Impact Of Recognition Disclosure Financial -Myassignmenthelp.Com

Question: Discuss About The Impact Of Recognition Disclosure Financial? Answer: Introduction In todays business world, Financial Reporting refers to one of the major aspects for the success of the companies. Financial accounting refers to a particular field of accounting that is concerned with the summary, analysis and reporting of the financial transactions related with the business operations (Scott 2015). This aspect also involves in the effective and correct development and presentation of financial statements of the business organizations. Advanced financial reporting is an integral part of the process of financial accounting that put an obligation on the companies to comply with the required accounting regulations and standards for the preparation and presentation of financial statements. The main purpose of the development and presentation of financial statements is to inform the investors about the financial health of the companies with the assistance of company annual report. For this reason, business organizations are required to comply with the required recognitio n criteria for various financial substances like revenue, assets and liabilities (Nobes 2014). The main aim of this report is compare and contrasts the recognition criteria of revenue, assets and liabilities of two Australian ASX listed mining companies; they are BHP Billiton and Evolution Mining. Introduction of the Companies BHP Billiton is one of the biggest Anglo-Australian multinational mining companies. The company was established in the year of 1885 and the company is headquartered at Melbourne, Australia. BHP Billiton mainly deals with mining, metals and petroleum products. The main products of the company are iron ore, coal, petroleum, copper, natural gas, nickel, uranium and others. From the business operations of BHP Billiton, it can be observed that the company operates under a dual listed company structure and the firm has two parent companies; they are BHP Billiton Limited and BHP Billiton PLC. A unified board is responsible for the business operations of the company. In the year 2015, BHP Billiton took a step for the simplification of their business portfolio with the creation of an independent global mining corporation (bhp.com 2018). Evolution Mining Evolution Mining is a major Australian gold mining company. The company was established in the year of 2011. The focus of the company is to operate in a safe and efficient way. Evolution Mining operates in five gold mining operations (evolutionmining.com.au 2018). Three of them are in Queensland, one in New South Wales and another one in Western Australia. It can be seen that the company has achieved many milestones over the years. Evolution Mining was announced as the winner of the NSW Mining Safety Excellence Award in the year 2016. At December 2016, the ore gold reserve of the company stood 6.99 million ounces and the mineral resources were 14.18 million ounces (evolutionmining.com.au 2018). Comparing and Contrasting the Revenue Recognition Criteria From the latest annual report of BHP Billiton, it can be observed that there are two sources of revenue for the company; they are Sale of Products and Provisionally Priced Sales. From the latest annual report of BHP Billiton, it can be seen that the company measured their business revenue based on fair value of the received or receivable consideration (Wagenhofer 2014). More specifically, the recognition of the revenue from sale of products is done where there is a transfer of risk and reward ownership of the products to the customers based on pre-determined delivery time and their measurement can be done on a reliable basis (bhp.com 2018). On the other hand, the recognition of the revenue from provisionally priced products are done on the basis of fair value of the received or receivable consideration based on the contractual price. In this context, it needs to be mentioned that the determination of the sales price is done on the basis of fair value agreement. The time between provi sional pricing and final invoice pricing is 60 to 120 days. Thus, it can be seen that the company has followed the principles of Australian Accounting Standard Board (AASB) for the purpose of revenue recognition (bhp.com 2018). Evolution Mining From the latest financial reports of Evolution Mining, it can be observed that the company has followed a simple process for the recognition of their business revenues. Evolution Mining uses to recognize their revenue from the sales of business goods when a transfer of the ownership of risk and reward is there from the company to the customers based on the pre-determined price (evolutionmining.com.au 2018). In this context, it needs to be mentioned that the quality and quantity of the products need to be determined in an accurate basis. Moreover, the measurement of the revenue is done based on fair value. The company uses the provisional price agreements for the metals of concentrate sales. On the other hand, prevailing spot price is used for the selling price of metal concentrates (Srivastava 2013). The time between provisional pricing and final invoice pricing is 30 to 90 days. Apart from these, the company does the recognition of provisionally priced sales is done based on the fai r value estimation of the total received consideration and receivable consideration (evolutionmining.com.au 2018). Fro the above discussion, it can be seen that both BHP Billiton and Evolution Mining follow fair value accounting for the recognition of revenue. As per similarity, it can be seen that both the companies have two sources of revenue; they are revenue from sale of goods and revenue from provisionally priced sales. As both of the companies operates in Australia and both of them have complied with the principles of AASB, a large number of similarities can be seen. Comparing and Contrasting the Asset Recognition Criteria From the latest annual report of BHP Billiton, it can be observed that the company has adopted different strategies for the recognition of different assets. The first type of assets is Property, Plant and Equipment (PPE) (bhp.com 2018). For the computation of PPE, BHP Billiton uses to record them at the cost value after the deduction of accumulated depreciation and impairment charges. In this aspect, the cost of PPE refers to the fair value of the assets obtained at the time of the acquisition and it includes the necessary directs costs associated with the implementation and development of PPE. The next type of asset in BHP Billiton is Intangible assets that include goodwill and other intangible assets. BHP Billiton does the recognition of goodwill when there is a difference between the fair values of the consideration at the time of acquisition and the fair value of the identifiable assets. In addition, the other intangible assets of the company are recognized at fair