BHP Billiton and Vale do Rio Doce own 50% of a company called Samarco. After the mineral exploration, the dam collapsed in which the joint venture has paid $2 billion in total distributing: 2016 - US$ 300 million 2017 - US$ 1.2 billion 2018 - US$ 500 million On the 4th February 2021 Vale agreed to pay US$ 7 billion in compensation after negotiation with Brazilian authorities. In addition, Vale provisioned an amount of US$1 billion in compensation to be paid in the financial year ending in 2021. The consulting firm and the accountants believed that the amount of US$ 1 billion was not conservative, suggesting rather, that a provision of US$ 7.5 billion should be made. The managers decided for the ‘good of our shareholders, that they we will make a provision of US$ 1 billion’. Required: Critically evaluate whether the decision of Vale’s management to make a provision of US$ 1 billion was ‘good’ for the users (financial and non-financial users) of the financial accounts. Include in your evaluation, references from relevant accounting regulation (both standards and the conceptual framework) and an ethical evaluation of the impact of this decision.
BHP Billiton and Vale do Rio Doce own 50% of a company called Samarco.
After the mineral exploration, the dam collapsed in which the joint venture has paid $2 billion in total distributing:
2016 - US$ 300 million
2017 - US$ 1.2 billion
2018 - US$ 500 million
On the 4th February 2021 Vale agreed to pay US$ 7 billion in compensation after negotiation with Brazilian authorities.
In addition, Vale provisioned an amount of US$1 billion in compensation to be paid in the financial year ending in 2021.
The consulting firm and the accountants believed that the amount of US$ 1 billion was not conservative, suggesting rather, that a provision of US$ 7.5 billion should be made. The managers decided for the ‘good of our shareholders, that they we will make a provision of US$ 1 billion’.
Required:
Critically evaluate whether the decision of Vale’s management to make a provision of US$ 1
billion was ‘good’ for the users (financial and non-financial users) of the financial accounts.
Include in your evaluation, references from relevant accounting regulation (both standards and
the conceptual framework) and an ethical evaluation of the impact of this decision.
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