Financial Accounting Quality and the Adoption

Question: Describe about the Financial Accounting for Quality and the Adoption. Answer: Introduction Woolworths Limited is retail company of Australia with extension in interest overall the Australia and New Zealand. It is second largest organization in the list of revenue. It was founded in 1924 and has its headquarters in Bella Vista, New South Wales, Australia. Percy Christmas, Stanley, Cecil, George and Ernest founded it. Woolworths has a division in petrol sector, hotel industries, general merchandise, home improvements and groceries. Woolworths opened its first shop as in the name of Woolworths Stupendous at the Bargain Basement in the Pitt Street of Sydney. Woolworths has been listed on the Australian Securities Exchange in the year 1996. Woolworth has made expansion in the business of the Liquor. In the year 2006 Woolworths had been rolled as new Retail point for selling of the system which will be running on the IBM POS Hardware as well as LCD touch screens all over the stores. In Australia there was hospitality group and leisure period was 75% which was owned by the Woolwo rths (Woolworths Online.2016). BHP Billiton Limited is a mining, metal and petroleum industry with headquarters in Melbourne, Australia. This was founded in the year 1860. Products of the industry are iron ore, petrol, coal, copper, nickel, uranium and natural gas. BHP is listed in the as dual company. In the UK, the BHP Billiton Plc had been listed on the London stock exchange with constituent in FTSE 100 Index. The Australian group of BHP Billiton Limited and British BHP Billiton Plc is listed as separate entity with the different holders of the bodies. Instead of that, it was operating on one business in the identified boards of directors as well as a structure of single management. In the year 1998, for the reconstruction of the company, BHP had hired an American in the name of Paul Anderson. Anderson had achieved successful phase in the completion of the merger between BHP and London Based Billiton. BHP Billiton was operating in a wide range of mining and processing of oil and gas production which was operat ing over 25 countries with employment opportunity given to 41,000 (Bhpbilliton.com.2016). Part 1: Disclosure of leasing Woolworths Lease are divided as category of the Finance leases by the Woolworths, in which terms of the lease are getting transferred substantially to all the rewards and risk which is under the lessee ownership as done under Accounting Standard AASB 1008 Leases. All the other leases under Woolworths are categorized as operating leases. Payments of the operating leases are identified as a cost, which is based on the straight-line method over the term of lease (Deegan 2012). Payments of the rental lease are increased by fixed rate, but that will be excluding the contingents. Similarly, there is an increase in the rentals of the index based are identified over the straight-line method on and over the term of lease. Based on the straight-line method the differences in the amount asset and liability are paid as well as the amount of the lease. An incentive, which is received from the operating lease, is primarily identified as liability and then it is identified as lease expense by straight-line me thod over a certain lease term (Deegan 2016). Concerning Leasehold improvement every year, there has been increased improvement. For the leasehold property there was useful life of maximum 25 years that to in the retail property, whereas, 40 years in the case of hotels (Samkin and Deegan 2012). Amortization of the Leasehold improvements was comparatively shorter for the left over period of the leases of individual or the estimation of the useful life was done for the growth of the entire Woolworths. Leases are also available under the current and non current borrowings. The disclosure of the lease has been done by the Accounting Standards, i.e., AASB 117 (Weil et al., 2013). Under the Australian Financial Reporting Standard AASB 117 is related to the disclosure of leases is the setting of the paragraphs from 1 66. AASB 117 had commenced on July 15, 2004, and an application was made on January 1, 2005 (Horngren et al., 2012). BHP Billiton In case the of BHP Billiton there was decrease in the net finance cost which was reflecting the gains achieved from foreign exchange on the finance lease with redemption of Petrohawk Energy Corporation, this leads to resulting in profit for the redemption as well as expense for the lower interest (Wang 2014). Finance of lease included in the power generation and asset transmission. Payment of the lease is subjected to the escalation of inflation clauses on the rentals of the contingent to be evaluated. The lease of this will involve the extension and options of renewal. In case of the operating lease which is included in the division of the property, plant and equipment following the Accounting Standard AASB 1008 Leases. Rental payment of the company in fixed, whereas escalation of the inflation clause under which there is determination of the contingent rentals (Rahman 2013). There is option of renewal and extension of the specific leases. An asset which was under the system of leas e, which was arising from the receiving of the group and substantially all risk and rewards in the ownership of assets are being capitalized as lower fair value of all the property, plant and equipment. The estimation was presented on the payments of lease with minimum value. The correspondence in the obligation of the lease in finance and will be included inside the bearing of the interest in liabilities (Arnold 2012). Provision will be made on the present value of the operating lease payments, which will be in surplus to the space of the lease. Rights of the oil and gas will be initially taking the form of a lease. Similarly, it will also owe the onshore outright in fee. Operating on the lease of the rent payment is being decreased since 2013 (Adibah Wan Ismail et al., 2013). In Macedon and Stybarrow