Rules of Financial Reporting

Paper Type:  Essay
Pages:  4
Wordcount:  1009 Words
Date:  2022-04-18
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Introduction

Over the course of the world's history, accounting standards have been found important to control the way financial performance is reported. The Great Crisis of 1929 saw the Generally Accepted Accounting Standards (GAAP) codified and made a prerequisite to any and all organizations. They entail of conventions, rules, and procedures required in the definition of the acceptable accounting practice. These standards (or practices) are devised for a number of reasons, including the comparison between companies to inform decisions made by investors and other stakeholders as well. Though the GAAPs are amended, eliminated, and improved over time, in the country, they include those defined by the FASB. In consequence, this paper will explore the extent to which Starbucks adheres to the governmental and GAAP reporting requirements.

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Control Procedures

Control procedures are usually indicated under the 'disclosure controls and procedures' that are prescribed under the Section 13(a) or Section 15(d) of the Exchange Act. However, this Act does not specifically prescribe these controls and procedures; instead, it is complemented by the internal controls that are put in place. These control and procedures are controls guide the preparation of financial statements presented in conformance with the GAAPs. According to Banks and Banks (2011, p. 3-40), the internal controls that are required in the reporting are also described in the Surbanes-Oxley Act. The companies are required to report the procedures of reporting their financial information to enhance the reliability of the financial information provided since potential investors can use it or even alter the company's market prices within the security market. Starbucks prescribes to these requirements when reporting financial information. In accordance with the Security Exchange Act of 1934, Starbuck explains in its financial reports that it maintains disclosure controls and procedures ensuring that the material information used in the development of periodic reports are also submitted. During the financial year ending in 2017, the company indicated that its internal control over financial reporting was not altered (Starbucks, 2017, p. 86).

Segment Information

Segment reporting entails the disaggregation of financial reports made by an organization into smaller segments. Segmentation of financial information prepared by organizations is meant to play a significant role in portraying the organization's performance and prospects to the users of financial statements including analysts. Nichols, Street and Tarca (2013, p. 262) indicate that the management approach, which requires that the segment information be the reflection of positions that directly report to the Chief Operating Decision Maker (CODM). In its annual report of 2017 (81), the report indicates that segment was prepared on the basis of the segments used by the CODM in making key decisions. The main reportable operating segments used by Starbucks include Americas, China/Asia Pacific (CAP), Europe, Middle East and Africa (EMEA), and Channel Development (Starbucks, 2017, p. 2).

Reporting Estimates

When financial statements are being prepared, the accountants are required to make the necessary assumptions and estimates, which usually affect the reported amounts. The estimates and assumptions are usually used to determine the financial values of records whose actual amount is unknown (Sacer, Malis & Pavic, 2016, pp. 399-400). The IFRS requires organizations to use the necessary estimates and assumptions, which ultimately affect the reporting of income and expenses, debts, and assets, as well as liabilities. It creates uniformity and informs the accuracy of the financial statements. At Starbucks, critical accounting policies such as the use of estimates and assumptions are given priority. For example, when determining the value of property, plant, and equipment, as well as any other finite-lived assets, the necessary estimates are made when the reports are made (Starbucks, 2017, pp. 42-43). The same estimates are also made when determining the values of goodwill and infinite-lived intangible assets and calculating different taxes.

Investment and Fair Value

Fair value offers a solution to the traditional use of historical costs to make assumptions. The reporting of fair value, especially during investments is more relevant to end users since they recognize the importance of gains and losses of the entity as they occur (Hunt, Freeman & Marsh, 2014, p. 149). As compared to historical costs, the fair value is very important for its users and informs investment decisions better. When defining the notes, the article annual financial report of 2017 indicates that the fair value is an important component of financial reports made. It is calculated as the carrying value of cash and cash equivalents, using the quoted prices for similar goods and the valuation methods developed by the company (Starbucks, 2017, p. 53). When making the different estimates, for example, during property values, equipment value, and taxes, etc., the different estimates are given a fair value.

Reporting Leases

Leases are an important source of revenue for organizations; therefore, organizations are increasingly finding it important to report them today. It is an important business process that makes it possible to acquire new equipment for an organization that is necessary when operating a business. Since it is an important business resource, it is important to have it reported accurately (Wahlen, Jones, and Pagach, 2012, p. 20-2). Starbucks usually leases properties since it is cheaper and more flexible to use. In the calculations of contractual obligations, Starbucks includes different lease obligations to give a good overall picture (Starbucks, 2017, p. 40). The main types of leases reported include the operating leases and lease financing arrangements.

References

Banks, T. L., & Banks, F. Z. (2011). Corporate legal compliance handbook. New York: Aspen Publishers Online.

Fiscal 2017 Annual Report. (2017) Starbucks. Retrieved from: https://s22.q4cdn.com/869488222/files/doc_financials/annual/2017/01/FY17-Starbucks-Form-10-K.pdf

Hunt, G. L., Freeman, R. J., & Marsh, T. L. (2014). User Perceptions of Fair Value Reporting of Investments in Fund Financial Statements of Governments. Journal of Accounting and Finance, 14(5), 147.

Nichols, N. B., Street, D. L., & Tarca, A. (2013). The impact of segment reporting under the IFRS 8 and SFAS 131 management approach: a research review. Journal of International Financial Management & Accounting, 24(3), 261-312.

Sacer, I. M., Malis, S. S., & Pavic, I. (2016). The Impact of Accounting Estimates on Financial Position and Business Performance-Case of Non-Current Intangible and Tangible Assets. Procedia Economics and Finance, 39, 399-411.

Wahlen, J., Jones, J., & Pagach, D. (2012). Intermediate accounting: Reporting and analysis. Toronto, Canada: Nelson Education.

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Rules of Financial Reporting. (2022, Apr 18). Retrieved from https://proessays.net/essays/rules-of-financial-reporting

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