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CROSS-CULTURAL COMPARATIVE ANALYSIS FOR POTENTIAL INVESTMENT
SHACQUERRA M. HAMILTON ( 9625224 )
AYB227 INTERNATIONAL ACCOUNTING
SEMESTER ONE, 2016
SCHOOL OF ACCOUNTANCY
QUEENSLAND UNIVERSITY OF TECHNOLOGY
1,520 WORDS

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TABLE OF CONTENTS
Preliminary Explanation for Selection of Three Global, Listed Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparative Analysis: Pre-IFRS Development Factors, Cultural Dimensions and Accounting Values and Their
Impact on POST-IFRS Accounting Values and Financial Information Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Comparative Analysis: Corruption Levels and Financial Statement Analysis Limitations . . . . . . . . . . . . . . . . . . . . . 4
Investment Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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Preliminary Explanation for Selection of Three Global, Listed Companies
After further analysis of the six globally listed companies within the petroleum refining industry, the companies that
I have selected to further expand on are British Petroleum (BP), Total and PetroChina (CNPC); who all have their
current (2015) annual reports available. I selected both BP and Total for the reason that both company’s financial
statements are prepared in accordance with IFRS using the European Union’s adopted version of IFRS. PetroChina
on the other hand follows their own Chinese Accounting Standards provided by the Ministry of Finance, however
according to China’s IFRS profile, China has adopted nationalaccounting standards that are substantially converged
with IFRS. However, BP has serious environmental impacts that have tarnished the brand in recent years. In
addition to that,both Total and the PetroChina have been negatively impacted by several issues regarding corruption
and ethics.Fortune has provided a SWOT analysis further detailing the strengths,weaknesses,opportunities,and
threats for BP, Total and PetroChina respectively.
BP’s diverse portfolio aids them in hindering the market’s impact on the company if the market were to take a huge
hit, however, their environmental safety reputation took a huge hit after the 2010 oil spill and the Deepwater
Horizon explosion which could be a huge problem in long run regarding their sustainability as the global society
becomes more adamant in protecting the environment (See Appendix 1, Table 1). Total is Europe’s largest refiner
and has a growing liquefied natural gas (LNG) production but continues to face fallout from an Iranian bribery
scandaland consecutive years of declining sales. This could greatly effect Total’s sustainability in the near future
both internally and externally due to negative ethical practices further hurting future sales (See Appendix 1, Table
2). PetroChina, as a subsidiary of CNPC with a variety of assets all over the world but its recent scrutiny by China’s
anti-corruption campaign may put the company in a position that heavily affects their assets and holt future business
operations (See Appendix 1, Table 3).
Comparative Analysis: Pre-IFRS Development Factors, Cultural Dimensions and Accounting Values and
Their Impact on POST-IFRS Accounting Values and Financial Information Quality
The United Kingdom, France and China’s accounting practices and principles have been influenced by important
development factors such as source of finance, legal systems,taxation, and political and economic ties (See
Appendix 2, Table 4). In the UK, shareholders provide capital to companies. Accounting is independently regulated,
taking a more principles-based approach rather than rules-based. In France, EU directives, tax law and globalization
have a huge impact on financial reporting. Government and the large government backed banks provide capital to
companies which is evident in its legal systemwhere the government sets all of the rules. Companies pay taxes on
the accounting profit state in annual reports unlike in UK where companies are allowed to submit separate records
for taxes which results in paying a tax on a much lower taxable income. In China, the government provides capital
which can be attributed to their socialist market economy. Its legal systemand taxation is just that of France,
however, the government involvement is more extensive.
Cultural characteristics play a significant role in the accounting practices and principles taking Hofstede’s cultural
dimensions into consideration; power distance,individualism, masculinity, uncertainty avoidance, and long-term
orientation (See Appendix 2, Table 5). In the UK, mutual respect is shown between managers and employees and
people are encouraged to achieve great things,be independent and responsible risk takers. This can be attributed to
the legal systemcatering to the shareholders due the creation and sustainment of a competitive, very profit-driven
environment within a company to provide substantial salaries and dividends to shareholders. There isn’t a huge
distance between the poor and elite in France. They still value independent accomplishments despite its low
masculinity score and ambitious planning for the nation’s future which can be attributed to government involved in
it legal systemand source of finance. The Chinese, however, have a strict societal structure and conduct that they
follow and power is in the hands of very few which can be attributed to its source of finance and legal system.
Taking it a step further, Gray delved deeper and give us a more in depth analysis of international accounting values;
professionalism-statutory control, uniformity-versus flexibility, conservatism-optimism, and secrecy-transparency
(See Appendix 2, Table 6). In the UK there is self-regulation while also providing transparency,accounting
practices are flexible, and measures are approached optimistically which can be attributed to their low power
distance and uncertainty avoidance scores.In France people look out for themselves and their families which has
transferred into their accounting practices and can be attributed to their high individualism and low masculinity
scores.In order to ensure long-term sustainability in China, there’s strict adherence to regulations and legal system.
Government controls accounting, auditing, and regulation with statutory controlled legislation and a requirement for
uniformity which can also be attributed to their high power distance score.

