Categories
Accounting

Interpretation of Sarbanes-Oxley Act

Over the course of the decade, there have been many publicized corporate scandals from the much publicized downfall of Enron, to WorldCom, Arthur Anderson, Tyco International, and a host of other major corporations that scandals rocked the accounting world. These companies were cooking the books, hiding accounting practices not reported in audits, and stealing from clients. From the number of corporations involved in scandals, thousands lost their jobs, and millions more lost their trust in major corporations. Out of this mistrust, President Bush acted in a reasonable response by creating the Sarbanes-Oxley Act of 2002 that was enacted in July 2002. This new law targeted other major corporations with the primary goal of protecting investors and the public in providing accurate and true reporting of auditing and accounting services. These were set in place in order to restore confidence in major corporations, and honestly the government that mostly bails these companies out.

Congress actions in passing the law were out of growing public scrutiny of auditing services that were mostly done internally, turning a blind out to the misdeeds of the executives and the heads of the companies. The little guys which were usually the lower level employees were the ones that were left without jobs. This is where the public was most upset about that the CEO’s and executives were riding high, but the lower employees were left broke and without benefits. The requirements in SOX, have shifted the focused on the importance of outside auditing firms double checking the company’s books, and the growing importance of the Securities and Exchange Commission in getting back public trust.

According to the textbook, Irwin suggest that Sarbanes-Oxley Act was to hold businesses accountable for their auditing duty. When all these scandals happen the bigger question was, “where were the auditors?” (Louwers, 2013) This question is crucial in understanding the importance of how these companies were able to commit fraudulent activities long before being caught. Attention was only brought because of whistleblowers, or suspicions from the SEC. Auditing is the key in holding businesses to the standards that the SEC has entrusted in them to follow the letter of the law in operating within the United States. Internal audits that are done by the company is how most of the companies are able to get by. Internal audits are supposed to ensure the public of a company’s honesty. “Internal auditing is an independent, objective assurance and consulting activity that adds value to and improves and organization’s operations.” (Louwers, 2013) The end result of the SOX is to provide insurance to investors that the company is operating legitimately.

The impact of the law for the future is meant to be positive for investors, studies have proven that SOX has not only instilled faith in investors, but has uncovered other scandals, such as Value Line, that was committing fraud for over 20 years was discovered by the SEC credit from the SOX. (Bhaktavatsalam, Condon, 2009) However there has been criticism that SOX has prevented IPO’s and foreign investors from entering the market. Many representatives have asked for a repeal that feel are hurting the U.S economy. However the future impact is unseen as many have believed including investors that the law supports a market and business culture that breeds honesty in operations that show the public that they are able to remain successful and turn a profit in a legitimate fashion that contributes to the economy.

References

Bhaktavatsalam, Sree Vidya, Condon, Christopher. “Value Line Settlement Marks End of Buttner Reign.” (2009). Bloomberg. Retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPpxj3FdB0uM

Landers, Guy. “What is Sarbanes-Oxley?” (2003). McGraw-Hill. New York, NY

Louwers, T. Auditing & Assurance Services. 5th edition. (2013). McGraw-Hill

Categories
Accounting

Imperial Power Corporation

1.         As Assistant Treasurer (International) for IPC in the United States, prepare an     analysis of the exposure of the Spanish subsidiary:

  • using the current rate method,

Exhibit 1

Imperial Power Corporation

Imperial Power of Spain, balance sheet as of March 31, 2000 (in thousands of pesetas).

________________________________________________________________________

Assets

Cash                                                                                       Pts.      6,300   /106.7= 59,044          

Receivable & Securities                                                                    53,763/106.7= 503,870

Inventories                                                                                        41,000/106.7= 384

New Plant & Equipment                                                                   75,100/106.7=703.84

Total Assets                                                                                      176,163= 1651

_______________________________________________________________________           

Liabilities

Account Payable                                                                    Pts.      32,620

Accrued Wages & Taxes                                                                     2,300

long-term Debt                                                                                116,336

                                                                                               Pts.     151,256= 1418

Equity                                                                                    .           24,907

Total E&L                                                                            Pts.      176,163=

Using the current rate method, the subsidiary’s exposure is 0.

b. using the monetary-nonmonetary method:

Exhibit 1

Imperial Power Corporation

Imperial Power of Spain, balance sheet as of March 31, 2000 (in thousands of pesetas).

