Accounting and Society: Case of BHP Billiton dam


A dam at the mining site controlled by BHP Billiton collapsed in November 2015, leading to the death of 19 people and destruction of property. In addition, several people were rendered homeless and lots of destruction was caused to the environment. The collapse of the dam caused several issues of relevance to the accounting and society. Already, the BHP Billiton with his joint venture partner agrees to compensate for the losses to the tune of billions of dollars. This demonstrates their commitment and being accountable for their mistakes. This essay addresses the concept of accounting and the society in relation to the BHP Billiton dam collapse case. The essay begins by describing the recognition and the valuation of the mining operations as an asset. The essay then discusses the potential possibilities arising from the dam collapse. The essay also discusses the factors influencing the accounting policy decisions. Finally, the essay discusses the social and environmental disclosures that would be required from the BHP Billiton in response to the dam collapse.

Recognition and valuation of mining operation as an asset

An asset can simply described as a resource controlled by an organization for future economic benefits. The asset recognition criteria help to determine what types of assets needs to be included in the balance sheet. The general asset recognition stipulates that it must be of economic value and is of future benefit to the organization. The other recognition criteria for the asset are that its economic benefit should be measureable. Therefore, the recognition criteria for the asset examine its economic benefits from sale or use and its ability to be measured objectively.

According to IFRS 6, the accounting for tangibles and intangibles should either be classified as tangible or intangible (Ribeiro, Elizio, & Taboada, 2014). The practice in the industry varies such that some entities may take the view that exploration and evaluation assets form part of the Plant, Property, and Equipment (PPE) since the underlying asset is intangible. Particularly, the mineral deposit is tangible, making them form part of the PPE.  In order to allow the users understand the financial statements, clear disclosure of the accounting policy chosen and the consistency in the application of the chosen policy is necessary (Rafael, Vaz, & Lucas, 2012).

On the other hand, the evaluations of the activities are further advanced than the exploration and hence easily meet the criteria for recognizing an asset. However, consideration needs to be based on merit. An asset is described as a resource that is controlled by an organization with the aim of getting some future benefits. Therefore, IASB recognizes an asset when it has a cost or value that can be measured and that the entity will reap some future economic benefits (Rafael, Vaz, & Lucas, 2012).

The wider implications of asset recognition criteria are that ownership and control determines whether an asset is included in the balance sheet or not. In this regard, an asset can be recognized in the financial statements of an entity even when the ownership of the assets belongs to another entity altogether. Therefore, the substance is stressed more than the form in deciding whether it is an asset or not (Harris & Arnold, 2012). Under the IASB framework, certain assets may not be recognized in the financial statements. For example, the IASB framework does not consider a highly dedicated workforce as an asset to the company. However, it is evident that a dedicated workforce is an important asset to the company. However, the IASB framework excludes them from the asset classification simply because the entity has no control over them. In this regard, an entity can easily control the mining site provided they have a legal right over it. The legal right gives them access to all the minerals that are within the contract form. When the entity owns the mining rights, measuring the cost of the assets becomes easy by the use of the actual expenditure incurred. Under IASB classification, the mining site controlled by BHP Billiton is considered an asset.

The asset valuation and recognition criteria may have policy choice implications. For example, the managers of an organization may resort to accounting methods that reduce the reported profits under intense political scrutiny as per the political cost hypothesis. In the case of BHB Billiton, the management may resort to accounting methods that are income reducing in order to limit their liability from the dam collapse incidence.  On the other hand, the share price before and after the disaster is likely to change. The billions of dollars the company will have to spend in compensation for the damage will definitely affect its share price.

Potential liabilities arising from the mine collapse

According to the IASB recognition framework, a liability is a present obligation that arises from the previous events. For example, the settlement for the damages caused by the BHP Billiton dam collapse would eventually result in outflow of resources from the organization. Just like the recognition for assets, the recognition criteria for liabilities examines the outflow of resources from the organization and that such cost/value can be measured reliably.

Valuation of liabilities can be defined as the method used to enumerate the debt obligations. BHP Billiton has to cater for the expenses of compensating the families of those who lost their family members. It will also have to cater for the villagers whose households and livelihoods were destroyed. The company will also settle the bills resulting from cleaning of the poisoned river. The company has the probability of facing a lawsuit form the affected persons. This implies the company will face possible costs of court and attorney. These expenses will reduce the values of assets, reduce the amounts of owner’s equity, and augment the value of liabilities in the company’s balance sheet (Eugenio, Isabel, & Morais, 2010). This is because the company might require using its cash, taking up loans, and probably not settling existing debts due to the resulting expenses from the collapsing of the dam. In their balance sheet, the company might decide to set aside some cash as compensation for the dam collapse. The recognition for contingent liabilities is provided by the AASB 37.

Expenses are the uses of cash or the company’s assets to another party. In a company, expenses are recorded in line with the expenses matching principle. The matching principle states that the expense or costs incurred in the operation a business are recognized at the same time as the revenue earned from the doing of that specific business. Transactions results at the same time in revenues and expenses, these expenses and revenues are directly linked to one another. This creates the cause and effect relationship. There are three approaches that expenses incurred can be matched against the generated income (Islam & Dellaportas, 2011). These include association of cause and effect in this method there exist a direct association of revenues and assets. Immediate recognition the method the expenses are recognized immediately. Systematic and rational allocation in this method there exist no cause and effect relationship.

