ACC706 Accounting Issues and Theory Assignment Help

ACC706 Accounting Issues and Theory Assignment Help

ACC706 Accounting Issues and Theory Assignment Help


The intention of General Purpose Financial Reporting is to communicate reliable and relevant information to the users by the reporting corporation. It is essential that the General Purpose Financial Statements comply with the norms applicable under Australian Accounting Standards. These standards are issued by the AASB or Australian Accounting Standards Board. This ensures corporations to maintain transparency and accountability and meet the requirements of the users (Alexander, 2008). Under this context the AASB has revised the conceptual framework of accounting by introducing The Exposure Draft which will stress on more areas in the conceptual framework which is existing in much greater detail; clarify some of the areas in the conceptual framework and update areas in conceptual framework.

The researcher has undertaken an analysis on BHP Billiton, an Australian multinational mining and petroleum company headquartered in Melbourne, Australia. BHP Billiton is considered as the world’s biggest mining company in terms of market value as reported in 2015. The company’s latest annual report did not include everything required under a full and complete annual report. Moreover the comparative figures reflected on the statements for the financial year ending 30th 2016 does not match with the statutory accounts of the company for that particular financial year. Again, the reports presented by the auditors are unqualified.

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Financial Report Analysis

The financial report of companies differs from one another depending upon the nature, characteristics and range of their operations. In this report the researcher will deal with the Australian based mining giant, BHP Billiton. It is necessary for companies to present a true and fair view of financial report and instruments to their users in the best possible way so that it becomes easier for the users to make economic decisions on the basis of the same. Every company prepares financial report in terms of general purpose financial reporting and this must be in compliance with the Corporation Act 2001 of AASB (Australian Accounting Standards Board) and the Urgent Issues Group Consensus Views (Antill and Lee, 2008). BHP Billiton Group has been consistently applying accounting policies and the same are constant with that of the previous year. The financial report of BHP Billiton Group involves combination of BHP Billiton Plc, BHP Billiton Limited and their subsidiaries. The share of the external shareholders of BHP Billiton, in case where the Group’s share is below 100%, is shown in outside equity interest. Under this circumstance, the impact of the transactions among the entities within the Group gets removed. This is the Principle of consolidation followed by BHP Billiton Group.

Intangible assets

The amount paid for intangible assets, both identifiable (e.g. trademark, patent and licenses) and unidentifiable ones (goodwill) are first capitalized and later amortized on the basis of straight line over its expected life; but not exceeding a period of twenty years. According to IFRS 3, Goodwill instead of being amortized is tested annually for impairment (Christian and Lu?denbach, 2013).


The investments are accounted for by making use of the equity method of accounting in joint-ventures. Under this method, BHP Billiton Group adjusts the cost of investment.

Sales Revenue

The company recognizes revenue from disposal of assets or sale of goods only when there is certainty that revenue from sale of goods will flow to the organization. It can either be in the form of an implemented sales agreement or any such arrangement that indicates risk and rewards transfer to any customer. BHP Billiton does not require any more processing after this.


The company follows the policy of valuing inventories at lower of cost and net realisable value, including the one’s work-in-progress. Initially determination of cost is done based on the average cost. In many of the cases the company makes use of FIFO method or First-In-First-Out method or the method of actual cost. The cost for inventories which are processed is derived on the basis of absorption costing (Christian and Lu?denbach, 2013). The cost involves amount spent on acquiring raw-materials and the production cost, which comprises of manufacturing and mining overheads. The Inventories according to IFRS 3, are valued on at net selling price on acquisition minus a reasonable allowance in profit.


For resource rent tax and income tax, the tax-effect accounting is applicable. The organization structure has not accounted for income tax on the undistributed income of its other entities or subsidiaries on the rationale that the income will stay invested in those subsidiaries (IASB, 2002).


The introduction of sustainability report made by CEO contains information on non-monetary incentives that are designed to identify sustainable performance in relation to HSEC Awards program. A statement exists in concern to the sustainability supplementary information that BHP remuneration policy contains the application of performance measurement aligned to HSEC (Health, Safety, Environment and Community) elements. The same has been confirmed in the Remuneration Report of 2010, that’s states “Assessment of Performance is concluded by a well-adjusted panel of measurement that incorporates financial performance, health, safety, environment and community (HSEC) jointly with efficient capital placement and specific performance. A clear diagram on p.152 of the remuneration report states the detail of “people” and “license to operate” as a non-financial drivers of strategy that are sustained by the organisation’s policy on remuneration. The “people” driver is wilfully supported by the competitive rewards, while the “license to operate” driver is reinforced by involving remuneration to performance in the areas of HSEC (Health, Safety, Environment, and Community). Approximately, 15% of STI for GMC participants are measured against the HSEC criterion, while the group’s performance in the areas of HSEC influences Short Term Incentive (STI) for all the administrators. The committee of Remuneration has a dominant preference to minimise incentive outcomes to replicate below the environmental act or target security. Apart from that, additional information on Key Performance Indicator (KPI) for Short term Incentive (STI) is available on p.159 which indicates the HSEC’s plan on Total Recordable Injury Frequency (TRIF) that highlights the fact that it only focuses on the safety. A universal approach is said to be taken in the year 2011. The measures will focus on the elements of safety and risk management in relation to the mortalities and substantial environmental proceedings (IASB, 2007). It is essential for all operations to complete the Human Rights impact assessment under the articles of the United Nations Universal Declaration of Human Rights to assess the elements wisely. All these key elements play a crucial role in the development of outlining the theoretical aspects of accounting. 

