Discussion Board Response 1: The Rules Of Financial Reporting
- Why is the reporting of control procedures required, and what information is disclosed about Starbucks’ control procedures? Justify your response.
It is a requirement in the Sarbanes Act that the commission must report the control procedure. The Act demands that the company reported its annual financial reports containing a statement of the administrative role of keeping enough internal control structure and rules of accounting reports and administrative inspection of the recent financial year of the financial reporting and control structure.
The main role of reporting of control procedure is to mark the company’s effort of fighting fraud and other accounting errors in the financial statements and reports. Control procedures dictate a company to strictly audit the accounting records that are correct and exact so as to improve the image of the company. The Act also demands a company to disclose any present weaknesses. The financial reporting is not effective in case of the presence of weakness.
Starbucks showed its control procedure as required by the Security exchange act. Starbucks conducted various financial analysis and asset evaluation. The process concentrated on the effectiveness of their controls and procedures disclosure. The company showed various listings in their financial statements, for instance, receipts and expenses. Starbucks also listed its internal control procedure like record maintenance and a record of relevant transactions. This process helped the company to reduce fraudulent activities and increase accuracy.
- Why is the reporting of segment information required, and what information is disclosed about Starbucks’ segment information? Justify your response.
Reporting of segment information is also a requirement in Accounting Standards Codification 208. Companies and organizations are expected to publish their operating segment, their physical location and their main clients. Reporting of this information is vital while giving shareholders and other stakeholders information about the segments that are improving in terms of performance, so they can make a good decision regarding investments. Segment information reporting also helps the management of the company in the time of allocating the assets and other resources. Companies are expected to record information on revenue from the various types of products they produce, the location of the revenue collection and asset holdings is also required.
Starbuck’s management conducted the segment reporting evaluation. The firm has five segments. They include America, Europe, Africa, Asia Pacific and the Middle east. Information regarding the operation of various segments is provided by the company. The company shows the profit and loss of each segment. The information is important to investors while making investment decisions.
- Why is the reporting of estimates and assumptions required, and what information is disclosed about Starbucks’ reporting of estimates and assumptions? Justify your response.
- Why is the reporting of investments and fair value required, and what information is disclosed about Starbucks’ investments and fair value reporting? Justify your response
Accounting Standards Codification 275 about uncertainties and risks demands that organizations provide that accounting values are estimates and most often they are an approximation of figures. The disclosure is required since it enables financial reports users to come up with good and informed decisions having in mind that the figure are not accurate numbers. Organizations are as well required to post their assumptions. Starbucks shows the management has estimates and assumptions such as amortization, bad debts future sales, accounts receivables. These estimates directly affect assets revenues, expenses and liabilities. Another estimate made is goodwill.
- Why is the reporting of leases required, and what information is disclosed about Starbucks’ lease structure? Justify your response.
Accounting Standards Codification 820 about the measurement of fair value explains the process of determining fair value and report in accounting records. The Act states that the fair market value is a tool used in measuring the asset’s price through visible and non-visible. Reporting of this information is important in presenting the exchange price to be received while selling or buying an assets or the payment to be expected from the transfer of a liability. The resultant price agreed on needs to be same as the price identified by the market participants for the asset purchased. The absence of fair market valuation can lead to the asset being very subjective and not exact in terms of measurements.
Starbucks shows that it uses the same methods to measure fair value. Starbucks assigns three asset categories.
1st category assets are cash and cash equivalents, 2nd category assets include available securities and 3rd category includes credits securities and maturities
Accounting Standards Codification 840 about leases demands the reporting of leases. Leases are subdivided into various classes; capital leases, operating leases and sale-leasebacks. The main purpose of lease reporting is that it helps shareholders and other stakeholders to understand the expected return from a leased asset, lease period, and any risks that may accompany the lease. Starbucks is using a straight-line approach to reduce both operating leases. Starbucks uses operating leases in distribution, office store and warehouse facilities. Starbucks’ has tenants allowances, holiday rents, and contingent rent as the main lease agreements.