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The UK’s pre-IFRS is likely to influence post-IFRS accounting for the reason that it has a favorable profile for IFRS
due to the history and concepts ofIFRS, and the organization and procedures of the IASB, reflect a strong
connection with the UK accounting culture and IFRS has strong similarities to UK GAAP (See Appendix 3, Table
7-8). China pre-IFRS is likely to lead to much ambiguity in the future regarding IFRS and prospective business
arrangements due to heavy government involvement. France is in the middle of the spectrum, there may be a small
amount ambiguity with its government involvement and moderate creditor protection.
Comparative Analysis: Corruption Levels and Financial Statement Analysis Limitations
In addition to their respective SWOT analysis (See Appendix 1,8), amongst the world’s largest refiners BP ranks #4,
CNPC #8 and Total #11 and Asia-Pacific refining is said to be primed for even more capacity growth (Jechur,
2016). CNPC/PetroChina’s possible future disentanglement of themselves from the government could hurt its profits
in the long-run but should be sustainable by the growing global oil demand and its wide range of assets worldwide.
BP’s negative environmental reputation has helped them take precautions to prevent immense damage in the future
(BP, 2016b). However, they are struggling to retain solvency due to further downturn and unfavorable projections
without making more major cuts in the future. For Total, after substantialinvestments Iran global oil demand in
projected to increase in OPEC countries for 2016 (Azernews, 2016). Furthermore, Total’s successfulrestructuring of
its objectives to align with current demand shows great promise in its feature endeavors.
As can be assumed previously, all three companies have different levels of compliance with IFRS but BP has the
highest compliance to IFRS (See Appendix 9). BP tradition of protecting its investors,high levels of transparency
and disclosures in its accounting practices makes it more favorable to IFRS. It should be noted that the difference in
taxation policies could indicate overstatement in regards to BP and understatement in regards to CNPC/PetroChina
and Total. China’s high opacity index, compared to the others, indicates and supports the high level of government
ownership and regulation and lack of transparency in its disclosures (See Appendix 4). France’s considerable level
of government involvement is also evident in its corruption perception and opacity index.
After conducting a financial analysis (See Appendix 10), BP’s ability to remain solvent in the recent downturn is
commendable while PetroChina’s was lower and Total’s much higher. BP wasn’t profitable in 2015 as much as
could be expected given its multi-billion dollar settlement and otherassociated costs ofthe massive oil spill.
However, Total and PetroChina were profitable in 2015 considering Total dealing with the decline in European oil
demand. There were limitations have impeded the quality of the comparison of the three financial statements such as
development factors, level of compliance with IFRS, and disclosure differences that can be remedied by conducting
company visits for each of the companies and seeking an experienced professional auditor for a second opinion and
a financial statement restatement, if possible (See Appendix 11).
Investment Recommendation
Taking into consideration the cross-cultural comparative analysis of BP, Total and CNPC/PetroChina into account,
it is my recommendation that the trustees of ASF’s best investment option after a thorough restatement of its
financial statements to full compliance with IFRS to conduct a proper analysis of its financials is British Petroleum.
There is very little ambiguity that effects the quality of BP’s financial statements which is attributed to their high
level of compliance with IFRS, extensive disclosures,transparency,and their priority in business to protect investors
in its accounting practices. This is also evident is the UK’s legal systemwhich allows for an independent accounting
profession that is more involved in the principles based standard setting which provides more flexible standards that
allows for them to use their professionaljudgement to reduce any ambiguity that may arise and requires financial
statements to provide a true and fair view of a company’s financial position to its reader. This allows for the creation
and sustainment of a competitive, very profit-driven environment within a company to provide substantialsalaries
and dividends to shareholders.

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A P P E N D I X

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APPENDIX 1 – Comparative SWOT Analysis
Table 1: SWOT Analysis for BP (United Kingdom)
Strengths:
 Diverse portfolio of businesses assist in
isolating such a large company from market
vitality to a certain extent.
 Has a balance sheet with more than 280 billion
in total assets even afterthe massive sell off of
assets to coverthe costs ofthe 2010 oil spill.
Weaknesses:
 Poor environmental safety reputation in the wake
of the Deepwater Horizon explosion and as a
result of the 2010 oil spill.
 They are still recovering from years of litigation
and payouts related to 2010 oil spill, including a
recent multi-billion dollar settlement.
Opportunities:
 Still the largest energy investorand acreage
holder in the Gulf of Mexico, where the
company launched three new projects in 2014
and formed a strategic partnership with
Chevron.
 Expects the world’s energy demand to increase
as much as 37% between 2013 and 2035.
Threats:
 Global oil oversupply depresses demand for
products.
 Oil spills result in more attention from regulators.
Source: BP (BP) Stock Price, Financials,and News | Global 500
Table 2: SWOT Analysis for Total (France)
Strengths:
 Total is Europe’s largest refiner. That part of its
business has benefited from the strongerrefining
margins due to lower crude oil prices.
 Growing liquefied natural gas (LNG)
production.Total produced more gas than oil for
the first time in 2015 as the French company
pumps more money into this cleaner energy
alternative.
Weaknesses:
 Three straight years of declining sales prompted
Total to reduce investment. It also took a $6.5
billion write-down at the end of 2014.
 Continues to face fallout from an Iranian bribery
scandaleven after reaching a $400k settlement
with the U.S. Department of Justice.
Opportunities:
 Increased focus on renewable energies such as
solar power, where Total has invested in the
past,with 2011 purchase if U.S.-based
SunPower Corp.
 Global oil supply currently outweighs demand,
but energy demand is expected to increase by a
third in the next couple of decades.
Threats:
 Labor issues.Total has dealt with worker strikes
at some of its French facilities.
 Western sanctions in Iran and Russia, where
Total has invested billions of dollars in oil and
gas projects.
Source: Total Financialsand News | Global 500
Table 3: SWOT Analysis for PetroChina/CNPC (China)
Strengths:
 Size. As the largest state-owned oil producer,
and as a subsidiary of CNPC, PetroChina has a
wide range of assets in China and all over the
world.
Weaknesses:
 Size. PetroChina/CNPC has been targeted by
China’s anti-corruption campaign because of its
political influence. That is a liability in today’s
China.
Opportunities:
 China’s demand for oil continues to grow,
despite efforts to shift energy demand to
alternatives.
Threats:
 Anti-corruption campaign could force the
company to unwind assets and put key decisions
on hold until it passes.
Source: China National PetroleumFinancials and News | Global 500

