Contemporary Financial Integrated Reporting

Discuss About The Contemporary Financial Integrated Reporting.

Introduction

The reflection of the operations that are carried out by a single corporate entity are presented in the accounting statements of the corporations that are published by the business entities at the end of the financial years. It can be further stated that the particular format in which these accounting reports are prepared have been established by the Australian Accounting Standards Board in Australia. This particular study aims to have an overview into the accounting statements of the corporate entities in order to ensure the fact that the accounting statements have been prepared in accordance to the regulatory standards that have been laid down by the accounting regulatory bodies in Australia.

The corporate entity that has been chosen for the purpose of the study is the BHP Billiton Limited and the particular company that has been chosen for the purpose of the comparison is Rio Tinto. This study also aims to have an overview into the accounting treatments and rules that have been utilized for the purpose of ascertaining the fact whether the financial statements have been prepared in compliance with the same.

Core business of the company

The core business of the chosen company that is BHP Billiton Limited is that the business organization has been one of the world’s leading resource companies. Furthermore, the corporate entity primary deals in the processing of the different natural resources like the minerals, gas and oil. The corporate organization holds a number of 60000 employees and carries out operations primarily in Australia and America. The products of the company are sold on a worldwide basis and particularly the marketing and the sales activities are carried out worldwide through Singapore, Houston and Australia. BHP has been one of the most popular corporate entities and has been listed on the Australian Stock Exchange. The global headquarter of the corporate

• The particular process of evaluation and exploration – this process is employed for the purpose of discovering the needs of the generations pertaining to the future
• The development of the studies for the purpose of extracting the maximum value from the resources
• The particular process of extraction and processing is utilized for the purpose of shaping the commodities in a safe and sustainable environment
• The rehabilitation and the closure procedure has been utilized for the purpose of combining rehabilitation and ongoing management

In regards to the competitive firm that has been chosen for the purpose of the study is Rio Tinto. The corporate entity of Rio Tinto has been operating for a time period of 145 years at a stretch. The corporate entity of Rio Tinto has been dealing in the production of the materials that have been essential to the human existence. The company has been dealing in the materials that are needed infrastructure, buildings and the network of the transports. The firm deals in a number of 47000 employees and carries an improved set of values. The particular operations that this firm deals in range between varieties of products like the iron ore, alumina, bauxite and aluminum. The other products that are produced by this corporate entity are diamonds, gold, silver and molybdenum and other energy and minerals (Yong, Lim and Tan 2016).

Industry analysis

The industrial analysis that has been carried out pertains to the fact that the ongoing process of the recovery has been accelerated at a rate of 3% in the financial year of 2017. The particular sector that has experienced a sincere growth is the mining sector. The aluminum prices have also increased in the recent times. The iron ore prices had also experienced a major lift in the recent times. Therefore, it can be concluded from the above information that the particular industry of resources has been experiencing significant growth. Furthermore, it can be reliably stated that the corporate entities belonging to this particular industry has been operating at an improved state and the particular industry has much chances of further enhancing and improving in the future. Moreover, the factors that have been enhancing the industry structure are the availability of skilled and unskilled labor in this particular sector, availability of the raw materials and the necessary equipment and other related factors (Huber 2017).

Financial structure of the company

The financial structure of the respective company of BHP is that the firm has been utilizing its retained earnings for the purpose of improving the internal workings of the corporate organization. Moreover, the firm has also engaged itself in several kind of investments like the financial instruments of share capital and but back programs, and other equity shares. The financial structure of the corporate entity consists of the purchasing of the shares by the ESOP trusts, treasury shares and the other classes of the voting shares. The other dividends and the shares that have been included also form a part of the capital structure of the corporate entity. Moreover, the different shares that the capital structure of the corporate entity consists of the following:

• Preference shares – the preference shares that have the right to make the repayment in regards to the amount that has been paid up on the nominal value and any kind of dividends that has been unpaid in nature in regards to the winding up of the corporate entities. The holders of the preference shares have resulting in the limitation of the voting rights.
• Treasury shares – the treasury shares are the shares that have been recognized at cost and have been deducted at equity. When the treasury shares that have been recognized at cost and have been subtracted from the equity. Any kind of difference between the consideration and the carrying amounts if have been reissued has been recognized in the form of retained earnings (Kabir, Rahman and Su 2017).

