Analysis Of Financial Statements Of BHP Billiton

Qualitative Characteristics of Financial Reports

Discuss about the Experiences Of Corporate Social Responsibility.

Analysis of the financial statements of any company plays a vital role in the arena of corporate accounting. These financial statements serve as the performance report card of the company’s annual performance. The importance of the consolidated balance sheet, comprehensive income statement, cash flow statement and the statement showing equity changes, cannot altogether be ignored, as they serve as the most important source of information for the stakeholders of the company. With these things at the very core of this report, it tends to provide examples of the various qualities of the financial statements, its environmental practices, the various information disclosures and some recommendations to the top management regarding the disclosure compliance. Along with this, acquisition related adjustments have been discussed. All these things have been compiled and discussed in the context of BHP, Billiton, which is the largest mining company in the world, in terms of the market capitalisation (Finance.yahoo.com, 2018). The aim remains to enquire into the various intricacies of corporate accounting with the help of a standard company, BHP.

The qualitative characteristics of any company’s financial reports is mainly consists of reliability, comparability, understand ability and reliability. Here, only the principles of comparability and relevance of the financial statements with reference to BHP’s financial statements.

Relevance: The relevance feature of the financial statements states that the financial reports and the statements must be relevant to the various kinds of needs of the different stakeholders of the company. As these, statements play a vital role in the economic decisions taken by the stakeholders, as a result of which the proper care must be taken in the preparation of the financial statements. Therefore, this involves reporting of relevant information whose omission could lead to vital repercussions. Dividend payment, total income for the period, net cash flow at the end of the year are some of the most relevant aspects of BHP’s financial statements, some of which have been listed below:

Comparability: Comparability of the financial statements is the most significant aspect with regards to the preparation of the financial statements. If the investors are not able to gauge the returns from the different financial reports, then the preparation of the financial reports would be worthless. Moreover, it is useful for identifying the trends in the performance as well as the financial health of the company. Some of the most compared items are net profit and the financial activities of the company, some of which of BHP have been provided below:

Relevance of Financial Statements for BHP

NHP, being one of the largest mining company of the world, consider it their foremost duty to protect the natural resources of the earth, in whatever way possible. The company has a special portion in its annual report, which caters to the sustainability of the company and the concern for the other natural resources and the overall people in general.  Health, safety, environment and the welfare of the community are integrated into the daily activities of the company (BHP Billiton, 2018). The company has a separate section under the sustainability portion of the annual report, dedicated to the disclosure of the environmental reports. The company discloses the following portion under the head of environmental disclosure in its annual report:

• The environmental head of the annual report provides innate information in the report about vital economic and natural resources such as water, land and biodiversity.
• The company finances the ongoing environmental projects which are concerned with high biodiversity and ecosystem by way of setting specific targets. The company also uses lower quality water as and when feasible.
• Climate change is another area, where BHP has been playing a major role. It has joined hands with governments, other corporates and NGOs for protecting the climate. The company has worked in its Carbon Disclosure Project, which has resulted in significant reduction and improvement in the CDP scores since the fiscal year of 2013. The climate related disclosures of BHP has been provided below. It is aligned with the TCFD recommendations (Taskforce on Climate Related Disclosures), and has comprehensively stated all the TCFD recommendations, the disclosures in relation to them.

1. BHP has made a comprehensive and a robust disclosure report, which has almost touched almost all the important aspects of the company’s performance. Being a mining company, it has, reportedly disclosed various important aspects of its mining and other environmental related activities. The main heads of its disclosure reports are concerned with the following:

• Climate change
• Tax and Transparency
• Accurate and comprehensive annual financial statements
• Environmental report
• Anti-competitive policy
• Anti-corruption
• Energy consumption report.

The company has provided a sufficient amount of information about each of the topic which plays a vital role in its mining operations. Be it climate change or any other aspect of the environment, where the company has a significant amount of influence due to its mining operations. BHP has also been very efficient in the presentation of its energy consumption by stating the greenhouse emissions of the company. Along with this, the company has also been very vocal about the anti-corruption as well as the anti-competitive policy, with a view of being an example to the other companies in and around the world. Thus, it can be said that the company has become very vocal about all the important things associated with its business, which can lead to the establishment of the fact that the company has provided sufficient amount of items in its disclosure reports.

The two most important recommendations to the management of BHP for strengthening its compliance with the disclosure reports of the company are as follows:

• One of the most important aspects of the disclosure reports of the company is the accurate, friendly and adequate representation of all the important aspects of the company. This requires the company, to provide a robust, pictorial presentation of all the data associated with the company’s financial performance along with the company’s environmental, biodiversity reports. Only when the users of the financial information could understand the financial reports of the company, then only it will be considered as successful. BHP must properly publication of pictorial presentation of data more extensively.
• The company must also try to present the environmental impact and climate change reports more quantitatively, by way of graphs and tables. This will help the users of financial statements to have a better view of the reports. Along with this, the company must provide more past information about the environmental and other significant aspects of the sustainability report in order to provide a comparable report (Dobele, et al., 2014). For example, the environmental disclosure as well as the climate change report of the company for the year must be present in a tabular form with all the impact and implications of the previous year, such as 2016. This will create a comparable data, which will be more helpful in gauging the overall impact of the company’s ecological exploits, while performing its mining related activities.                                                                                                                                    

1. There are various important considerations which work behind the purpose of pre-acquisition entries in the preparation of the consolidated financial statements. Some of the most important ones are:

• To prevent the double counting of the assets of the concerned company.
• It is also done in order to prevent the double counting the equities of the concerned company.
• For the purpose of recognising any kind of gain or bargain purchase for the company.

