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Application Generally Accounting Principles

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Question:

Discuss About The Application Generally Accounting Principles.

 

Answer:

Introduction

BlueScoop Steel ltd is engaged in production of steel and the company operates in Australia. The company has its headquarters in Melbourne, Australia. The company was demerged from BHP Billiton and was formerly known BHP Steel. The main products which are manufactured by the company includes steel slabs, hot rolled coil, galvanized steel and colorbond brand pre-painted steel (Bluescopesteel.com. 2018). The company has diversified its business in other countries as well which includes New Zealand, Pacific Islands, North America and Asia.

As per the annual reports of the business, the company core activities is related to manufacture of steel which can be used by different industries. The company develops coated and painted steel for which as per the annual reports of the company for 2016, the sales growth has risen by 9%. The primary focus of the business is to achieve growth in the operations which the business has started in Asia. The focus of the business is to minimize the cost of the business and thereby reduce the price of the products.

 

Accounting Policies followed by BlueScoop Steel

As per the analysis of the financial statement of BlueScoop Steel ltd, the accounting policies and the disclosure requirements as per the Accounting standards are  appropriately disclosed in the disclosures which are provided for the financial statements. The business follows consolidated approach in the preparation and presentation of the financial statements of the business (Hofmann and Lampe 2013). The company takes all the revenues and expenses which are earned and incurred during the year for the entire group and then present the financial data in a combined way. The company follows revenue recognition concept which is made clear by the explanations which is provided in the financial statements of the company. As per the disclosures which are provided, Revenues are identified when the risks and rewards which are associated with ownership have passed to the purchaser of the goods. The Group follows the policy of identifying the revenues when the same can be reliably measured (Matsunaga, Wang and Yeung 2013).

As per the policies of the management of BlueScoop Steel ltd, trade receivable in the business are recognized following fair value and then it is recorded at amortized cost by following effective interest method. The inventories of the business are recorded as per the general provisions for recording and measurement of inventories as stated in accounting standard which is stated at lower of cost and net realizable value (Zhang et al. 2015).

As per annual reports prepared by the company, the company follows AASB 101 presentation of the books of accounts. The company has adopted the amendments which are made to the accounting standards as shown in the notes to accounts of the company. The company has not yet adopted the amendments which were made to AASB 16 leases accounting and the same is to be adopted by 2019. The basis of preparation section which is shown for 2016 in annual reports shows that the business follows all the effective standards which are issued by AASB and IFRS for the purpose of effective presentation of the financial statement of the company (Joubert, Garvie and Parle 2017). The basis of preparation section which is shown in the notes to accounts section of the annual reports of the business shows that the annual reports are prepared following historical costs method except for derivative financial instruments and emission units which are in New Zealand. In addition to this, as the business has expanded its business in foreign countries like New Zealand, Pacific regions, Asian Countries, therefore it is very important for the business to properly account for the foreign transactions in which the business engages. The business follows consolidated approach for showing the revenues and expenses of the entire group and therefore the business needs to follow AASB 121 for the purpose of effective disclosures and requirements which are related to foreign exchange transactions.

Flexibility in Choosing Accounting Policies

As per the financial statement of the company, it is clear that the business follows the relevant accounting standards which are issued by AASB which are applicable to the business for the purpose of effective representation of the financial statement of the business. The company in general has the options of choosing from the generally accepted accounting principles (GAAP) as to which policies can be adopted by the business so that the financial statements are fairly represented and also can follows the standards which are issued by IFRS and International Accounting Standard Board (IASB) (Ruppel 2016).

The financial statements also show that there are certain amendments which have been made to certain standards which the company has not yet adopted but will be adopting at a future date. The management has flexibility in the choice of the accounting policies which are to be followed by the business. The management can choose different polices for the purpose of recognizing impairments and also follow a different depreciation method for the purpose of calculating the depreciation which is associated with the assets of the business. The management of the company has the option of not adopting the amendments which are made in the accounting standards for the current year and adopt the same at a future date. The company as per the financial statements which is presented for 2016 shows that there were certain amendments which are yet to be adopted by the company and the same will be adopted at a future date as per the annual reports of the business.

 

Accounting Strategy Related to the Accounting Policies of BlueSccop Steel

As per the financial statement which is prepared by the company, the company follows the accounting policies which are generally used by businesses for the purpose of preparing the financial statements of the company. The various accounting policies along with their respective strategies are explained below in details:

  • Revenue Recognition: The business follows the revenue recognition policy which is revenues are recognized on an accrual basis and the revenues are recognized when the management is sure that the revenue will be effectively earned by the business and the economic benefits associated will flow to the business (Ciesielski and Weirich 2015). This policy allows the business to show the actual earnings of the business and not just the cash earnings of the business and therefore the business is able to show a proper financial statement of the company to the investors. In addition to this, the business can better represent the financial position of the business.
  • Basis of Preparation: The company has the policy of showing the revenues, expenses, assets and liabilities of the business in a consolidated form rather then showing them individually. This allows the business to show the individual performance of the group as well as a consolidated performance. The main strategy of the management is to show the total revenue which the business is able to generate for the entire group and thereby show the total performance which the business is able to achieve during the period. The company prepares consolidated form of annual reports so that investors can review the business performance of the entire group.
  • Foreign currency transaction: The business follows the policy of consolidation and therefore the business needs to translate the revenue which the business generates into values of currency which is followed in home currency and therefore such can integrated in a single format Faires et al. 2014). The main purpose of the management for such an integration is to allow the business to compare the financial performance of every single member of the group and also show the same in combine form in the annual report of the business.
  • Depreciation and Valuation of Assets: The assets of the business are shown in the annual reports as prepared by the business at historical costs less depreciation and impairment losses are adjusted from the same. The business currently uses straight line method of charging depreciation. In the same way the business can follow other method of charging depreciation as per the policies of the business.

