BHP Billiton Limited - Essay Example

?Accounting Theory Table of Contents Table of Contents 2 Introduction 3 Areas of Corporate Governance in BHP Billiton Limited to Alleviate the Risk of the Corporate Failure 3 Reasons to the Areas Justified With Relevant Accounting Theories 5 Conclusion and Recommendations 6 References 7 Introduction Corporate governance comprises of the regulatory and the market mechanism along with the roles and the relationship between the management of a company with its shareholders and stakeholders at large. The concept of corporate governance can be defined as the procedures which are used to direct and control an organisation in alliance with its determined mission and vision. The extended role of corporate governance further exhibits a proper structure specifying the delegation of rights as well as the responsibilities bestowed upon the participants of an organisation including its board members, lower and middle level managers, stakeholders, shareholders and other interest groups (OECD 2005). The corporate governance comprises the three basic factors. In this context, it provides with adequate transparency in its decision-making process. Transparency in turn provides scope for accountability that entails the responsibilities of the decision makers within an organisation. It also provides accountability for the conservation of the concern with respect to the shareholders’ interests as well as the commitment of the organization towards its stakeholders. Indeed, accountants and other financial decision makers play a vital role in determining organizational effectiveness to mitigate such concerns through high degree of ethical commitments. Thus, it can be stated that the accounting theories and the corporate governance are interrelated as the underlying function of the corporate governance is to control organizational activities and the utilization of the corporate resources (Clark 2011). Based on this understanding, the objective of the paper reflects the corporate governance practices of BHP Billiton Limited (BHP) to alleviate the risk related to the corporate factor with further reasons to such conventions. Areas of Corporate Governance in BHP Billiton Limited to Alleviate the Risk of the Corporate Failure The corporate governance system practiced in BHP entails the approaches to provide the value that has been created on a long term basis complying with a high-quality governance framework (FRC 2012). The company believes that the governance must not be limited to the Board, but it must be spread within the organisation. Through its governance system, BHP aims to foster a culture that values as well as awards the ethical standard prevailing in the organisation along with the personal and the corporate integrity and the standard to have respect deciphered aptly for its stakeholders on the whole. The company hereby aims to establish an appropriate ‘Code of Business Conduct’ for the employees, the suppliers and the customers constituting a major proportion of its stakeholders group. The application of these approaches related to the governance further attempt to foster the long-term goodwill of the company playing a major role to alleviate the risks of the corporate failure on the basis of accounting discrepancies (BHP Billiton 2012). Notably, the corporate governance structure of the company entails the diversified perspective of the Board of Directors. The structure in BHP comprises of the shareholders, the Board of Directors, the functional committee, the Chief Executive Officers and the group management committee. The framed structure helps the company to renew as well as to blend the skills, knowledge and the experiences to provide the shareholders a prominent and an enhanced view about the company details which is often perceived to be highly beneficial to develop a transparent and almost accurate financial disclosure of the company’s status (BHP Billiton 2012; EDISON 2012). It is worth mentioning in this context that the elevated structure helps the company to improve the work process on a continuous basis. The shareholder’s engagement reflects the high-quality governance structure of the company. BHP follows the various formal and the informal communicating channels to determine the viewpoint of the shareholders in accordance to which the accounting statements are disclosed. In this context it helps the company to alleviate the risk of the corporate failure by engaging the shareholders in the form of meetings and by providing scope for the shareholders to contact the ‘Investor Relation Team’ (BHP Billiton 2012). Governance structure in a company also plays a vital role in delegating responsibilities for the Company Board of Directors. The most viable role of the Board complies with the representation of the shareholders with accurate information regarding BHP’s financial status (BHP Billiton 2012; Mulcahy 2012). The company has prepared the ‘Board Governance Documents’ for the Board members to comply with the rules and the regulations related to the corporate governance. This area further helped the company to maintain effective corporate governance system within the company. The feedback of the shareholders is passed on to the Directors and then passed on to the Board in BHP to ensure ethical viability at all levels of the reporting standards as practiced within (BHP Billiton 2012). From a critical perspective, in accordance with the corporate governance that helped the company to diminish the risks related to the corporate failure entails the skills, attributes and the experiences of the Director. The Board or the company considers that the inclusion of the diversified skills, attributes and the experiences of the Directors will effectively govern the company mitigating any form of unethical conducts in its reporting practices. The balance of the skills, knowledge, experiences and the attributes must be inherited by the Board members to foster the highest standard related to the corporate governance within the organisation (BHP Billiton 2012). Source: (BHP Billiton 2012) Reasons to the Areas Justified With Relevant Accounting Theories The approaches related to the corporate governance reflect upon the commitment of BHP with respect to the stakeholders’ interests to ethical and transparent reporting. With this similar concern, the company renders significant focus on identifying the risk and accordingly building the Audit committees to monitor the effectiveness of financial reporting, internal and the external audit and the risk management processes (BHP Billiton 2012). It is worth mentioning in this context that the shareholders engagement plays a vital role in the effectiveness of the corporate governance. Correspondingly, the shareholders in BHP form an integrated part of the organisation. The major investments are done by the shareholders, thus the company undertakes the formal as well as the informal communicating channels to keep the shareholders informed regarding its various financial dealings and also to gather information from the shareholder in the form of their feedbacks concerning the decisions taken by the company directors (BHP Billiton 2012). The decisions related to the incentive arrangement, receipt of financial statement and the selection of the board of directors further imposes a vital impact over the company thereby mitigating the corporate risk of gap amid shareholders’ interests and the company information disclosures. It is in this context that the positive accounting theory reflects the decisions with regard to the shareholders’ interests as a pivotal measure to avoid certain corporate risks in the form of transparency. Thus, it can be stated that the company has applied the positive accounting theory to monitor and manage the shareholders of the company (Macnamara 2005). The roles and responsibilities of the Board reflect the procedures and the standard to be followed by the decision makers in BHP to ensure the effective corporate governance following a normative accounting theory which demonstrate that specification of responsibilities as bestowed upon the decision makers of a company plays a vital role in mitigating the complexities in decision making and thus ensures transparency and better accuracy as well as critical adjustments in the reporting practices (BHP Billiton 2012; Macnamara 2005). Conclusion and Recommendations To ensure the effective and efficient governance of the financial and the marketing strategies of BHP, the directors must inherit the appropriate knowledge, skills and the experiences with respect to reporting practices. The directors of the company must therefore incorporate within it the leadership and the management quality to effectively perform the reporting activities. The corporate governance of BHP shall further help in framing the policies and the strategies related to its growth as well as its profit margin. Concerning these aspects, the decisions related to gender diversity, health issues within the company, the remuneration structure, the selection of the Board members and the receipt of the financial statement in BHP, are organised and processed with the help of proper and effective corporate governance. References BHP Billiton. 2012. Corporate Governance.http://www.bhpbilliton.com/home/investors/reports/Documents/2012/BHPBillitonAnnualReport2012.pdf Clark, Kevin. 2011. Accounting Theory. http://www.slideshare.net/khosru/accounting-theory-2. EDISON. 2012. Report On Corporate Governance And On The Company’s Ownership Structure. http://www.edison.it/media/corporate-governance2012-ENG.pdf. FRC. 2012. “The UK Corporate Governance Code.” Corporate Governance: 1-34. Macnamara, Jim. 2005. “PR Metrics: How to Measure Public Relations and Corporate Communication.” Background: 1-54. Mulcahy, Nick. 2012. “Stretch Effect In The Legal Market.” Business Plus: 52-84. OECD. 2005. Corporate Governance. http://stats.oecd.org/glossary/detail.asp?ID=6778. Read More