In accounting, expense can be defined as cash spent or costs acquired in a company while trying to generate revenue and financial growth. The company will incur expenses in settling the resulting bills from the collapsing of the dam and poisoning of the river. These expenses will greatly affect the financial health of the company. The expenses recognition framework will be greatly affected. This is because the matching principle cannot be effective. This is because in the recognizing the expenses incurred due to the collapse of the dam by BHP Billiton no revenue will be generated.

Factors influencing the accounting policy decisions

It has been long held that asset recognition should be a priori to asset measurement in order to be sure of what accounting is measuring. However, it becomes a challenge to recognize the unrecognizable (Beuren, Nelson, & Klann, 2008). The IFRS publication describes all the mining entities, but focuses on the areas that are of interest to the companies in the financial sector.

The positive accounting theory stipulates that accounting should be viewed in the context of the total contracts they have entered into. Since the contracts are fundamental to the company, efficiency of their operations is critical for its success (Harris & Arnold, 2013). Therefore, the positive accounting theory stipulates that firms tend to minimize costs of its contracts to achieve the highest profitability. In this regard, the positive accounting theory helps the accountants to examine the actual and real world occurrences in shaping their prediction of how they should handle such situations. Therefore, the positive accounting theory provides mechanisms of looking at the real world scenarios and events in attempt to provide a fair view of accounting. In addition, the positive accounting theory seeks to understand how the economic consequences of these accounting decisions affect an entity. In this regard, the positive accounting theory tends to predict how BHP Billiton can account for transactions and events in future.

One of the factors to consider is the mining value chain. Usually, the value chain is long and have long list of stakeholders that are influenced by the mining activities. Usually, mining begins with explorations to determine the feasibility of the mine. The commercial mining often begins when the mine is commercially viable. The management would always want to treat the accounting for exploration and production differently.

The accounting policy for mining is also determined by the post balance sheet events. In such a case, the exploration project of a particular mine may be found to be unsuccessful subsequent to the balance sheet date. An entity can be in a position whereby they are still continuing with their exploration and have not yet decided whether to acquire an operating license.

The accounting policy for mines can also be determined by the disclosure of the reserves and the resources. The existing reserves help to predict the future production. These disclosures of the reserves are always accompanied by the financial statements. The requirements of IAS are that an entity should provide additional information within the financial statements as part of their attempts to gain fair presentation.


Social and environmental disclosures

Corporate social responsibility (CSR) and social and environmental disclosure has formed areas of interest in the recent past. Despite their perceived relevance in today’s business, people are still divided on the. In the attempt to address the world view, accounting needs to address the social dimension of the world. Social accounting provides input that facilitates visibility of the rich world by offering simplistic representations and reducing complexity in the accounting economics (Islam & Dellaportas, 2011). In this regard, social accountants have the potential of creating good impact in the business world.

The social and environmental disclosures entail the measurements and calculations of social and environmental costs and benefits. There was need for the environment to be valued in economic process as part of the measures that are meant to achieve sustainability in business processes. Social and environmental disclosures are significant for any form of social and environmental accounting cannot produce inconvertible accounts, which has been an issue in the environmental arena. In this regard, BHP Billiton needs to quantify dollar values with aspects of the natural environment to be valued as part of the natural environment. Such costing should include calculations of potential future liabilities for social damage such as accidents and environmental degradation.

The expanded accounting disclosure that incorporates the society and the environment provides the real value of all the accounting information provided by the accountants. The social and environmental accounting enables BHP Billiton to cope with the richness and complexity of the issues and values involved in the accounting involved. No matter how conventional accounting may look, the figures that are produced from them, are inherently rubbery since they do not take into account the environmental context in which they are produced.

Social and environmental disclosure supports the basic recognition that the business activities carried out by the organization has a broad impact that cannot only be measured on economic terms. Unlike the traditional accounting, social and environmental accounting takes care of the actions and the effects of the organization upon their external environment. Traditionally, the managers often had the strong desired to increase the shareholders’ value and this made them to focus their interest in cost accounting with less regard to social and environmental issues. However, social and environmental accounting provides a new dawn for the managers to adopt increased their shareholders value in addition to adopting broader ethical practices and disclosures that characterize their business operations.

The disclosures and the motivation for CSR is to help organization have a positive outlook after a negative outcome. From the perspective of the legitimacy theory, BHP Billiton can engage in CSR activities to show that their actions are proper, desirable, and appropriate. There has been an upward trend after the disaster, mainly to show that the activities carried by such organization are necessary in the society. The CSR is a true commitment by BHP since they are actively involved in compensation programs and other community support initiatives.


The collapse of the dam at the mining site controlled by the BHP Billiton provides a good case for the study of accounting and the society. The recognition and valuation of mining operation has been a matter of debate among the policy makers and the accountants. IASB framework describes an asset as a resource that is controlled by an entity as a result of the past events from the future economic benefits. Therefore, IASB recognizes an asset when it has a cost or value that can be measured and that the entity will reap some future economic benefits. Under IASB classification, the mining site controlled by BHP Billiton is considered an asset. As part of the attempts to compensate the victims of dam collapse, the BHP Billiton will have to undergo some expenses. These expenses will reduce the values of assets, reduce the amounts of owner’s equity, and augment the value of liabilities in the company’s balance sheet. The accounting policy decisions will be influenced by the nature of the contracts entered. The positive accounting theory stipulates that accounting should be viewed in the context of the total contracts they have entered into. The other factors that determine whether mining will be treated as an asset are the mining value chain and the disclosure of the reserves. Finally, BHP Billiton must be socially and environmentally responsible in their line of business. Social and environmental accounting takes care of the actions and the effects of the organization upon their external environment.



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