Afnr315 Advanced Financial Reporting Accounting Assessment Answers

Each group is to choose four stock exchange listed companies, two of which must be from manufacturing company and the other two must come from mining industry. Group members will then obtain the latest available annual report for each of their companies from the internet. Groups will be asked to submit a group report that analyses and compares the four companies on several accounting issues to be advised later.

The two companies can be from the same industry (Coles and Woolworths) or from different industries (Delta mining and BHP Billiton).

You have to be prudent and pragmatic on selecting the companies. They have to be large, substantial and must have available information for desk research. You are required to explore and collect information on the companies to complete this assignment. Substantial desk research is also required for this written report.

BHP Billiton is the Australian company that is engaged in the activities of development, exploration, processing and production of oil, minerals and gas apart from pre-development for potash. The operating segments of the company are potash and petroleum, iron ore, copper and coal. The company was established in the year 1885 and it has it’s headquarter in Melbourne, Australia. During the year 2001 Billiton company based in Britain and BHP company merged together to form the BHP billiton Group. Iron ore segment of the company mines the iron ore, copper segment of the company mines the the lead, silver, copper, uranium, gold, zinc and molybdenum whereas the coal segment of the company mines the thermal coal and metallurgical coal. The main objective of the company is to create long-term sustainable value for the employees, shareholders, suppliers, contractors, business partners and suppliers. Further the company, zero harm to the environment, host communities and people and the compliance with the industry practice. At present the company has 9 members in its board, out of which 8 directors are independent and 1 director is non-independent. Further, out of total 9 directors, 7 are non-executive directors. The company received the Skills Development Summit Achiever Award 2013 as the Best Public Sector Training Institution continuously for 3 years that is for the years 2011, 2012 and 2013. The company achieved the dominant position by combining good judgement and luck (BHP 2018).

On the other hand Woolworths Supermarket is owned by Woolworths Limited. The company was established in September, 1924 and at present it holds 80% of Australian super market. Headquarter of the company is in New South Wales of Australia. The main products of the company are groceries that include fruits, vegetables, packaged foods and meat. The company is also engaged in selling of DVDs, Magazines, household products, beauty and health products, stationary items and baby products. At present the company has more than 1000 stores all over Australia apart from 968 supermarket and 19 convenience stores that carries same logo. The company operates under 5 private or generic brand labels. Those are – Woolworths Select, Woolworths Homebrand, Woolworths Fresh, Macro Wholefoods Market and Woolworths Gold. The homebrand deals with products related to daily household requirements and the groceries, Woolworth select deals with wide range of products that include shampoo, food, potato chips and dog foods. The gold sector deals with the gold product, the Woolworths Fresh deals with yummy meals and fresh soups and the Macro Wholefoods deals with wide range of products for the families and various other products like vegetarian foods, organic foods and gluten free foods. At present the company has 8 members in its board, out of which 7 directors are independent. Further, of all the 8 directors 6 are non-executive director. The company is proud to get itself associated with the award that recognizes the young people’s achievements. Further, the company was named as the 3^rd best social media platform (Woolworthsgroup.com.au 2018).

Revenue recognition

As per AASB 15,BHP Billiton measures its revenue at fair values for the consideration received or the revenue that is receivable based on meeting of the recognition criteria as follows –

• Sale of the services and goods - revenue generated from sale of services or goods while the significant rewards and risks associated with the goods or services are passed on to the customer and when it is apparent that the revenue will be received (A Review of the IASB’s Conceptual Framework for Financial Reporting 2018). Further, the revenue to be recognized its amount shall be able to be measured reliably. However, based on the terms of the customers the recognition can be based on the issuance of bill of lading or while the company completes the delivery based on the agreement with customer.
• Sales priced on provisional basis – revenue generated from the sales priced on provisional basis are recognised at projected fair values initially that is receivable with regard to the relevant contractual or and forward price and the determined specifications on hydrocarbon or mineral (Cajaiba-Santana 2014). Consequently, the Sales priced on provisional basis are valued on marked to market basis at each of the reporting period till the time when the final settlement or final pricing is confirmed with the adjustment of fair value that is recognised for the revenue. Generally the period of final invoicing and provisional pricing is ranged from 60 to 120 days.
• Interest and dividend income – the income from interest is recognized on accrual basis through using the method of effective interest. On the other hand, the income from dividend is recognized while the company’s right for receiving the payment is established, generally declaration by the subsidiaries (Cheng et al. 2014).

