answer questions about the following topics:
Part 1: Third-Party Transactions
Part 2: BP’s Retained Earnings
Part 3: BP’s Discontinued Operations and Extraordinary Items
Part 4: BP’s Bond Offerings
Part 5: BP’s Long-Term Receivables
Course Project
Part 1.
Third-Party Transactions
This week, you will conduct research to determine the disclosures that generally accepted accounting principles (GAAP) requires for BP’s financial statements. Go to the Financial Accounting Standards Board website and the FASB Codification; review the standards listed there that are associated with stockholder’s equity presentation. Also, access BP’s annual reports for the period 2005–2009 from the BP website. Using the information you find related to GAAP, answer the following questions with your group:
Discuss the FASB disclosure requirements as they relate to stockholder’s equity. Did BP follow GAAP in its annual reports by including those items in the notes to the financial statements where applicable?
Using the annual reports for the period 2005–2009, select one item in the stockholder’s equity section and track the change in that number from 2005–2009. Based upon your research, answer the following:
What type of change did you note (positive or negative)?
What were potential causes of the changes from one year to the next?
Research and discuss the FASB disclosure requirements as they relate to third-party transactions. Does BP have any third-party transactions that were not disclosed in accordance with GAAP? Do you think it would be ethical for a BP executive or any company executive to allow a relative to buy stock at below par when the general public purchases it at or above par? Should this type of transaction be justified and disclosed? Explain.
Part 2.
BP’s Retained Earnings
In 2010, BP decided to suspend the payments of dividends to shareholders and instead create a $20 billion fund for claims related to the oil spill. The company argued that this was the best way to quickly raise this money, but do you think that it was the best course of action? What consequences might this have?
Using the BP annual reports for the period 2006–2009 and your research of BP’s retained earnings structure, answer the following questions with your group:
Do you think BP’s suspension of dividend payments was a wise idea? What type of impact might that decision have on retained earnings? Explain.
What components of BP’s retained earnings structure might be affected by the 2010 oil spill? Are there changes that you think BP should make to help manage this impact?
Part 3.
BP’s Discontinued Operations and Extraordinary Items
Like any other company, BP sometimes has to discontinue operations or declare items as extraordinary. Did this happen between 2006 and 2009? If not, what circumstances might have led to that happening?
Answer the following questions with your group:
Review BP’s annual reports for the periods 2006–2009 and note whether BP had any discontinued operations and extraordinary items. If one of these items occurred, discuss the circumstances that led to it.
If BP had none of these items occur, explain the circumstances that would require one of the following:
Discontinuation of some of the oil or refinery business segments
An event classified as extraordinary
Part 4.
BP’s Bond Offerings
Unexpected events can have a serious effect on a company’s ability to issue bonds. The Deepwater Horizon oil spill certainly qualifies as one of these events. How will this affect BP’s issuing of bonds? Do you see BP’s behavior changing already in this regard?
Using the FASB website, the FASB codification standards and the BP annual reports for the period 2006–2009, answer the following questions with your group:
How do you think the oil spill will impact the ability of BP to issue bonds in the future? How would you rate any bond offering that BP might consider in order to raise money to pay for the oil spill? Explain.
Does it appear that BP plans to issue or retire any long-term debt in the immediate future? If so, would you recommend that BP make a bond offering in the near future to help raise cash to pay for the effects of the oil spill? Why or why not?
Research the GAAP disclosure requirements related to long-term debt, bonds, and notes payables. Based upon your research, do you think that there are disclosure items that BP would rather not reveal in the notes to the financial statements? Explain.
What ethical and legal dilemmas might BP encounter if it would decide not to follow GAAP by adequately disclosing the effects of the oil spill on long-term bonds, notes, and debt that are currently on its balance sheet? Explain.
Part 5.
BP’s Long-Term Receivables
During this portion of the project, your group will first review the balance sheet for BP as of December 31, 2009, and determine what types of long-term notes receivable are present. In addition, your group will review the notes to the financial statements to see what disclosures might have been made and refer to the FASB website to determine the GAAP requirements for long-term notes receivables.
You will then compare BP’s 2009 balance sheet to the 2009 Annual Report for Shell Oil Corporation, which uses International Financial Reporting Standards (IFRS) when preparing its financial statements for the year. To facilitate your comparison, review the IFRS standards as listed on the International Accounting Standards Board website.
Based upon your research, answer the following questions with your group:
What types of long-term receivables are present on BP’s balance sheet as of December 31, 2009?
What were the key items mentioned in the notes to the financial statements as they relate to long-term receivables?
Does the information presented in the notes appear to be in accordance with GAAP? Explain your position.
Compare the 2009 Shell Annual Report with BP’s 2009 balance sheet. How does financial reporting for long-term receivables differ for GAAP and IFRS? Which do you think requires more comprehensive information? Justify your position.
If you had the opportunity to choose between using GAAP and IFRS, purely for long-term receivables, which would you choose? Why?
RESOURSES:
BP Global
http://www.bp.com/bodycopyarticle.do?categoryId=1&contentId=7052055
On BP’s website, click “Investors” on the top navigation bar and then “Annual Reporting” on the left menu bar to reach BP’s annual financial reports. These annual reports provide information necessary for your Group Project.
American Accounting Association
This link provides access to the Financial Accounting Standards Codification. Use the following username and password to obtain access to the codification. Username: AAA53291 and Password: wGu2Enp
