Critical Analysis Of Financial Statement: Bhp Group

Introduction

BHP is a diversified global resources Australian company that engages in extraction and processing of mineral resources, oil and natural gases in Australia and Americas. Iron ore, base metals, metallurgical coal, copper, aluminum, stainless steel metals, uranium, petroleum and gas are some of the major product divisions of the company (BHP, 2020). Majority income is earned from the production of metal ore mining.  The company operates as a trading entity of the BHP Group PLC and its corporate vision is to bring together people and resources through enabling acquisition, availability and delivery of best resources and commodities in the most efficient manner (Bell. T, 2020). With total revenue of $44.288 billion in 2019 financial year BHPBL continues to be one of the world’s top producers of iron ore, copper and coal and it continues to play a major role in Australian market (BHP, 2020).

General Purpose Financial Statements (GPFS)

According to the International Standard on Auditing ISA 200 issued by International Auditing and Assurance Standards Board (IAASB), a GPFS is a set of statement showing financial information that caters to the common financial information and reporting needs of a wide range of users / readers (IAASB, 2016). These users may include the collective stakeholders who are interested in the company and have their stake in one form or another in the company. These may include, for example, shareholders, suppliers and customers, government agencies and regulators, reviewers and auditors and the overall community in which the operations are undertaken. 

The set of financial statement currently being reviewed in accordance with the conceptual framework of the Australian Accounting Standards Board (AASB), is GPFS as stated in the Basis of Preparation note in 2019 financial report of BHP. A GPFS can further be classified in a Fair Presentation Framework and a Compliance Framework. The 2019 BHP report is prepared in accordance with the following standards:

1. International Financial Reporting Standards (IFRS) issued by IASB;
2. Australian Accounting Standards issued by AASB; and
3. Other standards adopted by European Union (EU)

This makes the report being prepared suing Fair Presentation Framework which required management to go beyond what is required by these standards to ensure the true and fair presentation of information included in this report.

Property Plant and Equipment (PPE)

Two measurement models are allowed for the measurement of fixed assets or PPE under the International Accounting Standard (IAS) 16 or the Australian variant AASB 16: Cost Model and the Revaluation Model. Under the cost model assets are valued at historical cost less any accumulated depreciation and impairment losses at the date of report. Whereas under Revaluation model assets are more accurately reflected at their fair market value (i.e. the amount that an asset would fetch in an open market) at each reporting date in terms of IFRS 13 Fair Value Measurements.

Both of the above models of fixed assets are acceptable. However, the model which more accurately reflects the current value of the assets is Revaluation model which is a better indicative of their current market prices. If so valued, the difference between the Book Value of shares and their market value in ASX could be reduced.