Compare two finacial statmetns - Essay Example

The BP financial statements reflect the FIFO methodology, which is first-in, first out when considering recognition of inventories. The first-in cost is represented by the cost of inventory at the start of the fiscal year and then a transfer to the cost of goods sold represent the oldest costs incurred, based on the volume of inventories sold, leaving the most recent costs of inventoried merchandise that was purchased or produced in-house. BP did not have to choose the FIFO method, they could have selected from a weighted average option, which “calculates the average cost of the items in the beginning inventory plus purchases made throughout the year” (McManus et al, 155).

Under this option, the average is calculated in order to derive a cost of goods sold figure and the value associated with ending inventory at the end of the fiscal year. BP could have also chosen the LIFO method, which is last in, first out. The calculations show more recent merchandise costs as cost of goods sold after the items have been sold with the on hand inventory at the end of the year costed to the oldest costs associated with the inventories. Stakeholder-orienting reporting standards are issued by the SEC, the Securities and Exchange Commission.

The purpose of filing these financial reports to the SEC are to “provide investors a full and fair disclosure of the securities being issued and the issuer’s business activities and financial position” (Marshal, McManus & Viele, 385). The basic premise of SEC guidelines ensures that the information being presented in the financial reports is congruent to the actual business activities of the organization and is an accurate representation of real-life financial status for the company. This organization acts as a monitoring agency to ensure that companies are not inflating earnings or