The paper tries to detail why it is a requirement for companies to adhere to the generally accepted accounting principles when following the rules of financial reports. Starbucks has been used in the paper as an example as they are a major company that adheres to the set standard all over the world.
Reporting control is a requirement under the law for companies that are registered in the security exchange; the report includes the following, a statement outlining the management’s responsibility for establishing and maintaining adequate control internally over the reporting on finances. The statement is used in the identification by the management to evaluate the effectiveness of internal oversight over the finance reporting, and finally a statement from the company that shows that the auditing company is registered under the law (Delaney & Whittington, 2005).
The advantages of internal control vary and the most common include, preventing and in some cases detecting a fraud, this is done through the fraud risk assessment (assessment of scenarios in which theft and fraud might occur and determining how to fix them). As at the financial year of 2008, the management at Starbucks provided, as required by the law an internal control that included financial reporting, assured that transactions at Starbucks were recorded as needed which wass used in the preparation of financial statement.
A segment reporting is a requirement of the business to report information that involves finance. The reported segment includes a factor that the organization used in identifying reportable segments. Other materials which are non-cash items, the result of the section whether profit or lose is 10 percent or more and finally if the total assets of the segment are 10 percent or more. Lastly the type of services and products sold by the division etc.. Starbucks used the income profit for the financial year to come up with the segment information (Geereddy, 2014).
Whenever the companies like Starbucks are preparing financial statements, the board of management makes use of estimations that are based on the assumption (Stickney, 2010). The estimates are useful in pointing out the life of some property and how useful it is to the company this is due to tear and wear and the depreciation values.
Lastly, reporting of estimations and assumptions acts as a financial instrument in settlement of the acquisition of the subsidiaries, so estimation relates to the identification and fair value for measuring the acquired asset (Gilbertson & Lehman, 2011). At Starbucks, depreciation of property, equipment and plant under capital lease is provided by a method of estimates of useful lives which usually cover 2 to 5 years for apparatus and 30 to 40 years for structures.
Under fair value, disclosure for investment helps provide readers with information that is new to the statement viewers, this assists them in decision making on whether to invest in such a security (Delaney & Whittington, 2005). Fair value helps users in recognizing the gains and losses on the assets and even liabilities as they transpire which is of more help to the user.
Over the last few years, Starbucks has been growing, it is reported that its revenue reached 16.1 billion dollars in the final quarter of 2014. The information is available to anyone who is interested in its review for stock investment.
It is a requirement that all leases must be reported on the company’s balance sheet, this is important since lease is easier to get than a loan for buying all the fixed assets. Also, the amount paid monthly for the lease expenses fall under the lease expenses; this means that the amount will be deducted from the total income.
The importance of lease reporting that fall under the accepted principle of accounting is that it shows the debt of the company that might be invisible on the balance sheet. At the Starbucks, they mostly lease retail stores, warehouse and distribution facilities, and office space, this is calculated on the lease accounting (Geereddy, 2014).
Reference
Delaney, P. R. & Whittington, R. (2005). Wiley CPA exam review. Hoboken, NJ: Wiley
Geereddy, N. (2014). Strategic Analysis of Starbucks Corporation. Web.
Gilbertson, C. B. & Lehman, M. W. (2011). Century 21 accounting. Mason, Ohio: South-Western.
Stickney, C. P. (2010). Financial accounting: An introduction to concepts, methods, and uses. Mason, OH: South-Western/Cengage Learning.