Theory Support

The general purpose financial report for the year ended 31st December 2015 of BHP Billiton has been prepared complying with the requirements of Australian Corporations Act 2001 where conceptual framework of accounting is maintained. As the AASB is equivalent to that of the International Financial Reporting Standards, in Australia, hence BHP Billiton has also complied with the norms of IFRS.

The following is the declaration by the Directors of BHP Billiton Group:

  • The financial statements produced by the company are in compliance with the Australian Corporations Act 2001. They are in accordance with the Australian Accounting Standards Board and reflect a true and fair view of the company’s financial position for the year ended 31st December 2015 and their performance in the same date (IASB proposals to amend certain international accounting standards, 2002).
  • The report presented by the Directors reflect a true and fair review of performance and development of BHP Billiton Group and their financial position and the subsidiaries which has been included during consolidation while presenting the whole scenario altogether accompanied by explanation of the principal uncertainties and risks those  are faced by the Group.
  • As per the Directors of the company BHP Billiton Group, BHP Billiton Plc and BHP Billiton Limited there are enough reason to ensure that debts will be paid the time they become due or payable. The CEO and the CFO give declaration to the directors as required by Section 295A of the Corporations Act 2001 (IASB proposals to amend certain international accounting standards, 2002).

As per the requirement of IFRS it is essential for preparation of Interim financial statements for certain periods. Whether a company is presenting complete or condensed interim financial statements; the following information are essential to be included in these:

  • A statement of financial position as occurring at the end of the present interim period along with comparative statement of financial position as reflected at the end of the immediate preceding year.


Prudence in general terms refers to the practice of recognizing foreseeable expenses and losses and prolonging the recognition of the uncertain incomes and gains. This ensures that the profits of the organization are not overstated and that the business marketing is prepared for the adverse events in the near future. Prudence has always formed a part of the financial statements across the globe which was the same with the conceptual framework prepared by the IASB till 2010 however the same was withdrawn (McEwen, 2009). However according to the exposure draft published in June 2015 IASB proposes to reintroduce the concept of prudence. The problem with the concept of prudence is supposed definition of prudence which is quite indefinite and has a huge scope. In other words the definition is ambiguous and hence the reference to the same was excluded post 2010.

Accounting assumptions and estimation made by the management of an organization have an impact on the financial performance of the organization. The management have a number of reasons which prompt them to overstate or understate profits of the organization. Quite often than not the top officials of the organization have stakes in the concern in the form of shares received through stock options or some other arrangements (Nguyen and Molinari, 2011). Overstating profits generally has a positive impact on the price of shares and hence is good for the officials as it brings about an increase in their net worth. Understating profits on the other hand allows the organization to plough back profits in the form of reserves which can be used to smoothen out the losses in future (Ramirez, 2007). It is for these reasons the term reasonable judgement or prudence has always been tricky as there is no standard or a set definition. However considering the nature and the role of financial statements it becomes quintessential to prepare them following the principle of prudence. The current confusion regarding prudence is due to the definition used in the pre 2010 conceptual framework which stated “The preparers of financial statements do, however, have to contend with the uncertainties that inevitably surround many events and circumstances, such as the collectability of doubtful receivables, the probable useful life of plant and equipment and the number of warranty claims that may occur. Such uncertainties are recognised by the disclosure of their nature and extent and by the exercise of prudence in the preparation of financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, ….”. The definition according to a sect was more focused on the overstatement of profits but did little to address the issue of understatement of profits. Hence the statements or in other words the financial statements should be prepared in such as way so that assumptions are made and applied neutrally. The major focus should be on the depiction of the true and fair view of the operations and the financial position of the concern (Zingel, 2006).  

Conclusion and Recommendation

Considering the fact the financial statements are used or relied upon by a number of users the same should be free from material misstatements and as has been mentioned previously should depict the true and fair view of the financial position and the financial performance. It is for this reason that the actively traded investments should be stated at fair value. In cases where the instruments are not traded actively or don’t have an active market available the value of the same should be determined on the basis of arms length transaction. Currently there is too much complexity regarding effective interest rate and hence steps should be taken to expend debt issuance costs upfront. In addition to the same the hedge accounting should be done away with as they are not in line with the conceptual framework principals.  The standard currently applies a multitude of rules which are complex to understand and apply.

The financial statements prepared by BHP Billiton are in line with the conceptual framework and present a true and fair view of the financial position and the financial performance of the organization. The various components of the annual ACC706 Accounting Issues and Theory Assignment Help as have been mentioned previously have been prepared in conformity with the conceptual framework principles.


Alexander, D. (2008). The IASB: the standards and their widespread adoption. 1st ed. London [u.a.]: Routledge.
Antill, N. and Lee, K. (2008). Company valuation under IFRS. 1st ed. Petersfield: Harriman House.
Christian, D. and Lu?denbach, N. (2013). IFRS essentials. 1st ed. Hoboken, N.J.: Wiley.
IASB proposals to amend certain international accounting standards. (2002). 1st ed. [London]: Accounting Standards Board.

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