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APPENDIX 2 – Analysis of Pre-IFRS Development Factors, Cultural Dimensions and Accounting Values
Table 4: Comparative Analysis of Pre-IFRS Development Factors
Development Factors United Kingdom France China
Source of finance
Shareholders (capital
markets)
Government (financed
large banks)
Government (socialist
market economy)
Legal System Common law Civil law Civil law
Taxation
Separate tax to
accounting profit
Conformity to financial
statement
Conformity to financial
statement
Political and economic
ties
Commonwealth EU Closed door policy
Inflation 0.3 % -0.1 % 2.3 %
Economic Development 5th largest economy 6th largest economy 2nd largest economy
Education No. 14 HDI No. 22 HDI No. 12 HDI
Table 5: Comparative Analysis of Cultural Dimensions
Cultural Dimeansions United Kingdom France China
Power Distance
Moderately low: ineqality
is not accepted
Moderately high: fair
degree of inequality is
accepted
High: inequality is
accpeted and normal
Individualism-
Collectivism
High Individualism:
individual interests
generally take precedence
over group’s interests
High Individualism:
individual interests
generally take precedence
over group’s interests
High Collectivism: think
and act in relation to how
it affects the group
Masculinity-Femininity
Moderately High
(Masculinty): driven by
success,competition and
achievements
Moderately low
(Feminity): dominant
values in society are caring
for others and overall
quality of life
Moderately High
(Masculinty): driven by
success,competition and
achievements
Uncertainty Avoidance
Low: accepts ambiguos
situations,are not deterred
by them
High: does not readily
accepts ambiguos
situations
Low: accepts ambiguos
situations,are not deterred
by them
Long-term Orientation
Low: takes a more
normative approach
Moderately high: take a
more pragmatic approach,
future outlook takes
precedence
High: focuses on
persistance and
preserverance
Table 6: Comparative Analysis of Accounting Values
Accounting Values United Kingdom France China
Professionlism-
Statutory Control
Professionalism: Exercise
professional judgemtent
and self regulation
Professionalism: Exercise
professional judgemtent and
self regulation
Statutory Control:
Compliance with prescriptive
legal requirements
Uniformity-Flexibility Flexibility: Flexibility in
accordance with the
perceived circumstances
of individual companies
Uniformity: Enforcement of
similar accounting practices
between companies and for
the consistent use ofsuch
practices over time
Uniformity: Enforcement of
similar accounting practices
between companies and for
the consistent use ofsuch
practices over time
Conservatism-
Optimism
Optimism: Risk-taking
approach to accounting
measurement
Conservatism: Cautious
approach to measurement,
to cope with the uncertainty
of future events
Conservatism: Cautious
approach to measurement, to
cope with the uncertainty of
future events
Secrecy-
Transparency
Transparency:
Transparent and publicly
accountable appraoch of
disclosure of information
Transparency: Transparent
and publicly accountable
appraoch of disclosure of
information
Secrecy: Cautious approach
to disclosure of information

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APPENDIX 3 – Comparative Analysis of Post-IFRS Accounting Values
Table 7: United Kingdom’s Post-IFRS Accounting Values
Accounting Profession
 Governed by Consultative Committee of Accountancy Bodies (CCAB).
 An undergraduate degree in accounting is not required for aspiring members.
 Favors a principles-based approach rather than a rules based approach to standard setting.
Accounting Regulation
 Regulated primarily through legislation (Companies Act), professional pronouncements,and stock
exchange listing requirements.
 The Accounting Standards Boards has the authority to issue standards in its own right.
 The Financial Reporting Council is given the responsibility of overall policy control over the standard-
setting process.
 The Financial Reporting Review Panel oversees compliance.
 As of 2005 all listed companies must compile reports to IFRS standards
Accounting Principles and Practice
 Emphasis on investorneeds and the importance of transparency.
 Since 2005 IFRS standards implementation 2 main changes have been made:
1. Prohibits the amortization of goodwill
2. Use of the primary/secondary basis for segment reporting.
Source: (Doupnik & Perera, 2012b)
Table 8: IFRS-favorable Profile Based On Gray’s Four Original Values Dimensions
Gray’s Accounting Values IFRS-favorable Profile
Professionalism vs Statutory Control Professionalism
Uniformity vs Flexibility Flexibility
Conservatism vs Optimism Optimism
Secrecy vs Transparency Transparency
Source: (Borker, 2013)

