It is vital to describe control methods to show how an organization works to stop and curtail dishonest behavior and needless mistakes in its accounting records and data. Starbucks revealed that following the directives forwarded under the Securities and Exchange Commission act of 1935 is necessary for disclosure. Starbucks’ income accounts for the fourth period of 2019 revealed that safeguards and procedures were effective, no internal control adjustments had been made, and no operational intervention with revenue recognition (Melnyk, 2020). Starbucks top management listed the control procedures, including keeping track of transactions important to financial statements and keeping detailed records of invoices and outlays. The use of control processes contributed significantly to the decrease in deception and the improvement of correct reporting.
Segment reporting is used to help readers of income statements comprehend a firm’s performance, create more knowledgeable opinions about it, and evaluate the likelihood of future cash flows. Management evaluates Starbucks’ portion reporting on four revenue-generating regions: America, Europe, the Middle East, China/Asia Pacific, and Africa. Starbucks offers branded coffee and other goods in each of these markets. The business provides detailed information about each segment’s operations, including loss and profit margins. Because it provides a more detailed understanding of what extra steps may be taken across all segments to continue improving financially, this data is essential to investors and management.
The business management needs to make assumptions and estimations that influence the economic and securities fraud of liabilities and assets, in addition to the declaration of potential assets and obligations as of the time of filing. Actual results may differ from those projections and assumptions, and important elements, such as calculating the fair worth of securities acquired as compensation, are susceptible to this variation. Starbucks admits that its management makes assumptions and projections that impact costs, assets, revenues, and liabilities.
Consistency in valuation models has been addressed in procedures from the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB). This guidance provides a methodology for determining the fair cost of obligations and resources and calls for extensive disclosures of the assumptions and judgments that underlie the measures. To determine fair value and classify the assets into three groups, Starbucks uses the same mandatory measuring procedures. Cash and equivalents are represented by category one, over-the-counter contracts, exchanges, securities available to buy, and collars are represented by category two, while auctions rate securities, expiration, liquidity, and credit spread are represented by category three.
The investment and fair value must be reported since it indicates the exchange rate one would anticipate receiving when selling an asset or anticipating paying when transferring an obligation. Starbucks has declared that its accessible securities mature every four years, that its fair values of liabilities and assets are calculated on a non-recurring basis, and that its trading securities comprise equity investment products and exchange-traded mutual funds. As a result, given their financial assets, fair values of assets can be predicted in advance.
It is necessary to disclose leases because it enables investors to comprehend the revenue, they will receive from renting out their property, the duration of the lease, and the level of uncertainty around the predicted cash flows. For Starbucks, there are both the lease finance needs and the finance leases, which are depreciated using the straight-line approach. As of the fourth quarter of 2015, the lease finance requirement’s minimum rental payment was $38.7 (Melnyk, 2020). As a result, this illustrates the payments due as well as the length of the lease.
In conclusion, the United States Securities and Exchange Commission devised the accounting system known as Generally Accepted Accounting Principles (GAAP). Companies must submit reports under this standard detailing their cash flow, overall financial health, and revenue-generating operations. The income statement, the balance sheet and the cash flow statement are the three main financial statements that GAAP requires reporting on. This essay has outlined and discussed the many elements and justifications for each level of necessary reporting and how Starbucks handled its submissions.
Reference
Melnyk, M., & Yu, W. (2020). Financial results of Starbucks in Chengdu City, China. International Humanitarian University Herald. Economics and Management, 5(42), 59-63.