Key elements of the financial performance of the corporate entit

Before elucidating the key elements of the financial performance of the corporate entity it has been summarized that the financial statement have been prepared on the basis of the International Financial Reporting Standards that has been issued by the International Accounting Standards Board. The consolidated income statement displays the revenue that has been incurred by the corporate entities. The consolidated balance sheet that has been included in the financial statements the net profit that has been incurred by the firms has been shown in the consolidated income statement and has been of the amount $11,753. Furthermore, the consolidated balance sheet that has been prepared by the corporate entity consists of the components of total assets, net assets, share capital and the total amount of equity that has been attributed to the shareholders of the organization of BHP. The total assets of the firm pertains to the amount of $117,006. The net assets of the firm has been of the particular amount of $62726. The share capital of the corporate entity that includes the share premiums of $2761 and the total amount of equity that has been attributed to the shareholders have been included in the financial statements of the corporate entities and have been of the amount of $57,528. Moreover, the consolidated cash flow statement that has been included in the accounting statements of the corporate entity is that the net operating cash flows have been of the amount of $16,804. The other financial information that has been included in the corporate accounting disclosures of the annual report of the corporate entity has been that the net debt has been of the amount of $16,321, the underlying profit that can be attributed has been of the amount of $6732, the underlying EBITDA, underlying EBIT and the underlying basic earnings per share. These financial components have been of the amount of $16321, $6732, $20296, @12,389 and $126.5 respectively. It must be noted here that one of the most significant factor in regards to the corporate reporting is that the books of accounts or the financial statements includes the financial component of other incomes that includes the following items:

• Expenses in regards to benefits of the employees
• Changes in the inventories in regards to the finished goods and work in progress
• Raw materials that have been utilized
• Transportation and freight
• External services
• Purchase of the commodity by the third parties
• The royalties of the government that can be paid or is payable
• Evaluation and exploration of the particular expenses that have been incurred by the firms
• Asset impairment
• Lease operating rentals
• All other operating expenses.

The particular financial component that has been reported after the occurrence of the reporting date is the financial item of loans and receivables. It has been mentioned in the accounting report of the corporate entity that in case of the loans and receivables that has been disclosed after a period of 12 months or more is included under the head of the non-current assets. This is because the non-current assets refer to those particular assets that have been realized post the period of more than twelve months.

It must be noted here that no financial disclosures have been provided in the accounting report of the corporate organization in regards to the fact that there has been a change in the application of the accounting policies. Therefore, it can be reliably assumed that no change has been brought about in the treatment of the financial components as directed by the Australian Accounting Standards Board.

Assets – PPE and Intangibles

The carrying amount of each of the classes of property, plant and equipment that has been disclosed in the accounting report of the corporate entity at the reporting date is $80.5 billion. It must be noted here that the particular accounting standard that has been utilized by the corporate entity of BHP refers to the particular accounting standard of AASB 116 (Dunbar and Laing 2017).

The intangible assets that has been included in the accounting statements of the corporate disclosures have been the particular financial component of goodwill and other intangibles. Here, goodwill refers to the quantified reputation that has been achieved by the firm in the outside world. The other intangibles include the components of software, licenses and the initial requirement that is needed for the purpose of acquiring the mineral lease assets (Newberry 2015).

Furthermore, the accounting policy that has been adopted by the corporate entity for the treatment of the intangible assets is AASB 138 which states the particular format in which the intangible assets should be valued and measured (Kabir, Rahman and Su 2017).

It has been mentioned in the accounting report of the corporate entity that the non-current assets have been impaired. The valuation has been calculated using the FVLCD method. Furthermore, it can be stated that the valuations have been based primarily on the level 3 inputs. Moreover, the impairment loss that has been incurred by the firm in regards to the non-current assets have been of the amount of $160 million. This means that corporate entity has carried out fair value of the financial components which has resulted in a loss (Newberry 2015).

Voluntary disclosures made by both the companies:

1. Rio Tinto:

The company has voluntarily disclosed in its annual report many detailed analysis of the capital expenditure, depreciation and amortisation, operating assets for the year and the employees of the year corresponding to the various minerals and metals that are being extracted by the company.

This information is of utmost importance. The reason being that in case of fall in the production or demand of a particular metal or mineral the company will have the details in respect of the expenses incurred for all the metals and the minerals extracted by the company. The company will be able to reduce them effectively and manage its costs.