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Table 9: France’s Post-IFRS Accounting Values
Accounting Profession
 Accounting in France is government-supervised and the professionalbodies do not deliver their own
accounting qualifications - they are delivered by the state.France is in the only country in Europe in
which auditing and accounting are treated as different activities and professions,even though one person
may perform the two roles, “wearing different hats. (DIPAC, 2008)”
 The national accountancy body,le Conseil Supérieur de l'Ordre des Experts -Comptables (CSOEC), falls
under the jurisdiction of the Ministry of Finance while the national auditing body,la Compagnie
Nationale des Commissaires aux Comptes (CNCC), falls underthat of the Ministry of Justice (DIPAC,
2008).
Accounting Regulation
 State played major role in the development of French accounting regulation (Walton & van Mourik,
2014).
 Evolved to a dual systemthat distinguishes between regulation of accounting information provided by
consolidated group listed on the public market and business enterprises (Walton & van Mourik, 2014).
 A body of legal rules relating accounting information has emerged from a variety of sources including:
EU directives implemented by national legislation; laws from decrees and orders from the French state;
mixed public/private sources such as the ‘CRC’ (accounting regulation committee) and the ‘CNC”
(national accounting council) (Walton & van Mourik, 2014).
Accounting Principles and Practice
 Since 2005 IFRS standards implementation changes that have been made include:
1. Fair value accounting of assets
2. Disclosures for discontinued operations
3. Capitalization and definition of leases (KPMG International, 2003)
Table 10: China’s Post-IFRS Accounting Values
Accounting Profession
 Long history and close connection with Chinese culture, growth was stimulated by open-doorpolicy.
 Auditing and accounting firms treated separately.
 Government by CICPA who in turn answers directly to the Ministry of Finance.
Accounting Regulation
 The government continues to act as the accounting regulator in order to retain political control.
 Has been influenced mainly by China’s desire to harmonize domestic accounting practices with IFRS
and meet the requirements of economic reforms.
 Accounting Law amendment in 1999 stressed the importance of ‘true and complete’ accounting
information.
 In 2000, the State Council issues an Enterprise Financial Reporting Regulation, redefining the elements
of financial statements in line with the conceptualframework of the IASC and stipulating
responsibilities and liabilities for parties involved in accounting,auditing and reporting.
Accounting Principles and Practice
 With the economic reform and opening up, Chinese enterprises began to operate independently, foreign
companies moved in, and a stockmarket emerged.
 Chinese regulators have taken significant steps to reform Chinese accounting standards in line with
IFRS, however due to the unique features of China it has retained a uniform accounting systemin the
Enterprise Accounting Systemissued in 2000 to accommodate special circumstances.
Source: (Doupnik & Perera, 2012b)

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APPENDIX 4 – Opacity & Corruption Perceptions Index
“The Opacity Index is a measure of five components that may be thought of as “negative social capital.” These are
Corruption, Legal systeminadequacies,economic Enforcement policies, Accounting standards and corporate
governance,and Regulation. Together, these five factors spell CLEAR. A high score on the Index indicates higher
levels of opacity in each of these areas.
Opacity, as defined in the book Global Edge: Using the Opacity Index to Manage the Risks of Cross-Border
Business, is the “lack of clear, accurate, formal, clear-cut practices in the broad arena where business,finance, and
government meet.”It is a broad measure of the effectiveness of a country’s economic and financial institutions,as
well as its overall risk. Unlike other analyses that examine country risks by summarizing the expert opinion of
academics, analysts,former governmental officials, and the media, the Opacity Index is based entirely on empirical
observations.
On the enforcement side, the Index assesses whethercreditors have rights in bankruptcy cases,and whether property
rights are well defined. When examining accounting opacity, the Index measures whether the country in question
has transitioned to international accounting standards and,if so,how well it has implemented those standards.These
examples represent a tiny share of all of the data inputs used in preparing the Index. Facts like those just mentioned
can be extremely useful from a business and policy perspective.Understanding how one country compares with
anotheralong the five CLEAR dimensions is a useful tool for businesses as they make decisions, compute future
costs,and forecast risks. It is also useful for companies that wish to invest in high-risk areas but need to develop
contingency plans in order to do so.
From a governmental perspective, the Index provides useful information for nations that wish to make changes.
Most indicators of country risk focus on political factors,but the Opacity Index, by contrast,focuses on business and
economic risks; actions taken on that level can change the relative attractiveness ofa given country to outside
investment. Over the years, research has shown that lowering opacity levels also lowers the cost of doing business.
Decreasing corruption, for example, has the same effect as lowering business taxes.A decreasing opacity level is
highly correlated with increased competitiveness.” (Yago & Kurtzman, 2009)
Table 11: Comparative Analysis of 2009 Opacity Index
2009 2009 O
Index
2008 O
Index
2008
Rank
2007-8
RankC L E A R
United
Kingdom
24 9 35 11 10 18 17 10 (-) 9
France 22 37 34 2 22 23 24 15 (-) 14
China 57 40 40 40 33 42 45 38 (+) 41
Source: 2009 Opacity Index: Measuring Global Risks
According to their respective opacity indexes, corruption is clearly a more significant issue in China than in the UK
and Frace. In addition to that the UK has significantly less legal systeminadequacies that further shows the lack of
heavy government involvment much like in France and China. All three countries have relativley the same economic
enforcement policies. In regards to accounting standards and corporate governance,France did a great job of
adopting IFRS easily and while the UK struggled a bit they were not far behind.China on the other hand,as can be
assumed, was very resistant in even the little convergence they have made to IFRS. Taking into consideration their
respective corruption perceptions index in the table below, the UK has the highest score and rank out of both France
and China. However, China has a more signifcantly lower score than both the UK and France.