________________________________________________________________________

Assets

Cash                                                                                       Pts.      6,300   /106.7= 59,044          

Receivable & Securities                                                                    53,763/106.7= 503,870

Inventories                                                                                        41,000/106.7= 384

New Plant & Equipment                                                                   75,100/106.7=703.84

Total Assets                                                                                      176,163= 1651

_______________________________________________________________________           

Liabilities

Account Payable                                                                    Pts.      32,620

Accrued Wages & Taxes                                                                     2,300

long-term Debt                                                                                116,336

                                                                                               Pts.     151,256= 1418

Equity                                                                                    .           24,907

Total E&L                                                                            Pts.      176,163=

Using the current rate method, the subsidiary’s exposure is 0.

2.         Then prepare an analysis of the economic (cash flow) effects on IPC of a             possible devaluation of the peseta.

The possible devalution of the peso (according to the given assumptions) would occur at a 16.6% rate against all foreign currencies.  This means from a cash flow would be negative roughly 25,000 pesos. 

3.         Finally, recommend a plan to present or minimize any losses.

The plan to minimize (potential) losses should focus on the following three points:

  1. A pay-back or minimization in current exposure arising from the two loans to Banco Espanol de Credito and Chase Manhattan Bank.
  • Aggressively using transfer pricing to mop-up existing liquidity to reduce exposure.
  • Eliminate other long-term debts that would significantly increase with a potential devaluation.   

4.         Consider the company’s transfer prices for sales between affiliates. What effect might alternative transfer pricing policies have on the gains or losses from    exchange rate changes?

Transfer pricing can be used as a tactical tool to reduce the Spanish subsidiary’s exposure to potential devaluation. This can be accomplished by raising the transfer price for sales between the Spanish and French/ German subsidiaries, respectively. Although the company might want to diversify away from Spanish Pesos through a (predetermined) allocation to the two different subsidiaries, the tactic should focus on higher prices to reduce exposure. 

Categories
Accounting

Balanced Scorecard Theory

Key performance indicators, financial assessments, return on investment, project schedules, budget estimates and a plethora of other tools and metrics are used to measure quantitative and qualitative variables in performance.  While there are key performance indicators and other metrics to manage, understand and provide data to make informed decisions there is still a need to have a more granular view on what is expected of the group being measured and the expected outcomes of the performance.  There are multiple areas that can be measured and analyzed to provide the data required to make informed business decisions.  These areas can be defined as financial, external, internal and growth.  By applying metrics across a broad spectrum of opportunities each area of the business can be measured and compared between each other.  This scorecard method allows insight into key metrics of the organization and allows a concise and focused effort that ultimately aligns the strategic intent of the organization to the defined measurements of the organization. 

Balanced Scorecard Definition

The objective of the balanced scorecard is to provide a quick and powerful tool so that anyone in the organization that has the need to know or understand the performance of their specific function can view and gain the perspective needed (Kaplan, R. and Norton, D).  This visual assessment allows for the managers and leaders of the organization to make informed business decisions to take the appropriate actions.  These actions taken by leadership would drive the change in the organization based upon achieving the performance standards outlined on the balanced scorecard (Monk, E., and Wagner, B).  This tool is used as a planning tool that aligns those actions on the tactical business operations level to the strategic intent of the business.  Prior to the utilization of the balanced scorecard theory businesses relied heavily on financial measurements to drive actions within the organization (Kanaracus, C.).  While this did provide a certain level of validity to the management decisions it did not provide the full picture required to make those tough business decisions in an ever changing and dynamic environment.

