Introduction
The assessment highlights the roles, objectives and limitations of financial statements of a company. This assessment makes a comprehensive analysis of financial data and accounting information of British Petroleum. The study makes a clear view about the importance, limitations of preparing financial statements by the companies. The study shows the importance and role of Generally Accepted Accounting Principles and International Accounting Standards for evaluating, analysing and recording of the accounting data and information of BP United kingdom. This study also provides a clear view about the methods, processes and procedures to be implemented by the companies to record and evaluate the financial information.
Objectives of Annual Statement
Financial information:
The annual reports of BP includes information to the shareholders regarding the performance, amount of annual dividends to be paid in the current financial year, financial statements of the company, its missions, visions, objectives, goals and future objectives of the company. Annual report of BP also includes statements of statutory auditor of the company about various compliances and unbiased statements about the financial positions, productivity and profitability of the company to its stakeholders. The financial statements of BP UK are given in the appendices. (Referred in appendix 1 to 3)
The annual report and statement of a company provides information regarding the financial data of the company. The importance of recording financial statements is to record and evaluate financial information for the day to day activity of the company. The companies have to record the financial information from the business in order to analyse the financial performance of the company. Financial statement is crucial for the company to evaluate the performance, profitability and productivity of the business. It includes recording of income statement, statement for profit and loss, and statement of balance sheet of the company. As opined by Beatty and Liao (2014, p. 375) the financial statements record various financial transactions of the company while in operations and recording of additional information that the company incurred while in operations. Financial statement helps the company to critically evaluate and record any variances of the performance for the company. It also helps the management to record and analyse any variances between the previous years and current year’s financial data of the company.
Performance orientations:
Financial statements help to analyse and evaluate the performance and productivity of the company by reviewing the financial statements of the company. Financial statements create comprehensive review about the financial conditions and performance of the company and help to take investment decisions for the management. As stated by Bushman (2014, p. 389) financial statements of the company are important for the decision making capabilities of the stakeholders of the company. The various stakeholders of the company such as shareholders, investors, creditors, debtors, employees, customers and government agencies can analyse the investment criteria for investing into the company by evaluating the financial statements so produces.
Underlying achievements:
Highlighting the financial statements of the company produces advertisement and promotions for the company about various achievements and milestones that the company faced. As opined by Radebaugh (2014, p. 49) it also promotes various development and improvement of the business of the company. It gives a clear view to the stakeholders of the company about various achievements and improvements that the company achieved in the recent years. It proves a comprehensive view about the objectives, goals and focuses of the company and helps to analyse the future goals and focuses of the company. Financial statements create a highlight about the progresses made by the company and to record any variances of performance from the previous years.
Advertisements and Promotions of the Company:
Financial statements help to advertise market and promote the achievements of the company. It also helps the company to promote the goodwill that the company created in the past years. The annual statements of the company highlight the goals, objectives, visions and missions of the company. It also provides a clear view about the future goals, director’s statements, performances and financial statements of the company. As opined by Wang (2014, p. 974) the annual statement is a book that is given by the company to its shareholders to know the performance and productivity of the company. The financial statements help the company to invest, publish and offer shares to the public. The people in the society invest and buy the company’s shares by evaluating and analysing the financial statements of the company. All the stakeholders of the company depend on the financial statements for taking investment decisions of the company.
In the context of British Petroleum the company follows proper and adequate methods and strategies to record and evaluate the financial information’s of the business. As referred by De Simone (2016, p. 172) the company is competent enough to maintain the financial data and information of the company and record it to the financial statements. The company published the financial statements annually to the shareholders of the company.
Limitations of Annual Statements
The recording of financial statements of the company also includes various limitations and challenges that are faced by the companies. They are:
Cost of the company:
Recording, evaluating the financial information and data of the company lead to incurring of huge administrative costs of the companies. As opined by Oulasvirta (2014, p. 278) the company has to make separate department for recording and evaluating the financial statements of the companies this increases the costs and obligations of the companies.
Obligations:
The companies have to follow various rules and regulations for recording and analysing the financial data of the business. This involves proper and efficient implications of International Accounting Standards and following of Generally Accepted Accounting Principles for recording and evaluations purpose of the financial information.
Time:
Recording and analysing the financial data of the company involves time and man hours. As stated by Minnis et al. (2015, p. 15) the company and the management have to invest considerable amount of time for meeting several obligations for recording the financial information of the company. So the prior objectives of the company shift from productivity to effective compliances. This hampers the day to day business activities of the company.
Compliances:
The companies have to maintain proper compliances for recording and implementing the financial information within the financial statements. As opined by Mardini et al. (2015, p. 18) this includes various compliances such as Companies Act 2006, following International Accounting Standards, by implementing Generally Acceptable Accounting Principles, following Negotiable Instrument Act and other tax rules and regulations for recording and evaluations of the financial data. This reduces the company’s time and increases the costs of the company for implementing various compliances and rules for recording the financial data.
Challenges faced by Financial Accountants
The several challenges that are faced by financial accountants of the companies are:
Recording and evaluating of financial data:
The functions and business objectives of the companies are becoming more complex day by day as the business are venturing into new markets and products for enhance profitability and productivity. Implementing new product chain and product line create more complicated approach to record the financial data of the company. As stated by Van and Carraher (2013, p. 143) the work of the financial accountants of a company now a days is more complicated and enlarged. The financial accountants have to face several challenges such as recording financial data, analysing the invoices of each items and analysing the performance.