Several other items have been voluntarily disclosed by the company. Some of them include the following:

• Details about the agreement with the Freeport-McMoRan Inc. Under the terms of the contract, Rio Tinto is entitled to 40% of the total material that are being mined in excess of certain threshold.
• The way in which the company holds its interest in Oyu Tolgoi.
• The disposition of its shareholding in the Coal and Allied Industries Limited to Yancoal Australia Limited.
• Disclosure that the assets held for sale as on 31^st 2017 consists of the Rio Tinto’s interest in the Blair Athol coal project and certain separate assets.

1. BHP Ltd. :

No such additional voluntary disclosures have been made in the annual report of the BHP Ltd.

1. Rio Tinto Ltd.:

For the current year, the company did not have any assets held under lease agreement. However, it did incur lease expenses. The amount of lease expense amounted to $555million in the year 2017 and in the year 2016 it amounted to $541 million.

As per the information given in the annual report of the company it sis stated that the company values the right to use the asset as equal to the value of the liability at the time of the transition or inception of the lease on a lease-by-lease basis (Kabir et al. 2017).

At present the significant proportion of the company’s lease commitments belong to the dry bulk vessels and offices (Bradbury 2015). The company continuously focuses on these areas. For the purpose of mining properties and leases and in case of specific mining equipment the consumption in respect of the economic benefits of the assets is directly linked with the production.

1. BHP Ltd. :

It is seen that the lease income of the company has reduced over the period of one year that is it reduced from $528m in the year 2016 to $469 in the year 2017. In the notes to accounts of the financial statements of the company, it is mentioned that the company capitalizes the assets, which are held under lease and results in the inflow of all the risk and rewards from the assets to the group. The capitalization is done by the company as property, plant and equipment at the lower of the fair value of the assets or the present value of all the future lease payments. The leased assets of the company are depreciated on the same basis as of the owned assets of the company or in case of shorter the lease term (Cordery and Sinclair 2016).

Taxation:

1. Rio Tinto:

The amount paid by the company for the year 2016 and 2017 amounted to $1567m and $3965m respectively. The tax expenditure of the company has nearly doubled in the period of just on year.

1. BHP Ltd.:

It can be seen that the amount of tax of the company for the year 2016 and 2017 differed drastically. The primary reason for that being that the company was earning losses in the year 2016 while it started to earn profits in the year 2017. Hence, in respect of the year 2016, the company was enjoying tax benefit amounting to $1052 million and for the year 2017, the company incurred a tax expense amounting to $4100 million. The reason being that the company armed positive profits for the year 2017.

Conclusion:

It can be concluded that both the companies have strictly followed all the relevant disclosure requirements very effectively. It is sent hat in terms of profitability Rio Tinto is way ahead of BHP Ltd. the reason being the gap in the profits earned by both the company. It is seen from the financial statements of the two companies that Rio Tinto has been earning huge profits consistently over the years whereas BHP Ltd. has failed to do the same. Rather the company had earned a significant amount of loss in the year 2016. This was followed by some profit in the year 2017. The difference in the profitability of the two companies has its impact on the taxation of both the companies too. The tax paid by RIO Tinto is much higher than BHP Ltd. Infect in the year 2016 BHP Ltd. did not have to pay taxes and earned a tax benefit. But, in terms of lease assets BHP Ltd. is ached of Rio Tinto, the reason being that it has some income accruing out of its leased assets whereas Rio Tinto doesn’t have any asset that opt had leased out to the third party and thus cannot establish a source of income from its leased assets. Rather Rio Tinto is operating several assets that have been taken up by the company on lease and lease payments for the same have to be made by it on continuous basis.

References

Bradbury, M., 2015. Capital maintenance in a contemporary context.

Cordery, C.J. and Sinclair, R., 2016. Decision-Usefulness and Stewardship As Conceptual Framework Objectives: Continuing Challenges.

Dunbar, K. and Laing, G., 2017. Deconstructing the Accounting Standard AASB 13 Fair Value: Exit vs Entry Price for Assets. Journal of New Business Ideas & Trends, 15(2), pp.12-19.

Huber, W.D., 2017. Irreconcilable differences? The FASB's conceptual framework and the public interest. International Journal of Critical Accounting, 9(5-6), pp.514-523.

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.

Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia.

Newberry, S., 2015. Public sector accounting: shifting concepts of accountability. Public Money & Management, 35(5), pp.371-376.

Yong, K.O., Lim, C.Y. and Tan, P., 2016. Theory and practice of the proposed conceptual framework: Evidence from the field. Advances in Accounting, 35, pp.62-74.