there was production of license, which was issued which, was issues by Australia Government after the expiration of the five years of the production process. Operating lease is identi fied as liability when subsequent and receiving on the allocation of the payments of lease, which will be between the expenses of the rental liability and reduction in it (Deegan 2013). The rules, standards and regulation of the policy related to disclosure of lease that will be done on the standards of accounting in Australia in relation with AASB 117. Australian Accounting Standard Board was made as AASB 117 under the Section 334, of the Corporation Act 2001 (Yu and Wahid 2014). The main aim of the AASB 117 Leases is for the prescribing for lessors and lessees should disclose accounting policy about the prescribed rules and standards should be appropriately applied. The leases should be according to the group purpose of the financial statement of every entity in reporting. Standard of the lease in the accounting period should be only applicable if the exploration of lease is granted in the field of mineral, oil, natural gas and other similar resources. Lessor will do licensing of the contract on the transfer of the right for utilization of the assets even it is of the services with substantiality, and he may call those as maintenance of the asset (Loyeung et al., 2016). Part 2: Disclosure of liabilities - Provisions and contingent liabilities Woolworths Provision of the Woolworths are identified under the group, which is presented as legal body on the obligation of constructive result on the events of the past, it will be obvious that economic conditions (Kraal et al., 2015). Provision is distinguishable from the other liability like accounts payable and accruals because of the uncertainty about the timing of the or for the expenditure of the future settlement is necessary it will be governed under AASB 112. Employee benefit is identified for the advantage of leave, which will be annual and service of long duration, which is as per AASB 119 Employee Benefits. Self Insurance risk will be initially estimated for the liability for compensation of the worker and liability of the public claim (Camfferman. and Zeff 2015). Provision of the restructuring is to be identified in the group, which will be developed for the detailing of expectation in validity. Borrowing in the liability section will be identified initially at fair value, which is less attributable to the cost of transaction. Subsequent in the borrowing are stating in the amortization cost (Carey et al.,2014). If there is any difference relation to cost and redemption which will be identified in the consolidated profit and loss statement of the period (Bond et al., 2016). Under the head of liability there are many other divisions with other major head as current liability and non- current liability. A current liability is included in trade and other payable, borrowing, other financial liability, provision and income tax payable. Non Current liability is following the content of both of them are followed by the standard of "AASB 1044". One more accounting standards are in the provision of the Australian Accounting Standards which has to deal with a specific kind of provision, and contingent liability and entity for the application of standard. The trade payable is the payment of the liability and other goods and services which in replied in the invoices f or getting agreed by the supplier (Guthrie and Pang 2013). Accruals in the division of the liability will be received and supplied, however not paid. It will be included in the due amounts of liability. Accruals are sometimes laid under the division of the trade and other payable, which can be the provision of separate reporting. The standard of the provision of this liability is certain to the timing in the context of depreciation, impairment of the assets which will be doubtful in carrying the assets. A contingent liability is not identified as liability because it may be resourcing the economic benefit of the outflow. Further is consideration of obligation in compliance with the above-given standards of AASB. A contingent liability is disclosing the identification in paragraph 86 (Laing and Perrin 2014). BHP Billiton BHP Billiton has followed the standard of the AASB 139 - Financial Instruments with Recognition and Measurement for the disclosure of liability with respect to inclusion of provision and contingent factor but excluding the considerations of lease in the category of the liabilities (AASB 2016). According to accounting standard AASB 137 this will be applicable only if there applicability of liabilities in the division of provision and contingent liability. There will be specific requirement, which will be applicable in case of material, according with AASB 1031 Materiality. The annual report of BHP Billiton has made the accordance which will be applicable in the superseded "AASB 1044" which is included in the point provision, contingent liabilities and contingent assets as notified in the Commonwealth of Australia with Gazette no S 450 in the October 2001. BHP Billiton has not adopted the standard of 139 because it is not applicable in a case of guarantees, which is under the scope of "AASB 139" in the financial instruments for the identification and measurements. Under AASB 112 there was disclosure of the provision which is categorized as the under various categories. Provision has the following division employee benefits, restructuring and post- retirement employee benefit all this heads are coming under the category of current. Further is classification of employee benefits and post- retirement employee benefit that comes under category on non-current provision. The total of the restructuring provisions are included in the provisions of business for the terminations and in the office closures (Ifrs.org.2016). Further, there will be provision regarding to post-retirement employee benefits, which will be included in the pension liabilities and