Flexibility in Accounting for Financial Reporting
Originally Starbucks Corporation was established in America with coffee and coffeehouse chain during 1971 and at present it runs more than 23,750 stores all over the world. The company is represented as the second wave coffee and primarily it distinguished them from their competitors through customer experience, quality and taste. Starbuck was at the technology forefront for improving the operational efficiencies. This has been achieved through application of various equipments that were used for manufacturing the coffee along with the improvement in added benefits for services at their shops and they also introduced the system of advanced payments for the customers. They also introduced clover machine for producing high standard filtered coffee (Starbucks Coffee Australia 2017).
Further, the company positioned itself in better position with regard to their relationships with the distribution and supply channels. Further, through the “first mover advantage” they bilt the major relationship with the fair trade for coffee suppliers and assured that they will store their chains in the key locations. This strategy of key store locations as well as the monopoly with regard to supplier’s access protects them from the threat of new entrants in the coffee industry (Deegan 2013).
Most of the people are surprised after finding out that the mission statement of Starbucks is not associated with the coffee rather its mission is wider than the beverages and the store chains are expanding continuously which in turn create and thrive the customers to treat them uniquely through the unique experience. Their mission is to nurture and inspire the spirit of people and the tagline is – “one person, one neighbourhood and one cup at the same time”. To meet the mission, the company six principles that are related to corporate values and that guide the employees in taking their decisions on everyday life.
i. Accounting policies and estimates
While preparing the financial statement of the company it conforms to the generally accepted accounting principles and the management are required to make the assumption and estimates that has the impact on the amounts that has been reported for the revenues, assets, expenses and liabilities (Holmes 2016). Various instances for this are the impairments of goodwill and assets, estimates for the inventory reserves, earnings from unredeemed cards for stored value, obligations with regard to the retirement of future assets, potential income from the event consequences of the future tax that are identified under the financial statements.
ii. Flexibilities in accounting policies
Starbucks has the option of some flexibility in accounting to analyse the key factors for risks and targets. This adaptability enables Starbucks to deal with its announced figures in such way that enables their accounting information to be informative and consistent with how their organization is getting along (Crawford et al., 2014). Starbucks likewise has the decision of utilizing operating leases for the structures or they can underwrite them as liabilities and assets. Apart from this, al the firms has a decision on how they need to amortize Goodwill over its useful life.
iii. Accounting policies and estimates used by the rival company
One of the main competitors of Starbucks Gloria Jean’s coffees held by Retail Food Group uses the general purpose financial statements that are prepared as per the accounting interpretations and standards and Corporation Act 2001 and are complied with the requirement of the law. The company’s financial statements are inclusive of the group’s financial statement. For preparing the financial statements the group is considered as a non-profit organization. The accounting standards used for the preparation of statements includes the accounting standards of Australia and are complied with the AAS assures that financial statements and related notes for the company as well as group complies with the IFRS (International Financial Reporting Standards).
iv. Comparison of accounting policies
Comparison with Competitor
Starbucks prepares their accounts based on the generally accepted accounting principles whereas, the competitor company Gloria Jean’s Coffee prepares their account as per the interpretations and standards and Corporation Act 2001 and are complied with the requirements of the law (Carter and Jacobs 2014)
v. Estimates and policies
The Footnotes and disclosures for the accounting estimates were not adequate in stating the divulgences to survey the association’s business technique and clarifying key bookkeeping approaches. The Management Discussion and Analysis of Financial Conditions and Consequences of Operations area of the 10-K adequately clarifies Starbucks’ present execution (Correia 2014). The references described numerous financial explanation things, for example, money and money counterparts, remittance for dicey records, property, plant and equipment, and so on. However, the company did not mention the the reason why few items are increasing and few are decreasing.
vi. Accounting strategy
In consistence with GAAP, the promoting costs are prohibited from the asset report since benefits related with publicizing are excessively indeterminate. In spite of the fact that this is not a accounting decision it could prompt inevitable trickiness which would be dispensed with through more forceful bookkeeping procedures (Ball, Grubnic and Birchall 2014). However, except for the operating leases Starbucks is actually transparent to reveal their financially proclamations.
vii. Red flags in accounting report
To identify the manipulations with regard to Sales and Expense, Starbucks were ready to locate a couple of potential red flags. It was found that the notes and disclosures did not provide adequate clarifications of the company’s business systems, nor did it give certain budgetary explanation things. Most things, for example, net cash or sales from deals proportion appeared comparative numbers in the course of recent years. Possible red flags can be the reality that the firm neglected to give employment cost and pension costs on the financial statements for the previous five years.
viii. Accounting positions
Various accounting positions that can be regarded as captured the firma tar as follows –
- The net revenue of the company enhanced by 11% in 2016 as compared to 2015. No justifications were there for such kind of increase.