value after th e deduction of impairment charges and amortization costs (Cotter 2012). After that, trade and other receivables are the current assets of the company. It needs to be mentioned that BHP Billiton recognizes their trade receivables based on fair value after the consideration of amortization costs, effective interest rates, allowances and impairment costs. Inventories are another type of current assets of BHP Billiton. The latest annual report of BHP Billiton states that irrespective of the nature and type of inventory, their recognition is done at the lower cost of value and net realizable value. The determination of cost is done based on average costs. Moreover, it needs to be mentioned that BHP Billiton uses absorption-costing method for the determination of costs (bhp.com 2018). Evolution Mining As per the latest annual report of Evolution Mining, the recognition of plant and equipment is done based on cost price after the deduction of accumulated depreciation and impairment costs. Fair value is considered based for the determination of the costs of plant and machinery. Straight line method is used for depreciation purpose. Cash and cash equivalent is another type of assets for the company (evolutionmining.com.au 2018). Their recognition is done based on amortized costs. Another type of asset for Evolution Mining is trade and other receivable. For the recognition of trade and other receivables, fair value measurement basis is used after the consideration of amortized costs with the use of effective interest rate after deducting impairment. The due date for trade receivables is 30 days. The next type of asset of Evolution Mining is inventories. It needs to be mentioned that physical measurement is done for the measurement of inventories. Other hand, the recognition of invento ry is also done based on lower of cost and net realizable value (Biondi and Lapsley 2014). From the above discussion, it can be seen that there are many similarities in the recognition criteria of both BHP Billiton and Evolution Mining for assets. It can be observed that in most of the cases, both of the companies use fair value method for the recognition of PPE, trade receivables and intangible assets. However, in case of the recognition of inventory, difference can be seen. BHP Billiton uses fair value for the valuation of inventories where Evolution Mining uses physical method for the recognition of inventory. Comparing and Contrasting the Liability Recognition Criteria From the annual report of BHP Billiton, it can be observed that the company recognizes their trade and other payable on the basis of fair value (Clor?Proell, and Maines 2014). Another major liability of the company is net debt. The annual report states that net debt includes cash and short-term cash deposits. For the purpose of recognition, BHP Billiton considers the carrying value of these liabilities that is calculated on the basis of fair value (bhp.com 2018). In this context, it needs to be mentioned that the major components of net debt are bank loans, notes and debentures, finance leases, bank overdraft, short-term borrowings and others. In case of provisions, the recognition process is done in the presence of some significant judgment like the application or real discount rate, the timing of cash flows, the costs associated with future rehabilitation activities and others (bhp.com 2018). Evolution Mining In the annual reports of Evolution Mining, interest-bearing liabilities have major importance. Evolution Mining does the recognition of these liabilities based on fair value after deducting the transaction costs directly attributed towards the measurement of attribution costs. The recognition of gains and losses is done in the profit and loss account. After that, in case of trade and other payables, Evolution Mining does the recognition of the carrying value based on the fair value and it has been done due to the short-term nature of the liabilities (Mller, Riedl and Sellhorn 2015). It can be seen that there are different kinds of provision for the company. In case of the provisions of employee benefits, they are measured based on the amount expected to be paid at the time of settlement. On the other hand, the provisions for long-service leave liabilities are recognized based on the present value (evolutionmining.com.au 2018). From the above discussion, it can be seen that there are many similarities between BHP Billiton and Evolution Mining in the recognition of their business liabilities. It can be seen that both the companies use fair value for the recognition of their trade and other liabilities. However, it can be seen that there is a difference between the recognition criteria of provisions for both the companies. Conclusion From the above discussion, it can be observed that both BHP Billiton and Evolution Mining have some similarities along with some differences in the recognition of their assets, liabilities and revenue. However, the portion of similarities is more than the portion of differences. In case of the recognition of revenue, the above discussion shows that both the companies have complied with the strategies of fair value method. Thus, there is not any difference. In case of assets, it can be observed that both BHP Billiton and Evolution Mining have applied fair value technique for obtaining cost of the assets after the deduction of accumulated depreciation and impairment. However, difference can be seen in case of the recognition of inventory as Evolution Mining use physical technique for the recognition of inventory. In case of liabilities, it can be seen that there is a difference between the recognition of provision due to the presence of different types of provisions for the companies. Based on the whole discussion, some recommendations are provided below: It is recommended to these companies to comply with the standards and regulations of AASB for the recognition of revenue. It is also recommended to these companies to adopt fair value measurement technique for recognizing assets and liabilities. References BHP Billiton. (2018).Our history. [online] Available at: https://www.bhp.com/our-approach/our-history [Accessed 31 Jan. 2018]. Bhp.com. (2018).Annual Report 2017. [online] Available at: https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/2017/bhpannualreport2017.pdf [Accessed 31 Jan. 2018]. Biondi, L. and Lapsley, I., 2014. Accounting, transparency and governance: the heritage assets problem.Qualitative Research in Accounting Management,11(2), pp.146-164. CLOR?PROELL, S.M. and Maines, L.A., 2014. The impact of recognition versus disclosure on financial information: A preparer's perspective.Journal of Accounting Research,52(3), pp.671-701. Cotter, D., 2012.Advanced financial reporting: A complete guide to IFRS. Financial Times/Prentice Hall. Evolutionmining.com.au. (2018).Annual Report 2017. 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