Governmental and Generally Accepted Accounting Principles (GAAP) financial reporting requirements create uniformity of accounting principles globally. The uniform accounting standards ensure transparency of financial reporting and facilitate business performance comparison, especially when performing an external environmental analysis. Standard reporting allows businesses to compare and benchmark business strategies, thus facilitating competitiveness. This paper analyzes the need for five governmental and GAAP reporting requirements in the context of Starbucks and the information disclosed in each requirement.
Control Procedures
Accounting control procedures help organizations establish the accuracy of financial statements. It fosters transparency to ensure that businesses comply with financial laws and regulations (Starbucks Corp., n.d.). Interested stakeholders can assess compliance before committing resources, thus minimizing financial and legal risks. In the 2018 annual report, Starbucks disclosed that it evaluated the design and operation of disclosure controls and procedures. Starbucks engaged an independent registered public accounting firm to undertake the evaluation in compliance with the Exchange Act and determined that disclosure controls and procedures were effective. Since Starbucks acquired the East China joint venture in 2018, the business was excluded from the annual evaluation of internal controls. The company states that internal controls and procedures ensure that company records accurately and fairly reflect transactions. However, Starbucks provides a disclaimer that internal controls do not guarantee the prevention or detection of misstatements (Starbucks Corp., n.d.). Based on its report, Starbucks’ internal controls and procedures are efficient.
Delegate your assignment to our experts and they will do the rest.
Segment Information
Reporting of segment information facilitates the assessment and prediction of firm performance. It allows investors and stakeholders to assess cost-benefit tradeoffs and compare them to other firms in the industry. Segment information should be consistent with a firm’s internal reporting culture (Bugeja et al., 2015). In the 2018 annual report, Starbucks disclosed its licensing and distribution agreements with Nestle S.A. and the resulting changes in its organizational operating segment structures. The company has four operating segments, including the Americas, China/Asia Pacific, Europe, Middle East, and Africa, and channel development. The company reported that the Americas were the most mature business. The partnership between Starbucks and Nestle necessitated the change of the channel development business to a licensed model. Lastly, the report includes a breakdown of the company’s coffee brands in the channel development section (Starbucks Corp., n.d.). There is adequate segment information in the report, which facilitates competitor analysis.
Estimates and Assumptions
The International Accounting Standards Board (IASB) admits that financial reports are based mainly on estimates. Therefore, these reports are mostly subjective. Disclosures of accounting estimates and assumptions ensure that stakeholders can objectively assess a company's financial health and performance (Sacer et al., 2016). Starbucks provided a disclaimer that financial statements are subject to estimates and assumptions that influence assets, liabilities, expenses, and revenue amounts. It also provided a list of all the estimated values, including estimates for assets and goodwill impairments and inventory reserves. Assumptions include assumptions about self-insurance reserves, stock-based compensation forfeiture rates, and likely outcomes of future tax consequences associated with various events (Starbucks Corp., n.d.). Outlining the estimates and assumptions ensures that stakeholders are aware of the likely variations between actual results and estimates and assumptions.
Investments and Fair Value
Reporting investments and fair value ensure that investors know the current value of firm assets and liabilities, thus making accounting information relevant. Current values provide decision support for managers and investors (Palea, 2015). In 2018, Starbucks reported that its investments included available-for-sale securities, trading securities, and equity investments. Investment-grade debt securities make up most of the short-term and long-term investments. They are recorded at fair value. The trading securities portfolio includes marketable equity mutual funds and equity exchange-traded funds, all of which are recorded at fair value. Starbucks determined fair value based on three levels for cash and cash equivalents, available-for-sale securities, and auction-rate securities for each respective level. For the first level, the short-term nature of cash and cash equivalents requires fair value approximates. The company determines these assets' fair value using identical assets’ quoted prices in the active market. If quoted prices for identical assets are unavailable, Starbucks uses the quoted price of similar assets. Lastly, an internally-developed valuation model is utilized to determine the auction-rate securities’ fair value (Starbucks Corp., n.d.). The 2018 annual report provides extensive investment information for decision support.
Leases
Reporting leases in financial reports is critical since it provides an accurate view of the company’s financial obligations, thus supporting investors’ decision-making. Starbucks reported that it leases roasting, distribution, and warehouse facilities, retail stores, and office spaces under operating leases. The majority of the lease agreements include lease premiums and rent escalation prices. The report includes an outline of the components of most lease agreements and provisions for each clause. The company also participates in lease financing agreements, such as constructing leased buildings. Such arrangements are recorded in the property, plant, and equipment section, while lease financing obligations are recorded in other long-term liabilities (Starbucks Corp., n.d.). The leases section guides investors on where leases are recorded, giving a clear picture of the company’s financial obligations.
Conclusion
Uniform accounting standards ensure transparency of financial reporting. Accounting control procedures foster transparency to ensure that businesses comply with financial laws and regulations. Starbucks has efficient internal controls and procedures. Segment information facilitates the assessment and prediction of firm performance by allowing investors and stakeholders to assess cost-benefit tradeoffs and compare them to other industry firms. Disclosures of accounting estimates and assumptions ensure that stakeholders can objectively assess a company's financial health and performance. Fair value describes the current value of firm assets and liabilities, thus making accounting information relevant. Reporting leases in financial reports provide an accurate view of the company’s financial obligations.
References
Bugeja, M., Czernkowski, R., & Moran, D. (2015). The impact of the management approach on segment reporting. Journal of Business Finance & Accounting , 42 (3-4), 310-366.
Palea, V. (2015). The political economy of fair value reporting and the governance of the standards-setting process: Critical issues and pitfalls from a continental European Union perspective. Critical Perspectives on Accounting , 29 , 1-15.
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.
Starbucks Corp. (n.d.). Annual reports . https://www.annualreports.com/Company/starbucks-corp