As per AASB 15, Woolworths measures its revenue at fair values for the consideration received or the revenue that is receivable based on meeting of the recognition criteria as follows –

• Sale of the services and goods - revenue generated from sale of services or goods while the significant rewards and risks associated with the goods or services are passed on to the customer and when it is apparent that the revenue will be received (De Villiers, Rinaldi and Unerman 2014). Further, the revenue to be recognized its amount shall be able to be measured reliably. On the other hand, the revenue from service is identified on the basis of completion stage of contract with customer.
• The revenues are recognized after giving the effect of GST except where GST is incurred but the amount is not recoverable from taxation authority. In such circumstances, GST is treated as the part of expenses or the asset cost (Garrett, Hoitash and Prawitt 2014).
• Revenues generated from the contracts with the customers are recognized only after performance obligation is fulfilled and the controls on the services or goods are transferred at the selling point (Kogan, Sudit and Vasarhelyi 2018).

Asset recognition

The assets are recognized by both the companies on the basis of the compliance requirement stated under the corporate framework of the GPFR (general purpose financial reporting). Further, the companies recognize their asset if it is apparent that the future economic benefit from the asset will be the inflow to the company and the amount of the benefit can be measured reliably (Morioka and De Carvalho 2016). From the financial statement of BHP Billiton it has been identified that the company recognizes its asset in the following ways –

• Trade and other receivable – the company recognizes the trade receivables at the fair values initially and thereafter at the amortization cost through using the method of effective interest. The amount is reduced by the allowances for the impairment. Further the trade receivables are assessed by the company on continuous basis. The carrying value of trade and other receivables are approximately equal to the fair value of the receivables (Simnett and Huggins 2015).
• Inventories – irrespective of the inventory type and its stage of the production process the inventories are recorded at lower of the net realisable value and cost. Cost is primarily determined based on the average cost. For the processed inventories the cost is obtained on the basis of absorption cost.
• Plant, property and equipment – plant, equipment and property are recognised by the company at cost reduced by impairment charges and the amount of depreciation. Cost is determined on the basis of fair value of the consideration paid for acquisition of the asset when it is acquired.
• Intangible assets – the intangible asset like goodwill’s value is considered as the valued of the business acquisition exceeded from the value of identifiable asset, contingent liabilities and liabilities. The difference in the value is considered as the goodwill. If the consideration is lower than the fair value of acquired asset, contingent liabilities and liabilities then the difference is immediately recognised in the income statement of the company. The goodwill is recognized at cost reduced by the impairment loss, if any (Zhang and Andrew 2014).

On the other hand the assets are recognized in the balance sheet by Woolworths in the following ways –

• Trade and other receivable – the company recognizes the trade receivables at the fair values initially and thereafter at the amortization cost through using the method of effective interest. The amount is reduced by the allowances for the impairment. Generally, the receivables of the company have the terms of maximum 30 days.
• Plant, property and equipment – plant, equipment and property are recognised by the company at cost reduced by impairment charges and the amount of depreciation. Cost of the self-constructed assets takes into consideration the cost of direct labour, material and a part of the overheads. On the other hand, the cost of the development properties takes into consideration the cost of holding, borrowing and the cost of development till the completion of the asset (Kraal, Yapa and Joshi 2015).
• Intangible assets – intangible asset like goodwill is initially recognized at cost reduced by the amount of impairment loss, if any.