medical benefit liabilities. All the standards related to the liability and provision is truly fulfilled by the BHP Billiton and that to true with its aspects. On the overall analysis of the provision and contingent it is because of relation to the uncertainty of the amount and time. Moreover, inside this standard the contingent is utilized for the liabilities which will not be identified because of the existence in the confirmation because of the occurrence and non occurrence because one and more future of uncertainties in the event but not wholly under the entity which will be controlled. In addition, it is said that liabilities are the identification, which is not matching the criteria (Aasb.gov.au.2016). Part 3: Disclosure of Intangible Assets Woolworths From the annual report of Woolworths Limited, it has been noticed that company has intangible assets has decreased. It mainly reflects upon the decreased intangible assets especially in the New Zealand Supermarkets business in acquiring purpose (Kober, Lee and Ng 2013). In accordance with AASB 138 Intangible assets, Woolworths Limited follows the accounting standard for the given years. This particular standard is applicable to intangible assets for defining active market, cost as well as fair values and useful life of an asset of Woolworths Limited (Kaplan and Atkinson 2015). Intangible assets involve the in process developing the research and development of Woolworths Limited. It acquires business combination from goodwill account resulting in legal rights from Woolworths Limited. Internal generated goodwill of Woolworths Limited recognized as intangible assets such as publishing titles as well as customer lists. Research costs are mainly incurred that are recognized by Woolworths Limited. Development costs recognizes as assets of Woolworths Limited for viewing at the technical feasibility for the intangible assets for usage of sale. It is the ability for using or sells of intangible asset of Woolworths Limited. Cost of internal generated intangible assets of Woolworths Limited involves start-up costs, relocation costs as well as training costs and advertising costs (Ifrs.org. 2016). Intangible assets with finite useful lives help in amortization for useful number of years. It is the residual values of Woolworths Limited for predicting intangible assets for purchase of assets. Amortization period as well as amortization method of Woolworths Limited is for the intangible assets at the end of the specified year. Disclosures is maintained in the paragraph 118 to 128 as it implies intangible assets for Woolworths Limited (Horngren et al. 2013). IAS 38 explains the intangible assets as issued by International Accounting Standards Board. In the tier 1, it explains regarding the for-profit entities in compliance with IAS 38. It widely depends on the application of non-for-profit entities for providing additional guidance as mentioned in IAS 38 (Hennes 2014). Woolworths evolves as bringing innovative approach for meeting the market challenges as well as finding new ways to delight customers in the most appropriate way. These particular retail companies try its best in delivering potential growth in the upcoming financial years. It enables approaching shareholders for consistent strong returns for future years. BHP Billiton Limited From the annual report of BHP Billiton, it has been noticed that the companies abide by the accounting standard IAS 38 intangibles. BHP Billiton is an Australian-listed company operating in mining sector. Key assumptions for oil and gas derive from forward price curves as well as long-term views from the potential external sources. These prices are majorly adjusted for arriving at consistent price assessment by the market commentators. Goodwill of BHP Billiton Limited arrives at huge range. It has been allocated from various reportable segments (Hausman 2012). IAS 38 Intangible assets identify the aggregate amount of research as well as development expenditure. It relates largely with potential information of intangible assets of BHP Billiton Limited. Description is the carrying amount as well as remaining amortization period in any of the material misstatement as acquired by government grants (Guthrie and Pang 2012). Information relating to any kind of restrictions depends upon the titles of intangible assets as well as pledge of securities for the company BHP Billiton Limited. It is the amount of contractual commitments regarding the acquisition of intangible assets for BHP Billiton Limited. AASB 136 states intangible assets with indefinite useful lives for amortizing purpose as well as tested impairment of assets for BHP Billiton Limited (Ifrs.org. 2016). It reveals the useful life of an intangible asset for reviewing each period for indefinite assessment in the most appropriate way. Intangible assets of BHP Billiton Limited contain physical substance as per the Accounting Standard. Underlying assets may be either tangible or intangible assets for finance lease obligations for BHP Billiton Limited. As far as non-current intangible assets are concerned, it is applicable for sale as per the Accounting Standard (Drury 2013). Goodwill acquisition is mentioned in the business combination under the AASB 3 Business Combination. Intangible assets define as the ident ifiable attributes that differentiates with goodwill. Recognition of goodwill for BHP Billiton Limited is the business combination as represented in the future economic benefits. It is individually identified as acquired in the asset allocation and is also stated in the financial statements of BHP Billiton Limited. Part 4: Disclosure of revenue Woolworths From the annual report of Woolworths Limited, it has been noted that the company follows the disclosures of revenues under Accounting Standard 9. Market position of Woolworths Limited comes under 25 global companies in case of revenues as well as market capitalization at the same time. Revenue expenses recognized as net GST as mentioned in the financial statement of Woolworths