The early implementation of the balanced scorecard, although not officially named balanced scorecard until the 1990’s, was used by the General Electric Company in the 1950’s (Cooper, D. F., Grey, S., Raymond, G., and Walker, P).  The General Electric Company was driving toward a new and innovative way to align what was happening in the business and how to make changes in the manufacturing process to impact the final results of their process.  By measuring different variables in the organization the sourcing buyers, engineers, manufacturing team leaders and other members of the manufacturing and sourcing supply chains could make decisions based on these financial and non-financial key performance indicators to better their metrics.  Each change was then compiled into a scorecard to determine the strategic health of the organization.  The intention of the balanced scorecard has remained the same over the years but the ability to define metrics, measure variables and report results have become increasing intricate and beneficial across multiple business units in virtually all industries.

Balanced Scorecard Perspectives

The essence of the Balanced Scorecard Theory is to provide a fair and balanced approach that deviated from the original metrics associated with the business decisions.  The balance comes from defining metrics that work in a complimentary fashion as opposed to a financial centric focus that was previously used.  There were some inherent weaknesses and opaque perspectives that came from the pure financial view and the balanced scorecard approach provided a balance to the over strategic performance of the organization.  The balance also is seen as taking a different perspective on the company as noted before.  The four areas encapsulate the business in unique ways and can provide insight and vision into an area of the business that would be completed overlooked by other functions of the business (Leach, L).  The first are is the financial portion.  While this has always been included in the views and analysis of companies since the beginning of trade, the financial perspective is crucial to business decisions.  The question on what should be measured is based on how the success of the company is view by the shareholders of the company.  Financially, what is important to those with a vested interest in the success of the company?  The answers to this question will help drive the metrics needed to drive the objectives, measures, targets to the measures and the projects or programs that will drive these changes.

While the financial portion is aligned, measured and analyzed there are three other areas that need to be taken into account.  The next is the customer’s view.  This could be customers within the same organization or those customers in the traditional sense that are utilizing the final good or service as intended by the organization’s business model.  The leaders of the business must have a vision on what the organization will do in the future.  This could be growth in certain sectors of the business or expansion into new markets or product opportunities.  The vision is established by leadership so that the projects, objectives and efforts of the organization can drive the results required.  With the customer section of the balanced scorecard, the focus is centered on the ability to achieve the vision of leadership and how the customer measures that success.  These objectives are viewed as key performance indicators from the perspective of the customer. These objectives could be increased efforts for after hour support or availability of web-based applications.  These types of focus areas would drive the objectives, metrics and actions of the organization to meet the criteria outlined by the customer’s perspective.  This external view of the organization can shed light onto areas that may be neglected based on the mere fact that those creating the metrics and defining key targets do not have the external focus necessary to drive those types of changes.  Also without metrics based on these external focuses the business is not as likely to allocated resources to those types of projects considering they do not have the support or focus needed to be successful.  Without a measurement it is hard to determine progress or definitive results and benefits from a project (Prencipe, Davies, and Hobday).

After looking externally to drive results, the next area is internally focused based on processes, procedures and core capabilities.  The internal focus looks at the business functions that provide value to the organization, product or service that are seen as critical to satisfy the shareholders, customers, leadership and other entities that are reliant or collaborative with the business processes.  In order to satisfy those requirements, what business processes and functions are needed to run at the optimal performance level?  This question will drive the goals and objectives as well as the level of the target assigned to that objective.  Another area of focus for the balanced scorecard is neglected most of all in terms of a pure financial analysis of the company.  This area is the growth of the organization.  This growth is more than real estate, capital, work force or markets but it focuses on talent, agility, change management, functional expertise, adaptability and learning.  These areas are measured by their ability to improve the organization and change to meet the vision of the organization.

