Financial statement of the company is prepared to evaluate the financial performance as well as financial position during the accounting period. In order to prepare the financial statement companies are required to follow the requirements of accounting principles and standards as per “generally accepted accounting principles (GAAP)”. As per the regulations provided under GAAP, companies are required to prepare financial statements by considering accrual basis, prudence level and going concern basis (Radebaugh, 2014). Further, the government regulations require to report the comprehensive financial information which is presented in the financial report of Starbucks stating the amount of comprehensive income $2,563 million. Reporting of control procedures is required to prevent several frauds and errors that affect the accuracy of financial statements of the company (Starbucks, 2017). It is important to report the control procedures to value the assets and liabilities at fair value as well as to identify the employees who are underperforming. In case of Starbucks, information on control procedures that are disclosed incorporates information on valuation of assets as per fair value together with the reporting of derivative instruments as per market price risk. Starbucks also disclose the information on cash flow hedges as a component of comprehensive income that measures accurate value of net earnings.
Segment reporting is essential for the companies to include in the financial report that provides information on the company’s performance with respect to the most significant operating units. As per the regulations of GAAP, the segment which discloses the minimum 10% of the total amount of revenue, profits or loss as well as combined value of assets during the reporting period (Feng et al., 2014). Considering the segment reporting information of Starbucks, it has been observed that the organization incorporates four essential reporting segments and reflected an income of $19,162 million in accordance with the product type and $8,093 million by geographic area during the year 2015 (Starbucks, 2017). Further, preparation and reporting of financial information in the company’s annual report considers significant accounting estimates and judgments to recognize the value of transactions if the actual amount is not known. It is important to use the best judgments on using estimates and assumptions to enhance the accuracy of the organization’s financial statements. In view of the annual report presented by Starbucks for the year 2015, it has been noted that the company followed the requirements of (GAAP)” in order to make necessary estimates and judgments. The company used the principles of estimates and judgments to report accurate results of assets and liabilities together with the incomes and expenditures. Starbucks valued the inventory reserves based on historical estimates and market value along with the valuation of goodwill impairments based on underlying assumptions (Starbucks, 2017).
Appropriate preparation and presentation of financial report incorporates reporting of investments at fair value by following the principles of US GAAP that provides an impact on company’s statement of income and financial position. In addition, reporting of investments at fair value is essential for the purpose of tax and potential investors to identify the company’s ownership and financial position. As per the principles of US GAAP, it is essential to value the investments by using cost method or equity method depending on the ownership that represents dividend or interest income (Leuz & Wysocki, 2016). Financial report of Starbucks presents the different types of investments in terms of shares available for sale and available for trading while the method used to value the securities was equity method to impair the assets on annual basis. The organization also used the fair value method to measure the transferable value in accordance with the participation of market based on carrying value (Starbucks, 2017).
As per the US GAAP, it is essential to report on leases by classifying capital and operating leases since it affects the company’s financial position during the accounting period. It states the right to use the property stating interest on company’s lease liability together with the reporting in cash flow statement to identify the new cash flow from financing. Reporting of finance lease is important since it provides information on repayment and interests on liabilities while operating leases represents value of lease costs from direct business operations (Fenget al., 2014). Accordingly, reporting on leases of Starbucks represented operating and financing lease agreements that contained tenant allowances, lease premiums and other ease incentives. In addition, the company recorded the tenant allowances in the form of deferred rent under the accrued liabilities as well as other liabilities for long- term. Starbucks recorded the paid premiums as prepaid rent under the asset for prepaid expenditures as well as current asset to disclose the accurate financial position (Starbucks, 2017).
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over financial reporting affect a firm's operations? Evidence from firms' inventory management. The Accounting Review, 90(2), 529-557.
Leuz, C., & Wysocki, P. D. (2016). The economics of disclosure and financial reporting regulation: Evidence and suggestions for future research. Journal of Accounting Research, 54(2), 525-622.
Radebaugh, L. H. (2014). Environmental factors influencing the development of accounting objectives, standards and practices in Peru. The international Journal of Accounting Education and Research. Urbana, 11(1), 39-56.
Starbucks. (2017). Starbucks Coffee Company. Retrieved 3 March 2017, from https://www.starbucks.in/