IntroductionFinancial information should be transparent in order to ensure that decisions and actions are made in an understandable, accessible and visible manner to all the interested parties. This requires the financial information to be disclosed to the interested parties in an open and timely method. According to International federation of accountants (2011, p. 9) financial reporting has evolved in order to meet the changing needs of the users of the financial information. Capital markets and businesses have become more challenging with immense complexity occurring in business models, sources of uncertainty and risk as well as the increased difficulty in managing risk.
The evolution has occurred with an aim of making the financial statements to be more relevant to the users. This essay aims to analyze the impacts of carbon tax on BHP Billiton financial statements using the Hines (1988) concepts of accounting Hines (1988) Accounting ConceptsHines (1988, p. 252) states that revenue is recognized when it is realized. Revenue is considered to be realized or recognized at the point of sale and that is when goods leave an organization or are conceived to have left the organization.
Revenues are recognized when goods are partly or partially completed, when the customer is invoiced, when orders are placed or when a customer is billed. According to Hines, accounting creates reality and thus accounting reports and numbers can be molded and shaped as well as measured without obstruction. Therefore, when most people hold the conception of reality, then accountants must reflect it so as to ensure that the people maintain faith with the accounting information. Nevertheless, Hines states that organization assets are measured by considering their costs to the organization.
This means that people see reality when they see the real measurement and that is when they hold confidence and agree with the information presented. Therefore, the communication perspective, information perspective and measurement perspective of accounting should be constructed to reflect reality. The information presented by accountants should be constructed in such a way that it plays a role of communicating social reality. Carbon Tax the New Social realityAccording to KPMG (2011, p. 1) the carbon tax legislation in the country aims at supporting the government towards transforming Australia to a low carbon economy.
Hines (1988, p. 254) states that accountants should communicate and create reality in accordance to the social conception of reality. This will enable the society to maintain faith with the company and the financial information presented. The new carbon tax represents potential costs which businesses must incur in order to move towards a low carbon economy. These costs are both direct and indirect hence the need for accountants to construct financial statements so as to show the cost reality associated with the carbon tax.
Furthermore, the carbon tax has a potential accounting implication as it requires companies to purchase permits which will lead to creation of new assets for the companies and liability in ration to the expenditure that will be incurred. The current lack of accounting standards and guidelines relating to accounting of emission permits means that the carbon tax represents a new social reality that accountants must construct in the financial statements.