1. There are two main conditions which are to be taken care of when the case of payment of dividend on the date of acquisition of the company is being done. The two conditions are as follows:

• Payment of Cum dividend: If on the date of acquisition, dividend is paid by the subsidiary company, in such a case, if it is found out that the dividend is declared and is included with the final amount, then that dividend is to be included and an entry must be passed in the books for it. Thus in the case of cum dividend, even if it is paid as on the date of acquisition, it would be considered and would be deducted from the total acquisition value of the amalgamation. This signifies the acceptance of the dividend as on the date of acquisition (Ljungvall and Patel, 2014). If during the middle of the year, if it is again repeated, then the normal process of taking the dividend into account is done by the company and is consequently adjusted in the consolidated financial statements at the end of the year.
• Payment of ex-dividend: If the subsidiary company is paying ex-dividend on the date of acquisition, then that dividend payment is not included and is consequently not accounted for during the preparation of the financial accounts.

The differentiation into the pre and post dividend portions are very significant from the financial perspective of the company. When the dividend is declared from the pre-acquisition profits and later on received by the buyer of the investment, then such amount of investment is completely deducted from the total cost of the investment. Therefore, dividend received from the pre-acquisition profit is known as pre acquisition dividend. Post-acquisition dividend is credited to the profit and loss account of the company, consequently, dividend received from the post-acquisition profits is known as the post-acquisition dividend (Mall, C.P. and Singh, 2013). For this purpose of differentiating their source of origination, these two dividends are separated from the by the suffixes of pre and post.4.      In the process of acquisition analysis, the monetary consideration transferred is compared to the different kinds of identifiable net assets of the subsidiary company which have been acquired. In addition to this, any goodwill which is present in the financial books of the subsidiary company does not qualify as an identifiable asset of the company. In the books of accounts of the subsidiary company, the goodwill is not at all considered, which has been recorded in the books of the subsidiary company.

In this case, there are two main methods of calculating goodwill which are the partial goodwill method and the full goodwill method. In each of these cases, there are separate treatment for the goodwill which is received from the subsidiary company on the date of the company (Lombrano and Zanin, 2013). In the case of the partial goodwill method, only the goodwill which is received from the transaction is recorded in the books of accounts of the company. This does not happen in the case of the full goodwill method. In the case of the full goodwill method, there are some reservations, in this case. The company includes both the goodwill which is received from the subsidiary as well as the one which is earned from the transaction of the company. The company ultimately calculates the differences between the two, which is ultimately taken as the goodwill of the parent company.

1. In the case, when the parent acquires a controlling interest in a subsidiary, the carrying amounts of the subsidiary’s assets are not equal to fair value, which is a common phenomenon, as there are certain adjustments which needs to be made in this regard.

Comparability of Financial Statements for BHP

One of the most important factors behind the compulsion of all these adjustments is the fact that there remains a net fair value of the assets which are actually acquired during the entire; process of amalgamation or consolidation.  When a particular company acquires any kind of assets due to the process of amalgamation from the group of assets of another company, then certain amount of adjustments becomes necessary (Ina and Adriana., 2013). This is because, when the company acquires any asset, during this process, the asset has some specific amount of fair value and a specific amount of market value. Difference between the two exists, all the time, as a result of this, to provide a true and fair view of the financial statements, the asset is shown in the current net value, in the consolidated financial statements. Failing to do so, would lead to payment of more taxes, if the market value or the book value has been considered, ignoring the net present value. This would cause a loss to the company.

Conclusion:

One of the most important aspects of corporate accounting is the presence of the disclosure reports of the activities of the company. It is one of the most significant performance measure of the company and deals with the important aspects of the various kinds of operations conducted by it under the radar. A company which is presenting a vivid portrayal of all the important aspects of the different disclosure reports of the company such as the environmental and bio diversity report, climate change report and other such material reports, those companies are considered the best ones. The same goes for BHP, which maintains a significant amount of dutifulness in publishing these reports. Along with this, the different aspects of the pre and post-acquisition adjustments and entries are also considered as important, which have been discussed here too. This vividly portrays the most significant aspects of corporate accounting through this report.

References:

BHP Billiton. (2018). BHP Billiton | 2016 Annual Reporting suite. [online] Available at: https://www.bhp.com/media-and-insights/reports-and-presentations/2016/09/2016-annual-reporting-suite [Accessed 19 May 2018].

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Finance.yahoo.com. (2018). BHP : Summary for BHP Billiton Limited – Yahoo Finance. [online] Available at: https://finance.yahoo.com/quote/bhp?ltr=1 [Accessed 19 May 2018].

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Ljungvall, S. and Patel, I., 2014. Accounting Treatment of Goodwill under IFRS in the EU: The impact of enforcement.

Lombrano, A. and Zanin, L., 2013. IPSAS and local government consolidated financial statements—proposal for a territorial consolidation method. Public Money & Management, 33(6), pp.429-436.

Mall, C.P. and Singh, A., TAX AND ACCOUNTING ASPECTS OF MERGER & ACQUISITION. HermeneuticS, p.78.

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