Lack of time:
Lack of time and limited period the accountants faces severe challenges for recording and analysing the financial data effectively. This increases the chances of misstatement of the financial performance of the company.
Maintenance of various compliances:
The financial accountant of the company has to maintain and formulate several companies while recording and evaluating the financial information of the company. Due to limited time the accounts face challenges to record the financial data by implementing compliances laid down the government.
Needs and sources of regulations
Recording and evaluation of financial information by complying the rules and regulations are needed to record the financial statements efficiently and effectively. As opined by Carraher and Auken (2013, p. 325) this leads to unbiased information regarding the financial information, performances and financial positions of the company. The compliances for proper recording of the financial statements include Companies Act 2006, Securities and Exchange Act 1934, International Accounting Principles, Generally Accepted Accounting Principles and Corporate Taxes.
The needs for regulations are to provide clear and unbiased information regarding the financial situations and profitability of the company to its stakeholders. This safeguards the public to invest in shares of the companies offered to the public and provides an unbiased prospectus for the issue of shares.
Accounting standards
British Petroleum uses International Accounting Standards for recording and evaluating the financial information of the company. As BP is engaged in cross country and cross cultural business all over the world the company implements international standards for accounting and recording the financial data from operations in various countries. As opined by Hoyle et al. (2015, p. 120) it is mandatory for all developed and developing countries in the world to follow International Accounting standards while recording and evaluating the financial statements.
Evidence to Sustain
International Accounting Standards is crucial for following the recording and evaluating the financial information of the companies. As referred by Weil et al. (2013, p. 102) this creates a parity and similarity for recording and evaluating the financial data of different companies operating all across the world. Due to trade and globalization among the countries it is important to follow International Accounting Standards while recording the financial statements as this creates parity for analysing the financial statements.
Challenges
Different companies have different objectives and goals this creates a burden for the company to implement International Accounting Standards. As opined by Bushman (2014, p. 389) this leads to increase in the administrative costs of the companies and increases the time and man hour to formulate several compliances and formalities of International Accounting Standards. Companies in the developing countries challenges and threats to implement International Accounting Standards as it increase the costs and regulations of the company. The objectives and goals of the company are hampered due to formulations of International Accounting Standards.
Recommendations
The implementations of International Accounting Standards create more reliability of financial data evaluated by the companies. But the costs and compliances of International Accounting Standards is very vast and complicated. The international organisation should recommend some changes and update the rules and regulations to create more management friendly approach to overcome the problems and challenges faced by the companies for implementing International Accounting Standards while recording and evaluating the financial data. Different countries have different rules and regulations regarding companies act and securities acts. The International Accounting Standards should be tailor made to suite different rules and regulations of different countries.
Conclusion
The assessment provides comprehensive analyses of the International Accounting Standards and Generally Accepted Accounting Principles followed by the company to record and evaluate the financial data. The study covers objectives and limitations of annual statements and challenges faced by the financial accountants to analyses the financial statements. The assessment also provides an overview about the needs for implementing proper rules and regulations to record and analyse financial data. It also highlights various recommendations that can be implemented by the International Organisation regulating International Accounting Standards to reduce and mitigate several challenges for evaluating the financial data by the companies.
References
Beatty, A. and Liao, S., (2014) Financial accounting in the banking industry: A review of the empirical literature Journal of Accounting and Economics, 58(2), pp.339-383
Bushman, R.M., (2014). Thoughts on financial accounting and the banking industry Journal of Accounting and Economics, 58(2), pp.384-395
Carraher, S. and Van Auken, H., (2013) the use of financial statements for decision making by small firms Journal of Small Business & Entrepreneurship, 26(3), pp.323-336
Hoyle, J.B., Schaefer, T. and Doupnik, T., (2015) Advanced accounting 2nd Ed. London: McGraw Hill
Mardini, G.H., Crawford, L. and Power, D.M., (2015). Perceptions of external auditors, preparers and users of financial statements about the adoption of IFRS 8: Evidence from Jordan. Journal of Applied Accounting Research, 16(1), pp.2-27
Oulasvirta, L., (2014). The reluctance of a developed country to choose International Public Sector Accounting Standards of the IFAC A critical case study Critical Perspectives on Accounting, 25(3), pp.272-285
Radebaugh, L.H., (2014). Environmental factors influencing the development of accounting objectives, standards and practices in Peru. The international Journal of Accounting Education and Research Urbana, 11(1), pp.39-56
Van Auken, H. and Carraher, S., (2013) Influences on frequency of preparation of financial statements among SMEs Journal of Innovation Management, 1(1), pp.123-185
Wang, C., (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer Journal of Accounting Research, 52(4), pp.955-992
Weil, R.L., Schipper, K. and Francis, J., (2013). Financial accounting: an introduction to concepts, methods and uses. 14th Ed. Boston: Cengage Learning.
Appendices
Appendix 1
Consolidated Income Statement of BP UK for the year ended 31st December 2016
Appendix 2
Changes in the Equity shares of British Petroleum
Appendix 3
Statement of Consolidated Balance Sheet of BP for the Year Ended 31st December 2016
