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Accounting Theory:British Petroleum Oil Split in Mexican Gulf 2010 - Essay Example

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With the intention to decode the operations of businesses and their consequences, various accounting theories have been brought into use.For instance, the positive accounting theory emphasises the Ex Enteagreement between the two parties…
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Accounting Theory:British Petroleum Oil Split in Mexican Gulf 2010
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Accounting Theory:British Petroleum Oil Split in Mexican Gulf 2010

For instance, the positive accounting theory, also known as agency theory, emphasises the Ex Ente (before the event) agreement between the two parties, i.e. an agency and the agent. Notably, this particular theory accounts for the costs to be incurred by the agency, as a consequence to the failure of the agent to perform the delegated authority efficiently (Watts & Zimmerman, 1990). Correspondingly, the behavioural accounting theory argues that key decision makers of an organisation can add value to the company. Delivering the key decision makers of the company with such significance, the assumptions taken in the behavioural accounting theory intends to make the behavioural effects of the decision makers within an organisation, substantially transparent to the company stakeholders (Gillenkirch & Arnold, n.d.). Again, the Critical Accounting Theory (CAT) is concerned with the social customs and practices, which tend to ignite a change within conceptual, institutional and practical dimensions of accounting theories. Thus, arguing on the basis of the change drivers, the theory aims to justify the strategies needed to be taken by a business so as to avoid strategic failure (Tilling & Tilt, 2002). Emphasising these theories of accounting, the study aims at evaluating the incident of BP oil spill in the Mexican Gulf in the year 2010. 2. The Case 2.1. Case Study As reported in the company annual report, BP had to suffer a considerable loss and inhibited market reputation owing to the oil spill that occurred in the Gulf of Mexico, in 2010. The spill was caused due to explosion and the subsequent fire in the semi-submersible rig of its Deepwater Horizon plant. In the massacre, a total of 17 people on the vessel were injured apart from which, 11 people had died as the consequence of the blast. Following the explosion and the sinking of the vessel, the oil kept spilling in the gulf for around 87 days, causing severe negative impacts to the marine life and the entire biological cycle within and surrounding the horizon (BP Annual Report and Form 20-F, 2010). This indicates towards a poor agency relationship of the company with its stakeholders as per the positive accounting theory (Watts & Zimmerman, 1990). As per the report, Transocean Holdings LLC and BP plc were accountable for the oil spill in the Deepwater Horizon rig, as the former was the architecture of the well and the latter operated as the agency responsible to keep continuous check and control on the leak risks to the well, which implies to the assumptions of the critical accounting theory of effective decision making in response to the identified issue, confirming change in its organisational policy behaviour and structural orientation (BP Annual Report and Form 20-F, 2010; Tilling & Tilt, 2002). 2.2. Data As mentioned in its annual report, in July 2010, BP settled various agreements to sell the upstream assets in the US, Canada along with Egypt to Apache Corporations. This divestment was required for BP, as it was capable to increase the target for divestment to US$ 10 billion, which further assisted the company to suffice the GCCF claims at a greater ease. Similarly, in October 2010, BP again formed an agreement with its partner Hess Corporation for the sale of 20% interest that BP used to hold in Tubular Bells followed by the selling of its interest in Pan American Energy to Bridas Corporations and in a number of operational matured oil and gas fields in the UK to obtain liquid assets, which were further used by the company to suffice the claims made in lieu of the oil spill in the Gulf of Mexico (BP Annual Report ... Read More
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