- They paid $ 3.2 billion to the shareholders during 2016 through share repurchase
i. Various political pressures and its impact on accounting standard setting
The protection of the SEC/FASB/IASB position (protect bookkeeping standard setting from legislative issues) depends on various premises, for example, (1) accounting measures are intended to profit all clients and interests, (2) there is a best accounting principle for each event, (3) accounting models are monetarily impartial, and (4) choosing accounting guidelines in view of their financial effect is the demon’s work.
At present, it is an important issue as they are proposing real changes in the accounting administrative scene that run counter to this tried and true way of thinking of the capital market world and financial disclosures. Their worry is justifiable, in light of the fact that it has turned out to be realized that different bookkeeping established norms (i.e., reasonable esteem rules, changing lease rules) have monetary outcomes that create unfriendly impacts for certain identifiable corporate interests, and these gatherings don’t care for it. These influenced parties just have three chances to campaign their positions (Bertomeu. and Marinovic 2015).
Further, the political pressure is not only the speedometer. The IASB/FASB/SEC are in the wrong impression regarding various things. They are –
- There exist nothing like universal truth for accounting
- The standards on auditing does not benefit in the same ay all the parties those are affected
- All the accounting standards have the economic consequences.
- It is the government’s responsibility to to serve as the appeal court of the final resort and the adjudications of accounting standards.
ii. Implications for making particular assumptions whether voluntarily or due to a mandate
It is important to consider the pressures from the political parties that mandate the organizations to follow the accounting standards and making proper disclosures. If the organization make proper disclosures of the regulations, it will be beneficial to the shareholders. Further, some issues may be there that the organizations do not wish to disclose, however, it is pressurized to disclose. Therefore, the disclosure to some extent is pressurized and to some extent is is made voluntarily (Cervone and Pervin 2015) .
iii. Possible implications for making specific accounting choice
Potential Biases in Accounting Disclosures
Choices of accounting policies have great impact on the financial statement of the company. For instance, if the company follows cost model for its asset will be shown as per the historical value and that will not consider the revaluation. However, if the revaluation model is use, then the asset will be shown at revalued figure. Therefore, before making the choice the management shall be aware of the possible implication for the choice that will be made.
Section 1 – Accounting policies and estimates
The consolidated financial statements of the company reveal the operating results and financial position of the company and include the investees under its control and the subsidiaries that are wholly owned. Investments that are not under the control of the company but are able to apply considerable influences on the financial and operating policies are measured as per the equity method. Further, the investments that are not able to exercise considerable influences are measured as per the cost model. The inter company balances as well as the transactions are not taken into consideration (Schroeder, Clark and Cathey 2016).
While preparing the financial statement of the company it conforms to the generally accepted accounting principles and the management are required to make the assumption and estimates that has the impact on the amounts that has been reported for the revenues, assets, expenses and liabilities. Various instances for this are the impairments of goodwill and assets, estimates for the inventory reserves, earnings from unredeemed cards for stored value, obligations with regard to the retirement of future assets, potential income from the event consequences of the future tax that are identified under the financial statements. The outcomes and actual results may vary from the assumptions and estimations (Crawford and Lepine 2013).
Starbucks has the option of some flexibility in accounting to analyse the key factors for risks and targets. This adaptability enables the company to deal with its announced figures in such way that enables their accounting information so that it can be consistent and informative with how their organization is getting along. Starbucks, as most different organizations in the United States, must comply with standard accounting arrangements and traditions (Jordan and Matt 2014). Concerning the organization’s stock, Starbucks can execute moving normal cost technique, rearward in-first-out strategy, or the first-in-first-out technique. These techniques deliver variation results that can either profit or, on the other hand cripple the money related proclamations of the firm (Miller and Power 2013). With all of the new SEC controls, organizations have less space to move around numbers in their monetary explanations in an approach to profit them.
Starbucks likewise has the decision of utilizing operating leases for their structures or they can underwrite them as resources and liabilities. This decision can enormously affect the way a financial specialist sees the organization’s esteem in view of the way it distributes the included overhead expenses (Ball 2013). Additionally, every firm has a decision on how they need to amortize Goodwill over its useful life. They can discount the Generosity more than forty years or adopt a more moderate strategy and discount it over a shorter day and age. Publicizing on the other hand has next to no accounting adaptability because of the way that GAAP requires all showcasing costs to be recorded as costs when brought about. This could impact the year to year proclamations since wage could be weakened in years where they stress promoting. With the utilization of adaptability, firms can control their financials in an approach to enhance their appearance. It can be both advantageous and disadvantageous for potential financial specialists (Waymire 2014). Firms now and again could pick not to reveal a few important data; which could thus deceive financial specialists. These controls are what makes a firm be under or exaggerated by the financial specialist, and can have an enormous impact on the firm.