Limited (Armstrong and Ebell 2014). Implementation of new revenue standard for discussing on the stakeholder challenges as per the given accounting standards. In case of revenue from external customers, allocation has been done on evaluation of supply chain segments. It reveals the business entities for operating depending upon arm length basis. Accounting Standard 9 states that bases for recognition of revenue for Woolworths Limited taken from the profit and loss statement. It mainly focuses on the revenue recognition from ordinary activities of business enterprise for Woolworths Limited. It is the sale of goo ds, rendering of services as well as usage of enterprise resources in an effective way (Aasb.gov.au. 2016). Woolworths Limited follows the Accounting Standard for revenue recognition for removing inconsistencies as well as weakness in current revenue literature. International Accounting Standard Board as well as US Financial Accounting Standards Board jointly issued new revenue standard 15 with potential customers of Woolworths Limited. It virtually states the revenue requirements under the Accounting Standard IFRS and US GAAP. Board provides more robust framework in order to address revenue recognition issues for future analysis purpose. It improves comparability in case of revenue recognition practices in and across industries, capital markets as well as capital markets (AASB 2015). IFRS 15 specifies with the accounting treatment in case of revenue recognition arriving from contracts with customers (Kober, Lee and Ng 2013). It is applicable to business entities of entering contrac ts for providing goods as well as services. FASB requires more disclosures as mentioned in the interim financial statements of Woolworths Limited. IASB permits with impairment losses in comparison with FASB. Recognition serves as a business entity for satisfying the performance obligations for Woolworths Limited in the upcoming financial years (Kaplan and Atkinson 2015). Woolworths Limited adopts these accounting standards in measuring the cash flows for generation future revenues in the most appropriate way. It reflects the amount for a business entity in transferring goods as well as services to potential customers for Woolworths Limited. BHP Billiton Limited From the annual report of BHP Billiton, the company follows the revenue recognition based upon Accounting Standard 9 (Kaplan and Atkinson 2015). Future revenues from business operations for BHP Billiton Limited in project mines as mentioned in the annual report. In case for demand of products and production, it considers business operational results from existing reserves for depleting over specified time. Revenues and profits of BHP Billiton Limited derive from the oil as well as gas minerals for viewing at the financial condition. It requires generating reserves for meeting the future production requirements at the most affordable prices (Kober, Lee and Ng 2013). IAS 9 deals with revenue recognition for special considerations that arises from construction contracts as well as lease agreements for BHP Billiton Limited (Kober, Lee and Ng 2013). Further, revenue arising from hires purchase as well as other similar subsidies for future analysis purpose. BHP Billiton Limited checks over the revenue from insurance companies from the insurance contracts. It states the realized gains from the disposal as well as unrealized gains resulted from non-current assets of BHP Billiton Limited such as appreciation for fixed assets (Kaplan and Atkinson 2015). Addition to that, BHP Billiton Limited has unrealized holding gains resulted from change from financial statements. Revenue is the gross inflow of current asset figures like cash, accounts receivables as well as other business consideration from normal course of business (Ifrs.org. 2016). The above accounting standard explains the completed service contract method for accounting process in revenue recognition for statement of profit and loss (Ifrs.org. 2016). It helps in rendering of services in substantial attributes as charged by potential customers for BHP Billiton Limited. Revenue recognition concerns mainly with timing as stated in the financial statement of BHP Billiton Limited (Kober, Lee and Ng 2013). Amount of re venues arises from the business transactions as determined by agreement among the parties for future analysis purpose. It recognizes revenues like sale of goods in transferring well to the buyer in getting the access on timely manner. Conclusion and Recommendation Finally for making recommendation about the above analysis made in respect of BHP Billiton and Woolworths, regarding the accounting standard can be made on the following points: Accounting Standards in the financial reporting council is authorized for releasing the mapping of document and making provision for keeping up to date. For providing the consistency and going forward for avoidance of the more complexity. AASB has many accounting standards that will be exercised incompliance with information of the standard. The accounting standard will be an applicable short-term project, for the improvement in the clarity and consistency. The federal government should consider the present small and large thresholds given a determination of appropriation of the level at the following entity. The long is the project there is existence of the complexity in the accounting standards of AASB. The standard adopted by both the company in relation with AASB 137 is difficult for the maintenance because it is affecting the investors for the further investment in the company. The accounting standards of the BHP Billiton in respect to the revenue generation is not effective, for making improvement there has to be effectiveness in the implementation. In case of Woolworths, the intangible way of showing depreciation of the assets is not proper, for the generation of profit in respect of Gross profit; company needs to adopt policies relating to the exemption. 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