hi there, i need to write this 2,000 words report by sunday midnight. it's about the cases of oil spill (but we can write down about bp and the other case). could you please find other similar cases,...

Introduction

This report is written to critically analyze the wrong accounting practices adopted by the BP-
world Petroleum giant to overstate its profit. The main aim of financial report is to form a
basis for the Conceptual Framework along with many other features of the Framework
emerging from it and to give financial information related to the entities of reporting which
are valuable to the current and potential lenders, investors and some other creditors which
help them in making decision of supplying resources to the entity. Also, user are directed
who supply resources to entity of reporting but they don’t have capability to force the entity
for giving them information which they need to make decisions related to their investments.
The conceptual framework designed by regulatory bodies play important role in transparency
and accountability of this information. But in case of BP, they manipulate the information to
fool investors by overstating the profits. Hence, we will try to analyze the various wrong
practices adopted by them to gain undue advantages.
British Petroleum and Wrong Practices

The accounting choice employed by BP is selected keeping in mind to show maximum profit
so as to win the trust of the investors. We will critically analyze all the procedures one by one
to find out truth in the researcher statements.
Flaw in Operating Income Calculation

It shows Profit on property disposal, Exceptional cost and Exceptional pension credit as parts
of the operating income calculation. But none of these activities are from the result of
recurring operating procedure. Hence, the inclusion of this item is correct from the
accounting point of view but it is totally wrong if we think about the interest of the investors.
It is because of two reasons:- a) the investors give importance to the operating profit b) By
adopting this method, It succeeded in overstating the profit of the company. This can easily
clear from the analysis of profit statement for 2011 & 2012
With Non-Recurring 2011 2012
Gross Profit 3371.9 3486.8

Selling & Marketing
Expenses -2074.4 -1912.7
Administrative Expenses -570.1 -534.5
Other Operating Income 41.5 49.7
Profit on Property Disposals 6.4 27
Exceptional costs (strategic) -135.9 0
Exceptional Pension Credit 231.3 95
Operating Profit 870.7 1211.3
Without Non-Recurring Gross Profit 3371.9 3486.8

Selling & Marketing
Expenses -2074.4 -1912.7
Administrative Expenses -570.1 -534.5
Other Operating Income 41.5 49.7
Operating Profit 768.9 1089.3
Decrease in Profit 12% 10%
It is because of this method only BP is successful in overstating the profit by around 12% last
year and 10% in 2011-2012.
Flaw in treatment of Property, plant and equipment Disposal

The method to show property plant and equipment and their depreciation is correct from
accounting standard as well as from investor point of view. However, the only concern is not
to include any profit or loss in operating income calculation as mentioned above. This is
because of the reason that the profit and loss because of this step is not as a result of
continued operation. Hence, it overstates the profit by 1% last year and 2% in 2011-12 as per
analysis given below:-
With Property Disposals 2011 2012
Gross Profit 3371.9 3486.8

Selling & Marketing
Expenses -2074.4 -1912.7
Administrative Expenses -570.1 -534.5
Other Operating Income 41.5 49.7

Profit on Property
Disposals 6.4 27

Exceptional costs
(strategic) -135.9 0
Exceptional Pension Credit 231.3 95
Operating Profit 870.7 1211.3
Without Property Disposals
Gross Profit 3371.9 3486.8

Selling & Marketing
Expenses -2074.4 -1912.7
Administrative Expenses -570.1 -534.5
Other Operating Income 41.5 49.7

Exceptional costs
(strategic) -135.9 0
Exceptional Pension Credit 231.3 95
Operating Profit 864.3 1184.3
Decrease in profit 1% 2%
Method to estimate Residual Value and Economic Life is not fair

The process of reviewing the annual life and the residual value is correct if we consider the
way the price of all these things are changing, but the problem here is that no procedure is
defined here which in turn raises doubt on their correctness. Hence, the right method is to
give a detailed procedure about its calculation so that it will increase transparency and
provide valuable information to the investors.
Additional cost added to Software Amortization

The practice to amortize software and its associated cost is correct...