Protecting Accounting Standard Setting from Politics
One of the main competitors of Starbucks Gloria Jean’s coffees held by Retail Food Group uses the general purpose financial statements that are prepared as per the accounting interpretations and standards and Corporation Act 2001 and are complied with the requirement of the law. The company’s financial statements are inclusive of the group’s financial statement. For preparing the financial statements the group is considered as a non-profit organization. The accounting standards used for the preparation of statements includes the accounting standards of Australia and are complied with the AAS assures that financial statements and related notes for the company as well as group complies with the IFRS (International Financial Reporting Standards). Further, the financial report of the company is prepared based on the historical cost and some exceptions are there for revaluation of few financial instruments. Further, the costs are based on fair values of consideration that are paid for the asset exchange (Schnader, Bedard and Cannon 2015). All the amounts are presented in the denomination of Australian dollars if not mentioned otherwise. Further, the company belongs to the class referred under the ASIC order no. 2016-191 issued on 24th March 2016 and as per the class order. Moreover the amounts in the reports are rounded off to nearest thousand dollars unless indicated otherwise. The estimates for the financial reports are used as the going concern basis. The directors of the company are in the opinion that group will continue operating as the going concern basis with regard to the available non-current facilities for debt and the internally generated resources for cash.
The Footnotes and disclosures for the accounting estimates were not adequate in stating the divulgences to survey the association’s business technique and clarifying key bookkeeping approaches. The Management Discussion and Analysis of Financial Conditions and Consequences of Operations area of the 10-K adequately clarifies Starbucks’ present execution. The references described numerous financial explanation things, for example, money and money counterparts, remittance for dicey records, property, plant and gear, and so on (Bebbington, Unerman and O’Dwyer 2014). Likewise the report depicts the expansion in income. However, references do give a rundown of how occasions with respect to the working section could prompt a declining budgetary execution. Starbucks’ is a developing organization and incomes do expand every year, except this area predominantly demonstrates every one of the increments of the announcements and gives some clarification on why certain things diminished. Further, earnings are increasing owing to expansion of new stores opening in the United States and in different nations (Chomsky 2014). This segment demonstrates a table contrasting the Starbucks’ consolidated revenue statements and Liquidity and consolidated financial statements. Working fragments are the business fragments that are focussed around in the 10-K. The 10-K does not reflect any awful news or scarcely any poor execution that has happened.
To identify the manipulations with regard to Sales and Expense, Starbucks were ready to locate a couple of potential red flags. The references did not provide adequate clarifications of the company’s business systems, nor did it give certain budgetary explanation things. Most things, for example, net cash or sales from deals proportion appeared comparative numbers in the course of recent years. Possible red flags can be the reality that the firm neglected to give benefits cost and other business costs on the money related articulations amid the previous five years. One all the more thing that raised doubt was the income from working exercises/working salary proportion. The most clear red flags found was that the company does not underwrite their leases. This is a bending since potential financial specialists don’t get the opportunity to see the general picture of what Starbucks financials resemble (Grindle 2017). Consequently, there liabilities are significantly a part lower than they should be .It was extremely conflicting in the course of recent years. Considering the financial statements, it is identified that there is substantial variations in the CFFO. Because of the way that the commentaries did not provide the organization’s business system and it is unfit to figure out what may have caused such sensational changes. One such occurrence might be because of the way that amid years with high CFFO, various new stores opened by Starbucks, that makes their CFFO bigger. This outcome in the greater part of the proportions being wrong and along these lines misdirecting to financial specialists.
In consistence with GAAP, the promoting costs are prohibited from the asset report since benefits related with publicizing are excessively indeterminate. In spite of the fact that this is not a bookkeeping decision it could prompt inevitable trickiness which would be dispensed with through more forceful accounting procedures. When managing the capital leases Starbucks takes applies the aggressive approach and records the building as operating leases instead of the assets (Wier, Stone and Hunton 2015). This strategy brings about a risk twisting bringing about debt with regard to balance sheet. This can misguide the investors by concealing liabilities bringing about poor contributing decisions through non-delegate proportions. Goodwill was expensed through recording the abundance of reasonable incentive on the acquirer’s accounting report. They segregate the goodwill into uncertain and unequivocal life and afterward amortize the certain life over a six year time. While doing this they have a substantially bigger level of inconclusive lived altruism which is a fairly aggressive assumption, bringing about expanded resources. In any case, Starbucks is more constrained in the aggression than different organizations who utilize the pooling of the interest technique when managing positive attitude. This ought to be considered when financial specialists consider contributing in light of the fact that if these alternatives are called then investor’s level of value would be weakened. Numerous retailing organizations can utilize stock procedures further bolstering their good fortune yet Starbucks adopts a direct strategy by utilizing the normal cost technique to accounting (Strassheim and Kettunen 2014). In determination Starbucks takes a direct to marginally forceful approach to their accounting techniques. Except for the operating leases Starbucks is actually transparent to reveal their financially proclamations.
Reference
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