Liability recognition

In accordance with the requirement of GPFR (general purpose financial reporting) liability shall be recognized under the balance sheet it it is likely that outflow of resources will be taken place for the settlement of present obligation resulted from the past events and the amount for which can be reliably measured. BHP Billiton recognizes their liabilities as follows –

• Trade and other payables – amount for trade and other payables states the non-interest bearing payables. Carrying value of the payables are approximately equal to the fair value of the payables that records the liabilities for the services and goods provided to group before the end of the reporting period that remains unpaid.
• Interest bearing liabilities - interest bearing liabilities of the company are recognised at fair values initially after giving effect of transaction costs. Subsequently the borrowings are valued at the amortization cost through using the effective method of interest. Further, the borrowings are eliminated from balance sheet while the specific obligation mentioned in the contract is satisfied expired or cancelled. The variance among the carrying amount of the financial liability that is transferred or extinguished to any other party and consideration for the same has been paid that includes the non current asset that is transferred or the liabilities assumed is recorded under the income statement as any other finance cost or income (Jin, Shan and Taylor 2015).
• Finance lease liabilities – Liabilities related to finance leases have been recognised by the company. It is recognised at fair values initially for the amount of consideration received after giving effect of transaction costs subsequently the Boring sir visit at the amortization cost to the effective method of interest the bodies are eliminated from balance sheet by the specific obligation mention in the contract is satisfied expired or cancelled the variance among the carrying amount of the financial liability that is extinguished or transfer to any other party and consideration for that has been paid that includes the non current asset that is transferred or the liabilities assumed is recorded under the income statement as any other finance cost of income

On the other hand the liabilities are recognized in the balance sheet by Woolworths in the following ways –

• Borrowings - interest bearing liabilities or borrowings of the company are recognised at fair values initially after giving effect of transaction costs. Subsequently the borrowings are valued at the amortization cost. Difference, if any between the redemption value and cost is recorded under the consolidated profit and loss account during the period in which the borrowings are obtained.
• Trade and other payables – Woolworths recognizes its trade and other payables at the fair values and the carrying value of the payables are approximately equal to the fair value of the payables. It records the liabilities for the services and goods provided to group before the end of the reporting period that remains unpaid (Dakis 2016).

Conclusion 

It can be concluded from the above discussion and analysis that both BHP Billiton as well as Woolworths recognises the assets, liabilities and revenues as per the requirement of GPFR (General Purpose Financial Reporting). However, as the company’s operational activities are different as Woolworths is engaged in retail business and BHP Billiton is engaged in mining business the items recognised as assets, liabilities and revenues of the companies differ from each other. The companies however, recognise all the items in compliance with GPFR.

Reference

A Review of the IASB’s Conceptual Framework for Financial Reporting. (2018). [ebook] Australian Accounting Standard Board. Available at: https://www.aasb.gov.au/admin/file/content105/c9/ITC29_07-13.pdf [Accessed 17 Apr. 2018].

BHP. (2018). BHP Billiton | A leading global resources company. [online] Available at: https://www.bhp.com/ [Accessed 20 May 2018].

Cajaiba-Santana, G., 2014. Social innovation: Moving the field forward. A conceptual framework. Technological Forecasting and Social Change, 82, pp.42-51.

Cheng, M., Green, W., Conradie, P., Konishi, N. and Romi, A., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119

Dakis, G.S., 2016. Upcoming changes to contributions and leasing standards. Governance Directions, 68(2), p.99.

De Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), pp.1042-1067.

Garrett, J., Hoitash, R. and Prawitt, D.F., 2014. Trust and financial reporting quality. Journal of Accounting Research, 52(5), pp.1087-1125.

Jin, K., Shan, Y. and Taylor, S., 2015. Matching between revenues and expenses and the adoption of International Financial Reporting Standards. Pacific-Basin Finance Journal, 35, pp.90-107.

Kogan, A., Sudit, E.F. and Vasarhelyi, M.A., 2018. Continuous online auditing: A program of research. In Continuous Auditing: Theory and Application (pp. 125-148). Emerald Publishing Limited.

Kraal, D., Yapa, P.W.S. and Joshi, M., 2015. The Adoption of International Accounting Standard (IAS) 12 Income Taxes: Convergence or Divergence with Local Accounting Standards in Selected ASEAN Countries?.

Morioka, S.N. and De Carvalho, M.M., 2016. A systematic literature review towards a conceptual framework for integrating sustainability performance into business. Journal of Cleaner Production, 136, pp.134-146.

Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53.

Woolworthsgroup.com.au. (2018). Woolworths Group: Quality Brands and Trusted Retailing. [online] Available at: https://www.woolworthsgroup.com.au/ [Accessed 20 May 2018].

Zhang, Y. and Andrew, J., 2014. Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), pp.17-26.