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Corruption Perceptions Index
Table of results: Corruption Perceptions Index 2015 A country or territory’s score indicates the perceived level
of public sectorcorruption on a scale of 0 (highly corrupt) to 100 (very clean). A country's rank indicates its position
relative to the othercountries in the index. This year's index includes 168 countries and territories. Click on the
column headings to sort the results,or use the search to view the results for one country. Note that N/A means a
country was not included in the index during a particular year. To learn more about the results and view the
confidence intervals, please see our FAQs and download an XLS or JSON of the results.
Rank Country/territory 2015 Score 2014 Score 2013 Score 2012 Score
1 Denmark 91 92 91 90
2 Finland 90 89 89 90
3 Sweden 89 87 89 88
4 New Zealand 88 91 91 90
5 Netherlands 87 83 83 84
5 Norway 87 86 86 85
7 Switzerland 86 86 85 86
8 Singapore 85 84 86 87
9 Canada 83 81 81 84
10 Germany 81 79 78 79
10 Luxembourg 81 82 80 80
10 United Kingdom 81 78 76 74
13 Australia 79 80 81 85
13 Iceland 79 79 78 82
15 Belgium 77 76 75 75
16 Austria 76 72 69 69
16 United States 76 74 73 73
18 Hong Kong 75 74 75 77
18 Ireland 75 74 72 69
18 Japan 75 76 74 74
21 Uruguay 74 73 73 72
22 Qatar 71 69 68 68
23 Chile 70 73 71 72
23 Estonia 70 69 68 64
23 France 70 69 71 71
83 China 37 36 40 39
Source: Transparency International’sCorruption Perception Index 2015

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APPENDIX 5 – BP’s Auditors’ Report
Source: BP Annual Report and Form 20-F 2015

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APPENDIX 6 – Total’s Statutory Auditors’ Report
Source: Statutory Auditors' Report on the Consolidated Financial Statements 2015

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APPENDIX 7 – PetroChina’s Auditors’ Report
Source: PetroChina Company Limited 2015 Annual Report

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APPENDIX 8 – Comparative Analysis of Business Strategy
In addition to BP’s SWOT analysis, “The UK remains one of the fastest growing developed economies, but there are
now concerns that the economic recovery may be losing momentum. Exceptionally low inflation, driven largely by
falling oil prices, supermarket price wars and the strength of sterling keeping down the costs of imports, has been a
boon for household finances.Policymakers at the Bank of England have stressed they believe the low price
increases are mainly the result of external factors and not the start of a deflationary spiral. But with the rate well
below the target of 2 per cent, governorMark Carney has been forced to write a series of explanatory letters to the
Chancellor. Public spending cuts have been a central theme since 2010 but the government is still struggling to close
the UK’s budget deficit, although debt is forecast to begin falling as a percentage of GDP this year. The borrowing
figures though are starting to improve as tax receipts strengthen.Despite numerous initiatives by successive
governments, the UK has been importing more than it exports for a long time. While financial markets have to date
been relaxed about the current account deficit, some economists are beginning to worry, saying it could make the
UK vulnerable to external shocks.” (Pearson, Bernard, & Cadman, 2016)
“Refined oil products are a significant source of energy in the UK. In 2012, they provided around a third of the
primary energy used.The UK is extremely reliant on many of these products such as petrol, diesel and jet fuel –
especially in the transport sector.The International Energy Agency,for example, forecasts that oil will be a major
source of energy to 2030 and beyond,accounting for over 80% of the EU transport fuel. However, domestic
production since the middle of the last decade has decreased while imports have increased. The industry is in
decline. UK oil refining capacity has reduced from 18 refineries in the late 1970s to seven today.Unite the Union
argued that environmental policies could, potentially cost thousands ofjobs.
Government fiscal policies have driven the market towards diesel on basis of CO2, but European refining capacity is
mainly for petrol. The UK refining industry is influenced by global supply and demand. Some witnesses attributed
the likelihood of further UK refinery closures to global factors that determine refining margins, including trends in
supply and demand. In the UK market, overall demand for petroleum products has been declining. There is a
mismatch between UK refinery supply of petroleum products and demand. The shortfall has so far been made up by
the import industry.The trend of rising demand for diesel is likely to continue in the short to medium term. If UK
refiners are to meet that demand they will have to invest in additional diesel production capability.” (House of
Commons: Energy and Climate Change Committee, 2013)
“BP reported a 91 per cent decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in
more than a decade. Its shares fell the most since 2010. BP started cutting costs and selling assets following the 2010
oil spill. In October, it lowered its 2015 capital-spending forecast to about $US19 billion after investing about
$US23 billion in 2014. The company said then it expects to spend $US17 billion to $US19 billion a year through
2017. BP expects refining margins in the first quarter of 2016 to be lower than the previous three months. Refining
countered declining profit from oil and gas sales for much of 2015 as demand stayed high. A mild winter has curbed
consumption of some fuels including heating oil, narrowing margins. BP's deductions for one-time costs,accounting
effects and changes in the value of inventories pulled down the bottomline to a full-year net loss that was almost
double the $US3.72 billion loss in 2010. That year, BP took charges of more than $US40 billion to cover the legal,
operational and environmental costs of the Gulf of Mexico oil spill.” (Katakey, 2016)
In addition to Total’s SWOT analysis, “Compared to its peers,the French economy endured the economic crisis
relatively well. Protected, in part, by low reliance on external trade and stable private consumption rates, France’s
GDP only contracted in 2009. However, recovery has been rather slow and high unemployment rates, especially
among youth,remain a growing concern for policymakers. After the start of the crisis the economy stagnated and
the country has had to face several economic challenges. Government tax revenue has dwindled and consu mer
purchasing power has declined. Policy makers have attempted to modernize the economy; however, this has been a
difficult process.The former Sarkozy government became deeply unpopular,partially due to its reform agenda.
Nonetheless,with a government budget deficit that is higher than the Euro-area average and low growth forecasts,
the current Hollande government faces the challenge of restoring France’s public finances while encouraging
economic growth.” (Focus Economics, 2016)
“The French refining industry faces a "critical" situation as part of a European systemin which "between 10 to 15%
of the 114 refineries should be shut down to restore a demand-supply balance," says the leader of a trade group.
Jean-Louis Schilansky, president of Union Francaise des Industries Petrolieres (UFIP), gave that assessment at a