Disclosures of Financial Statements

The disclosures to financial statements which are made by the business are considered to be important for the purpose of ensuring that the investors get the clear idea as to what policies, standards and treatments are followed by the company for the purpose of effective presentation of the financial statements of the business. As per the annual reports of BlueScoop Steel ltd, the company has effectively shown all the important disclosures which are required to be shown in the notes to accounts section of the annual reports as prepared by the business. Some of the important disclosures which are depicted in the notes of accounts of the company are explained below:

  • Segment Reporting: The notes to accounts of the annual report 2016 shows effectively the revenue and expenses which are earned by the business for the period and that too from different regions in which the business operates (Kang and Gray 2013). This segregates the revenue and expenses of the business and thereby effectively shows the individual performance of each unit operating in different countries.
  • Revenue Recognition: The disclosures which are related to revenue recognition are effectively shown following the relevant accounting standards as in force in the country. The disclosures effectively show segregation between the main sources of income which the business can generate from the core activities of the business and the other source incomes of the business which can be generated from side income sources. This is an important disclosure which are important for the business as the investors are informed about the core business activities of the business and also how much the business is able to earn revenues.
  • Income Tax: The business also shows the income tax which the business incurs during the year in the annual reports for 2016. The disclosures which are associated income tax shows the various items which are shown in the balance sheet of the business such as deferred tax assets and liabilities which the business has and which is shown in the annual reports of the business (Robinson, Stomberg and Towery 2015). The disclosure is important as it shows the causes which are associated with the difference in the income expense which is shown in the profit and loss account and the income tax expenses which is actually paid by the business during the period. The income tax disclosures also show the temporary difference which is a cause for the difference in income tax expense of the business.
  • Tangible and Intangible Assets: The disclosures which are shown in the annual reports of the business shows the treatments which are associated with tangible assets like property, plants and equipment and intangible assets of the business. The disclosures provide appropriate information about the depreciation and impairments loss which are associated with the assets of the business.
  • Provisions: These disclosures provide information as to how the management ascertained the provisions of the business and what are the estimates which are considered by the management to arrive at the provision which are made during the period.
 

Questionable Accounting Numbers

The management has applied judgements and estimates in certain areas while preparing the annual reports of the business. One of these areas is the provisions for which the management has applied judgments which might not be accurate and therefore it might lead to inaccurate presentation of the financial statements of the company. The financial statements thus also depend on the judgements of the business.

The accounting for financial in instrument might get affected as the business has not implemented the amendments which were made in the accounting standards and this might affect the treatments and values which are shown in the annual reports of the company for the period. The treatment of leases transactions are also done with following the amendments which are made to the accounting standard which is related to lease accounting. This might also cause an effect on the values of the assets which are accounted for following the lease accounting standard. The deferred tax assets which is shown in the financial statement of the company is also of questionable amount as it majorly relates to previous years tax transactions which have been carried forward by the business.

Treatment of Questionable Accounting Numbers

As per the above paragraph, the questionable accounting figures which appear in the annual reports of the business can effectively be taken care of by simply adopting the amendments which are made to the accounting standards to which the transactions are related to and thereby ensure that the financial statements are effectively prepared. The management needs to implement the changes in the accounting process of the business following the amendments which are made to the accounting standards and respective accounting areas of the business.

In addition to this, the management can provide more transparency if the deferred tax assets which are related to past year tax transactions are appropriately disclosed in the financial report of the business.

 

Analysis of the Financial Performance of BlueScoop Steel

As per the auditor’s report, the financial statements of the company for the year 2016 is showing true and fair view. The net profit of the company has increased significantly from previous year which shows that the company is developed and grown. The growth in net profits of the business is in itself a financial indicator that the business has grown significantly. The profit of the business has increased to $ 416.3 million in 2016 from a figure of $ 177.1 million as per the annual report 2016. The earning per share of the business has increased which shows that the company follows the strategy of wealth maximization and thereby meets the expectation of the shareholders of the company.

 

Reference

Bluescopesteel.com. (2018). We've Moved! - BlueScope Corporate. [online] Available at: https://www.bluescopesteel.com/ [Accessed 4 Jun. 2018].

Ciesielski, J.T. and Weirich, T.R., 2015. Revenue Recognition: How It Will Impact Three Key Sectors. Journal of Corporate Accounting & Finance, 26(3), pp.31-39.

Faires, E.B., Lucas, J.M., Bohanan, Y.M., Elwy, S.B. and Typrin, J.P., Bank of America Corp, 2014. Foreign currency solution. U.S. Patent 8,818,868.

Hofmann, E. and Lampe, K., 2013. Financial statement analysis of logistics service providers: ways of enhancing performance. International Journal of Physical Distribution & Logistics Management, 43(4), pp.321-342.

Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. The Journal of New Business Ideas & Trends, 15(2), pp.1-11.

Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.

Matsunaga, S., Wang, S. and Yeung, P., 2013. Does Appointing a Former CFO as CEO Influence a Firm’s Accounting Policies?.

Robinson, L.A., Stomberg, B. and Towery, E.M., 2015. One size does not fit all: How the uniform rules of FIN 48 affect the relevance of income tax accounting. The Accounting Review, 91(4), pp.1195-1217.

Ruppel, W., 2016. Wiley GAAP for Governments 2016: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments. John Wiley & Sons.

Zhang, L., Wang, S., Wang, L., Wu, Y., Duan, L., Wu, Q., Wang, F., Yang, M., Yang, H., Hao, J. and Liu, X., 2015. Updated emission inventories for speciated atmospheric mercury from anthropogenic sources in China. Environmental science & technology, 49(5), pp.3185-3194.

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