Accounting theory

Groups are to identify and analyse current theories and models
in accounting, analysing how they apply to the given situation. Specific research supported recommendations need to be provided.

I choose issue that commonwealth bank recently issued about money laundering

Please check this link:
https://www.afr.com/business/banking-and-finance/financial-services/commonwealth-bank-safe-haven-for-criminal-activity-20170804-gxp54g

Also I will upload the sample from last semester

 

 

 

 

 

Accounting Theory and Issues

 

Report

 

BHP Billiton

 

 

 

 

 

 

 

 

 

 

 

Executive Summary

 

 

The main purpose of this report is to analyze how ethical issues regarding social and environment mattershave become a challenging issue for companies and especially in Australian accounting. To do so, we decided to study one of the most important companies in the production and exploitation of mineral resources, BHP Billiton.

First let have a look at the main objective of a company. Of course it is to make profit. So we can ask ourselves why ethical issues are involved here. The answer is simple: nowadays all companies evolve in an environment where all their actions have repercussions. It is not just polluting, corruption scandals or treating their employees badly and with impunity. The matter of ethics has become a criterion to judge the performance of a company. Consumers, the community and shareholders are all watching, thereforeits reputation depends on it.

As any other big corporation, BHP Billiton has engaged itself in the adoption of high-level standardsregarding business ethics. Within its code of conduct, BHP Billiton and its charter are placing respect and integrity as central concerns, its strategy is to create long-term value for its shareholders and have a positive impact on the environment and community.

On this report, we focused our study on 3 matters, which are integrity, environment, and social issues undertaken by BHP Billiton. Over the last years, between the scandal of Samarco the company faced, causing the death of 19 people in Brazil; the issue of coal mining in Hunter Valley and the bribery involving BHP Billiton in China, we can clearly see that these matters had a profound impact causing a decrease on the performance and reputation of the company.

These examples show how missing on reporting important ethical issues can be a heavy impact on the reputation and performance of a company. Furthermore, it is clearly important that the way a company behaves affects the trust of the people and the confidence of the shareholders, which will determine whether they invest on said company or not.

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

Executive Summary…………………………………………………………………………………………………

Table of Contents………………………………………………………………………………………………………

  1. Introduction…………………………………………………………………………………………………………
  2. Tax avoidance case……………………………………………………………………………………………..

5.1. What happened?…………………………………………………………………………………………………

5.2. Transfer Pricing………………………………………………………………………………………………….

5.3. How BHP reacted to that charge………………………………………………………………………….

  1. Conclusion……………………………………………………………………………………………………………

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Introduction

Nowadays, Ethic has become the heart of the preoccupation for all companies, especially for those who expect their business to have a good sustainability and performance. Indeed, “…corporate reporting on ethical, social and environmental issues reflects corporate performance” (Carol A., Adams, 2004), therefore every company should adopt high standard of ethics. But what is ethics?

Ethic is a notion, whichexists since the time of Greek antiquity, defines as a way to fulfill our duties (reference course of accounting theories). Many are the theories which have been developed since then but the one we’ll be using is ‘Utilitarianism’, which can be defined as judging what has good outcomes as ethical and l what has negative one in general as unethical.

In practice, companies try their best to take into consideration this ethical issue since their reputation and results depend on it. This question is more complex for big companies specialized in energy andresources, considering their activities.

In this report we are going to examine the ethical issuesof one of the most important companies listed in ASX,BHP Billiton regarding Australian accounting. With a revenue of 61.2 billion Australian dollars in 2015, BHP Billiton is the 4th most important company in Australia and a leader across the world in exploitation of metal and mining.

To analyze the ethical issues of BHP Billiton, we are going to study the different scandals that the company has faced over the last years, meaning the problem of bribery in China, the environmental issue in Hunter Valley and the Samarco disaster. Finally, we are going to look further into the problem of tax avoidance, an issue involving most of the biggest companies in Australia.

 

2. Tax avoidance case

2.1. What happened?

 

Recently, BHP Billiton had to face another big issue that lead to its ethical reputation.

In fact, the business has been accused of tax avoidance, not only occasionally, but for more than 10 years, using an aggressive transfer policy in order to bring part of its taxable profits out of Australia.

Many multinationals, in order to reduce their tax bill, use the transfer pricing policy, that consists is artificially inflating input costs in hig tax countries and declared the relative profits in low tax countries.

In that particular case, what the business did was basically selling Australian minerals to its Singapore marketing hub, and declared the relative income in that country,

Between 2005 and 2014, the company apparently avoid to pay taxes on $ 5.7 bn profits.

It looks like just the 58% of its profits were taxed correctly , while the remaining 42%, even if it was coming from Australian products, were not taxed by the ATO.

That issue has only been discovered last April, when the ATO was auditing BHP’s tax arrangements.

2.2. Transfer Pricing

Transfer pricing it is not easy at all to control. ATO has been working for years on that, and tried to control the situation by requiring businesses to support all they are doing with documents.

Out of Australia, the OECD (Organisation for Economic Cooperation and Development) introduced as well new regulations in term of tranfer pricing, as, for instance, the Base Erosion and Profit Sharing Initiative, but it remains pretty hard to make sure that companies do not use that policy in order to reduce their tax bills.

2.3. How BHP reacted to that charge

 

The CFO said that the issue is not about tax avoidance bui it is all about valuations, and the company will even initiate court action to defend its position, if that will be necessary.

In the Annual Report 2016 the company declared that the ATO cut the tax payable from $ 102 million to $ 43 million, while the total amount due for the year 2012-2013 has been set for $ 19 million.

 

The company confirmed also that there would not be any increase in salary or other incentives for the CEO and his team in the current financial year.

 

 

3. Conclusion

 

As seen in this report, on an ethical aspect, the scandal of Samarco and the direct impact of BHP in the coalmine in Hunter Valley have had a really bad impact on the reputation and performance of the company. Even with all the efforts that BHP seems to put in the running of its activities and even if its guiltiness has not yet been proved for all of the scandals it has been attached to, it seems that in matter of application of ethics, some improvements need to be done. We could discuss even more about a redirection or a new guidance for its politics in ethical issues. So how BHP could show more of its involvement?

One of the issues that has been highlighted in this report is the lack of transparency in matter of disclosure and reporting. To be more involve and show a better take into consideration of ethics in the business, BHP should report more about its impacts in matter of environmentand social to lancer un message fort and show it implication about those issues. Indeed some empirical studies came to the “findings support the positive correlation of size and profitability with the content of social disclosure information”(Tagesson, T., Blank, V., Broberg, P., Collin, S., 2009).

Another way to improve their politics in matter of ethics would be to bring some third-party experts to bring their expertise. The objective of this approach is to have an external point of view, therefore more pertinent to have better axes of amelioration.

Another solution for BHP Billiton would be to engage itself voluntarily in some projectsaimed at the preservation of theenvironment, amelioration of work conditions or subjects in that matter…  In other words, any project related to environment and/or social issues. The most important appears also to establish proper corporate social reports (Carol A., Ambika Z., 2004), and communicate about this for the company, as said just below to disclose those project and results.

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