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press conference Feb. 4 in Paris. In an industry outlook, Schilansky noted that demand for oil products in France last
year dropped by 2.8% in a change he called "structural." Refinery runs for all of last year fell to 72 million tonnes
from 84 million tonnes in 2008 as margins diminished. Schilansky said gasoline exports fell by 17% last year, while
gas oil imports grew by 38%.
Average gross refining margins fell to €15/tonne from $23/tonne during 1995-2008. Since March 2009, Schilansky
added, the French refining industry has lost €150 million/month. With a planned storage hub at the Marseille-Fos
port targeting capacity of 1.1 million cu m and 80,000 cu m becoming available at the Fos Oil Depot, French
refiners face growing competition from abroad. As explained to OGJ by Esso SAF's Head of Communications and
External Relations Jean-Francois Dussoulier, this means that the much cheaper products from refineries abroad will
be able to compete with France's more expensive products.” (Leblond, 2010)
“European demand for petroleum products has declined 15% since 2008, shrinking outlets for the continent’s
refining industry.This underlying trend stems from pursuit of energy efficiency and improved vehicle fuel economy
as part of the European Union's commitment to reducing its carbon footprint. The European market is steadily
contracting, a situation aggravated by the shale oil and gas revolution in the United States, which gives the U.S.
refining industry an advantage,and competition from refineries in Asia and the Middle East. These two trends shut
European refineries out of some of their domestic and export markets and have exacerbated excess refining capacity
in Europe.
As Europe’s leading refiner, Total is therefore continuing to adjust its production base in France, following the
shutdown of the Flandres refinery (2010), the upgrade the Normandy refining & petrochemicals platform (2012)
with an investment close to €1 billion and the implementation of the project to secure Carling's future (2015).
Including the adaptation plan for the Lindsey Oil Refinery in the United Kingdom announced earlier this year, Total
will have successfully adapted by 2017 its European refining base to the market and cut its refining and
petrochemical capacity by 20% in Europe in 2017, as announced in 2012.” (Total S.A., 2015)
In addition to CNPC/PetroChina’s SWOT analysis, “Fears about China’s economy are shaking global markets and
capital is leaving the country at an unprecedented pace. Investors are eager for clues about whether slides in China’s
equity market and currency depreciation at the start of this year were a sign of acute distress in the real economy, or
whether policymakers can engineer a gradual slowdown that avoids financial crisis and social instability. The taskof
“rebalancing” the Chinese economy weighs heavily on policymakers’ minds. The government is attempting to steer
the economy away from investment- and export-led growth, to growth based on domestic consumption.However, it
is proving difficult to convince Chinese households to save less and spend more. A full rebalancing will require
economic restructuring. This includes trimming down or getting rid of state-owned enterprises in overcapacity
sectors such as coal mining and steel processing where profits have been dropping. Although China still runs a
healthy trade surplus,the surplus of capital outflow over trade inflow has caused a fall in dollar reserves.The central
bank has also sold off dollar reserves to support the price of the renminbi.” (Wildau, Cadman, Yang, & Kavanagh,
2016)
“The evolving relationship between governmental ministries and the big three will play a crucial role in China’s
venture into unconventionaloils. While Chinese oil firms are majority state-owned enterprises that are run by
senior-ranking Chinese Communist Party officials, tensions have nevertheless arisen in recent years between
company leadership and the government over pricing and strategy,with particular concerns in Beijing that state-
owned enterprises such as the big three are abusing their privileged position for private gain. Keen to maximize their
own profitability, the big three pressured seniorofficials to modify government directives that were perceived to
negatively impact their profits. For example, the oil and gas company PetroChina (a listed company mostly held by
CNPC) tried to block foreign investment in the country’s West–East gas pipeline even though doing so contradicted
the initial wishes of China’s central government. PetroChina was successfuland currently owns and operates the
pipeline.
The weakness of China’s regulatory institutions coupled with the national oil companies’ strong political position
has allowed Chinese oil companies and refiners to attenuate Beijing’s efforts to both improve the environmental
situation in the country and formulate a more modern, comprehensive energy strategy.This is particularly true in the
case of failed efforts to close and clean up dirty, outdated refineries in Shandong Province. It is also exemplified by
national oil companies’ ability to stall efforts by the Ministry of Environmental Protection to improve petroleum and
diesel quality as smog has intensified in Beijing. Going forward, as China begins to contemplate further reforms in
state-owned enterprises,particular attention should be paid to the oil sector.” (Tao , Gordon, & Sautin, 2014)