With all four areas the objectives there is a focus on building the objectives, measurements, target metrics and the projects.  Each perspective of the balanced scorecard will result in the definition of key requirements of the perspective.  These areas start with the objectives of the perspective.  These objectives are the outlined end states that are required from each perspective.  The end state is the deliverable or result of the business.  Within the objectives there are examples for each perspective.  The customer perspective could entail the view that each customer should have access to their accounts regardless of the core business hours.  This objective is from the customer’s perspective but does not have a definitive measurement around it.  The objectives tie into the measureable statistic of that objective.  For this example the measurement could become the amount of time the system is available each day.  This is the measurable aspect of the objective.  The metric is simple, measureable, attainable, relevant and simple.  These criteria should be present in all the measurable metric criteria on the balanced scorecard.  With the objective identified and the key performance measure outlined there must be a line or target established so that the person or group reviewing the balanced scorecard know how they are performing against the outlined indicators.  This target is established and provides that much needed sanity check for the team.  This target drives actions.  The actions required by the business lead to projects or other initiatives of the organization so that they can make the necessary adjustments to meet the objectives, measures and targets of the organization.

Alignment and Benefits

The vision and strategy is in the epicenter of this balanced scorecard.  Since the business has an overall view of the internal processes, external customer centric view, financial health and metrics of the organization and the growth metrics assigned there is an overall view of the business and its performance.  The crucial portion of all those metrics is how they measure the health of the organization, the progress toward the business’ vision and the success of maintaining those efforts to ensure a sustainable operating model.  The vision of the business and the results of the business’s financial and operational actions are linked together through the actions taken based on the balanced scorecard.  This strategic mapping of tactical actions to the vision of the organization is facilitate by the insight and guidance offered by the balanced scorecard.

As the objectives lead to metrics and the metrics establish targets which ultimately lead to the initiatives and projects of the organization there is a logical and deliberate map from the smallest enhancement project to the overall vision of the organization.  This linkage is one of the major benefits of the balanced scorecard and its application to business.  The actions on the lowest level of the organization have a direct correlation to the successful implementation and intent of the leadership of the organization.  Not only is the purpose and intent of those actions attached to the vision the actions are also measured and reported upon with the visibility required to garner the support and input by the key leadership positions.

The benefits of the using the balanced scorecard are just as varied as the inputs of the perspectives.  The overall objective and benefit of the balanced scorecard includes the ability to monitor, track and align the actions of the organization with definitive deliverables align to the vision of the organization.  Strategically aligning these actions allows the limited resources of time, funding and people to be adequately and effectively allocated to the project and programs that benefit the organization in the most impactful manner.  This alignment of key performance indicators aligns all levels of the organization and instills a sense of purpose knowing that the operation of a specific functional area of the organization is executing has purpose and direction.  The alignment of the vision to the operationalize functions also creates an opportunity for increased communication and collaboration between units since their scorecard metrics are also aligned with the vision of the organization.  This increased opportunity lends itself to increased creativity and innovation to solve real world issues and still understand what the end state must be and what key performance indicators are measuring success (Highsmith, J. A., & Highsmith, J.).  This clear picture of what success is and what areas require focus can facilitate the problem solving aspect of business and allow the ingenuity and innovation of the organization to solve those problems.

The balanced scorecard, if executed correctly, can create value within itself that could potentially create a competitive advantage.  This advantage comes from the inherent ability to create the translation between the vision of the leadership to the concrete and achievable actions throughout the organization.  The balanced scorecard also creates the opportunity to improve business processes, make informed decisions on business tactics and reduce the amount of noise in the data analysis and alignment process.  This is accomplished by analyzing already established business metrics that are continually reported upon and the variations from one reporting cycle to the next can be traced by to specific actions that occurred through the projects outlined in the scorecard.  Clarity and visibility into the key functions of the operations that are driving the key performance indicators allows a greater command and control upon the inputs of the operation and the manipulation of the expected results.  Understanding the needs of the company and how they align to the organizational vision can create that much needed clarity advantage throughout the organization (Kaplan, R. and Norton, D).

