controlled business entities. As per the compliance declaration in the annual statement of the company CSR Limited, it can be hereby ascertained that the general purpose financial report of the company is in conformation with the Corporation Act 2001 (Aasb.gov.au. 2016). In addition to this, the general pupose financial reports is also prepared after taking into consideration the implementation as well as interpretation of different accounting principles as stipulated under the Australian Accounting Standards Board. The conformation with the accounting principles makes it certain that the financial declarations of the firm are presented as per the International Financial Reporting Standards (Scott 2012). The basis of measurement used in the financial statements also conforms with the conceptual frame of accounting and therefore, the financial measurements are based on historical cost except certain assets and liabilities (Rankin 2012). The conceptual framework also includes the recognition criterion. CSR Limited identifies revenue at fair value given different conditions. The leases are entered in the financial accounts on a straight line basis over a certain period. In addition to this, the borrowings are identified at fair value and the payables at amortised cost. Several items are measured as per the recognition criterion as mentioned in the accounting standards (Wolk et al.  2013). The management of the Woolworths Limited prepares and presents the General Purpose Financial Reports in accordance with the Corporation Act 2001 and the Australian Accounting Standards as well as Interpretations, International Financial Reporting Standards (IFRS) (Ifrs.org. 2016). In addition to this, the financial statements also conform to other obligations of law (Source: Woolworthslimited.com.au 2016). Like the CSR Limited, the revenue of CSR Limited also recognizes the revenue at fair value. In addition to this, the trade as well as the other receivables is identified at fait value as it is in CSR Limited. However, the goodwill reflects the cost of acquirement over the fair valuation. In addition to this, the equity instruments are also identified at fair value after the initial recognition (Aasb.gov.au. 2016). The general purpose financial reports therefore comply with the AASB Conceptual Framework. Similarly, the bhp Billiton follows the regulations laid down under the Corporation Act 2001 UK Companies Act and the Australian Accounting Standards Board (Austlii.edu.au. 2016).

Comparison of the conceptual framework

Company

Accounting Standards and Regulation

Woolworths Limited

Corporation Act 2001 and the “Australian Accounting Standards as well as Interpretations, International Financial Reporting Standards (IFRS)”

CSR Limited

Australian Accounting Standards and the Corporations Act 2001, Accounting Standard AASB 101 Presentation and preparation of Financial Statements along with the consolidated financial statements adhere to International Financial Reporting Standards

BHP Billiton

“International Financial Reporting Standards (IFRS)”, outlined by the “International Accounting Standards Board, and as outlined in note 4”

The significant issues in the accounting policies that the audit committee of BHP Billiton takes into consideration orients around the carrying value of different long term assets, tax and royalty liabilities, demerger of South 32, closure and rehabilitation provisions (Bhpbilliton.com 2016). Similarly, the management of the company Woolworths also faces critical issues and high degree of risk as well as complexity in adjustments of carrying amounts of different assets and liabilities within the subsequent period that are included in the notes numbered 12,13,16 and 17 (Woolworthslimited.com.au. 2016). 

The accounting issues identified in the Woolworths Limited include the discount rates, assumptions of employee benefits, actuarial assumptions. The cash flows of the organization are discounted using a pretax rate that in turn replicates current assumptions of the market regarding the time value of money and there are risks specific to the liability (Woolworthslimited.com.au. 2016). Again, the estimations used for the future employee benefits takes into consideration the future salary as well as wages and are likely to have material impact (Legislation.gov.au. 2016). Furthermore, the actuarial assumptions by the management of Woolworths Limited are likely to have material impact and can be considered as a critical accounting issue. Again, the accounting issues recognized by the audit committee of CSR Limited include the application of the materiality that is regarded as the magnitude of the particular misstatements in the financial statements (Csr.com.au. 2016). The accounting issues also arise out of the material misstatements and the scope of the audit. In addition to this, there are also issues regarding opinions on Remuneration Report of the director as per the Companies Act 2006 and the strategic report.

Conclusion

The above mentioned report hereby presents a comparative analysis of three different companies that include the BHP Billiton Limited, CSR Limited and the Woolworths Limited. The comparative evaluation helps in understanding the similarity as well as the dissimilarity between three companies and the differences in the financial performance. In addition to this, the current study also helps in gaining deep understanding regarding remuneration report and helps in carrying out a comparative analysis of the remuneration report declared by the three different corporations. Furthermore, the present report also expounds in detail the compliance of the financial statements of the firm with the conceptual framework of the general purpose financial reports. Finally, the study sheds light on different aspects of the accounting issues that are identified while preparations well as presentation of the financial statements of the firm as stated in the annual reports of the respective corporations.

References

Aasb.gov.au. 2016. Australian Accounting Standards Board AASB - Home. [online] Available at: https://www.aasb.gov.au [Accessed 9 Sep. 2016].

Arnold, V. 2011. Advances in Accounting Behavioral Research. Bradford: Emerald Group Pub.

Austlii.edu.au. 2016. Australasian Legal Information Institute AustLII. [online] Available at: https://www.austlii.edu.au [Accessed 9 Sep. 2016].

Bhpbilliton.com. 2016. BHP Billiton | A leading global resources company. [online] Available at: https://www.bhpbilliton.com [Accessed 9 Sep. 2016].

Bragg, S. 2011. Wiley GAAP 2012. Hoboken, NJ: John Wiley & Sons.

Csr.com.au. (2016). CSR Building Products - a leading building products brand in Australia & New Zealand. [online] Available at: https://www.csr.com.au [Accessed 7 Sep. 2016].

Devi, S. and Hooper, K. 2012. . Accounting in Asia. Bingley: Emerald.

Devine, C. 2012. Accounting theory. Routledge.

Doupnik, T. and Perera, M. 2012. International accounting. New York: McGraw-Hill Irwin.

Duska, R., Duska, B. and Ragatz, J. 2011. Accounting ethics. Chichester, West Sussex, U.K.: Wiley-Blackwell.

Freeman, R. 2011. Governmental and nonprofit accounting. Boston: Prentice Hall.

Hong Yang, H., 2012. Western concepts, Chinese context: A note on teaching accounting offshore. International Journal of Pedagogies and Learning, 71, pp.20-30.

Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D., Tan, R. and Willett, R., 2012. Accounting. Pearson Higher Education AU.

Ifrs.org. 2016. IFRS - Home. [online] Available at: https://www.ifrs.org [Accessed 9 Sep. 2016].

Legislation.gov.au. 2016. Federal Register of Legislation. [online] Available at: https://www.legislation.gov.au [Accessed 9 Sep. 2016].

Rankin, M. 2012. Contemporary issues in accounting. Milton, Qld.: John Wiley and Sons Australia, Ltd.

Rankin, M., Stanton, P.A., McGowan, S.C., Ferlauto, K. and Tilling, M., 2012. Contemporary issues in accounting. John Wiley and Sons Australia, Limited.

Scott, W. 2012. Financial accounting theory. Toronto: Pearson Prentice Hall.

Wolk, H., Dodd, J. and Rozycki, J. 2013. Accounting theory. Thousand Oaks: SAGE Publications.

Woolworthslimited.com.au. (2016). Quality Brands and Trusted Retailing - Woolworths Limited. [online] Available at: https://www.woolworthslimited.com.au [Accessed 7 Sep. 2016].

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