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“Oil crashed below $30 a barrel this January on speculation the global glut that’s dragged prices down since 2014
would worsen after sanctions capping Iran’s crude sales were lifted. The diesel market is already oversupplied and
will feel the greatest impact from increased Chinese fuel exports, according to Si Min Ngai, a consultant at FGE, an
energy researcher. The profit from making diesel -- the so-called crack spread -- is expected to average less than $10
a barrel this year in Asia, a fall of almost $5 from 2015, Ngai said by e-mail. China will ship about 250,000 barrels a
day of the fuel this year, according to estimates by Ngai. That’s 70 percent higher than last year’s 7.16 million
metric tons,or roughly 147,000 barrels a day. ICIS-China, also a researcher, forecasts the country will export
226,000 barrels a day. China’s oil refiners raised processing to a record 10.48 million barrels a day last year,
according to the country’s National Bureau of Statistics.Diesel exports jumped nearly 75 percent, while gasoline
and kerosene shipments both rose about 16 percent in 2015. Global average refining margins -- the estimated profit
from turning oil into added-value fuels such as gasoline and diesel as well as loss-making by-products such as fuel
oil -- fell 34 percent in the fourth quarter from the previous three-month period, the steepest decline in eight years,to
$13.20 a barrel, data on BP Plc’s website show.
The level has dropped to $11.90 for the first quarter of this year as of Jan. 20, according to the company. Diesel
demand, a barometer of the country’s industrial activity, is forecast to stay flat or fall in 2016, while gasoline
consumption will rise by 200,000 barrels a day, the International Energy Agency forecast last month. The country’s
diesel consumption last year dropped 3.7 percent from the previous year, National Development and Reform
Commission said. Oil refining will increase 5.3 percent this year while net exports of oil products -- which strips out
imports -- will rise by 31 percent to 25 million tons,China National Petroleum Corp. said in its annualresearch
report. China more than doubled its first batch of fuel-export quotas for this year to 20.93 million tons,ICIS China
said on Jan. 6. Five companies, including four independent refiners, obtained a combined 430,000 tons of fuel
export licenses for the first time, it said. The private refiners, accounting for about one-third of the nation’s total
refining capacity, increased their combined operating rate to 50.1 percent of capacity as of Jan. 22, the highest since
at least August 2011, after some of them obtained crude-import quotas,according to industry website Oilchem.net.”
(Bloomberg News, 2016)

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APPENDIX 9 – Comparative Analysis of Financial Reporting Practices
BP (United Kingdom)
 Financial statements are prepared in accordance with IFRS as adopted by the EU, IFRS as issued by the
IASB, and in accordance with the provisions of the UK Companies Act 2006. IFRS as adopted by the EU
differs in certain respects from IFRS as issued by the IAS.
 Disclosures display a high level of transparency.
 For taxation purposes,provides a second set of accounting figures which has the tendency to result in a
much lesser tax payable.
 The areas requiring the most significant judgement and estimation in the preparation of the consolidated
financial statements are: accounting for interests in other entities; oil and natural gas accounting,including
the estimation of reserves; the recoverability of asset carrying values; derivative financial instruments,
including the application of hedge accounting; provisions and contingencies,in particular provisions and
contingencies related to the Gulf of Mexico oil spill; pensions and other post-retirement benefits; and
taxation.
 Investororientation (shareholders, capital market).
Total (France)
 Financial statements are prepared in accordance with IFRS as adopted by the EU.
 Transparent in its disclosures.
 Moderate government involvement in standard setting and regulation.
 Accounting income is strongly influenced by tax system.
 Creditor orientation (government and shareholders).
CNPC/PetroChina (China)
 Financial statements are prepared using Chinese accounting standards that are converged with IFRS but not
fully adopted.
 There are two sets of financial statements,one prepared usin Chinese accounting standards and the other
prepared using IFRS as issued by IASB and the disclosure requirements of the Hong Kong Companies
Ordinance and for such internal control as the directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
 High opacity index indicates and supports the high level of government ownership and regulation and lack
of transparency in its disclosures.
 Classifies ‘assets available for sale’ as non-current assets.
 The areas requiring critical accounting estimates and judgement in the preparation of the consolidated
financial statements are: estimations in oil and natural gas reserves, impairment of property, plant, and
equipment, and asset retirement obligations.
 Creditor orientation (mostly government).

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APPENDIX 10 – Financial Analysis (Ratios)
“The current ratio (current assets/current liabilities) is a measure of liquidity that is used in assessing the ability of a
company to pay its short-term obligations.
The debt ratio (total liabilities/total assets)provide a measure of financial leverage, that is, the extent to which assets
are financed by liabilities. It is used to assess the risk that a firm might be able to pay its obligations, both sho rt-term
and long-term, on time.
The profit margin (net income/net sales) is one measure of a firm’s profitability.” (Doupnik & Perera, 2012b)
Table 12: Comparative Ratio Analysis
BP Total PetroChina
Current ratio 1.29 1.38 .74
Debt ratio .62 .57 .44
Profit margin ratio -.03 .03 .02
Current Ratio
A higher current ratio is always more favorable than a lower current ratio because it shows the company can more
easily make current debt payments. If a company has to sell of fixed assets to pay for its current liabilities, this
usually means the company isn't making enough from operations to support activities. In otherwords, the company
is losing money. The current ratio also sheds light on the overall debt burden of the company. If a company is
weighted down with a current debt,its cash flow will suffer.
Each company’s current ratio indicates that their current assets could coverits current liabilities.
Debt Ratio
Analysts,investors,and creditors use this measurement to evaluate the overall risk of a company. Companies with a
higher figure are considered more risky to invest in and loan to because they are more leveraged. This means that a
company with a higher measurement will have to pay out a greater percentage of its profits in principle and interest
payments than a company of the same size with a lower ratio. Thus, lower is always better. If debt to assets equals 1,
it means the company has the same amount of liabilities as it has assets.This company is highly leveraged. A
company with a debt ratio of greater than 1 means the company has more liabilities than assets.This company is
extremely leveraged and highly risky to invest in or lend to. A company with a debt ratio of less than 1 shows that it
has more assets than liabilities and could pay off its obligations by selling its assets if it needed to. This is the least
risky of the three companies.
Each company’s debt indicates that they are low risks investments,has more assets than liabilities and could pay off
its obligations by selling its assets if it needed to.
Profit margin Ratio
The profit margin ratio directly measures what percentage of sales is made up of net income. In otherwords, it
measures how much profits are produced at a certain level of sales.This ratio also indirectly measures how well a
company manages its expenses relative to its net sales. That is why companies strive to achieve higher ratios. They
can do this by either generating more revenues why keeping expenses constant orkeep revenues constant and lower
expenses. Since most of the time generating additional revenues is much more difficult than cutting expenses,
managers generally tend to reduce spending budgets to improve their profit ratio. Like most profitability ratios, this
ratio is best used to compare like sized companies in the same industry.
BP’s profit margin ratio indicates that it didn’t convert any of its sales to profits. Total and PetroChina’s profit
margin ratios indicate that they were able to convert a small portion of its sales to profits.

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APPENDIX 11 – Financial Statement Analysis Limitations & Coping Mechanisms
Business Environment
The difference in taxation policies could indicate overstatement in regards to BP and understatement in regards to
CNPC/PetroChina and Total. There is also the different levels of compliance to IFRS to take into consideration.
China’s high opacity and corruption perceptions index is an indication of corrupt business and accounting practices
that isn’t easily detectable to the innocent eyes.However, it impacts the overall quality of its annual reports but most
importantly its financial statements.It also does help that they have high level of government involved in its
business practices and accounting regulation/standard setting.These struggles can be overcame by conducting a
formal re-statement of the financial statements to IFRS by very experienced accountants in the respective regions
accounting practices and their respective compliance to IFRS to adequately analyze the companies with little to no
ambiguity.
Extent of Compliance with IFRS/Accounting Principles
A thorough comparative analysis of each company’s financials cannot be made with ratios (See Appendix 11, Table
12) due to the differences in compliance with IFRS and accounting practices of BP, Total and PetroChina. Problems
encountered that should be noted in calculating the current ratio is that both BP and Total classify ‘assets available
for sale’ as current assets while PetroChina does not which is evident in their respective balance sheets in their
financial statements.Also, Chinese accounting practices tend to incorrectly account for self-established fixed assets
and in almost all cases income tax will be underreported.Due diligence, verifiable accounting and risk reduction are
crucial in understanding foreign financial statements.It is highly suggested that one seeks to obtain professional
advice when assessing Chinese financial statements amongst others’. (Devonshire-Ellis, 2011)
Extent of Disclosures
Chinese accountants’tendency to lack transparency in their accounting practices due their conservative ways. The
French are also known to be a bit conservative which could lead to the absence of detailed accounting information in
the annual report that leads to issues ofsecrecy, more so in China than in France. This does not adequately allow an
auditor or analyst to calculate thorough comparative financial ratio analysis of different countries in different
regions. The auditor or analyst may be at odds in retrieving this information for the reason that the company could
simply refuse to provide them with the necessary information needed to conduct an adequate analysis.