While the benefits of the balanced scorecard include the visibility into four different areas of the business including finance, internal business processes, customer or external focus and growth as well as the alignment to the vision of the organization there are still some potential disadvantages to the scorecard.  To execute the balanced scorecard there is a tremendous amount of preparation and planning to effectively and efficiently implement the use of the balanced scorecard.  The vision of the organization must be firm and established and the objectives of the organization must be clear and understood by those developing the balanced scorecard.  The balanced scorecard is also not the only tool needed to run the business.  While the tool is very useful it is not an all-encompassing metric and analysis tool to base all business decisions upon.

Case Study

Through the understanding of what the balanced scorecard stands for and looking to implement the tool into the organizational culture, the case study hits on some of the key fundamentals of the advantages and disadvantages of the balanced scorecard theory.  The advantages are sought out by the company to create that strategic alignment and visibility needed to be successful but the forethought and effort for the development of those metrics; deliverables and targets were not fully vetted and aligned with the vision of the company.  The Young, Martinez and Cheung (YMC) firm developed a set of strategic objectives which are aligned with the position of the firm and their core values.  The first step is complete but there still needs to have a measureable assigned to each strategic goal.  With each objective listed below there is a corresponding measure for that objective.

Financial

  1. Steadily increase the firm’s revenues and profits

Measure: 

  1. Determine the operating profit of the organization
  2. Determine the Revenue generated by services by function
  3. Determine Earnings before interest and tax            

Customer

  1. Understand the firm’s customers and their needs.

Measure:

  1. Count the number of customer complaints
  2. Count the types of services used by the customer
  3. Quantify the services provided by function
  4. Value customer service over self-interest.

Measure:

  1. Calculate work level for core operations
  2. Calculate Pro-Bono effort

Internal Business Process

  1. Encourage knowledge sharing among the legal staff

Measure:

  1. Track knowledge management inputs
  2. Track knowledge management views
  3. Calculate knowledge transfer/exchange session held
  4. Communicate with each other openly, honestly, and often

Measure:

  1. Count the number of brown bag lunch sessions
  2. Determine number of round table discussions held
  3. Count the number of closed door offices
  4. Empower staff to make decisions that benefit clients

Measure:

  1. Review quantity of decision review boards
  2. Quantify types of decisions being reviewed up the chain of command
  3. Measure the dollar amount associated with each decision type

Organizational Learning

  1. Maintain an open and collaborative environment that attracts and retains the best legal staff.

Measure:

  1. Count employee turnover
  2. Calculate case winning percentage
  3. Calculate settlement winning percentage
  4. Quantify attendance and sick leave
  5. Seek staff diversity

Measure:

  1. Calculate education
  2. Calculate experience in core business functions

While these measures are not all encompassing of the metrics required they are specific to each one of the objectives and are aligned with the vision of the company.  From those metrics a target will be established and from that target the company would know how to allocate their resources to fund and support the initiatives needed to meet those targets.

            The law firm can use the balanced scorecard to evaluate staff and make key business decisions regarding their performance and what the expectation are regarding their level of effort in different areas of the business.  With each different perspective there are measureable areas that can help guide the staff and provide a visual cue into what success looks like.  The balanced scorecard is utilized as more than a dashboard to key metrics.  The balanced scorecard allows the staff to determine the actions, efforts and level of performance required to meet the targets set forth by the organization.  These targets would provide the baseline measurement on the performance of the staff.  While the balanced scorecard can encapsulate what is required by the staff it must also be understood that many intangible assets of an employee must also be taken into consideration by the evaluating team.

Performance Based Incentives

When reviewing staff based upon the balanced scorecard there is a by-product of that analysis.  There is an inherent prioritization or rack-and-stack of staff on how well they execute the tasks outlined in the metrics of the balanced scorecard.  The question then becomes how to reward the high performers and how to raise the performance of those on the opposite end of the spectrum.  The balanced scorecard is an effective way to tie performance indicators from multiple different perspectives to the performance results of the staff.  This correlation provides a framework for tying compensation to the balanced scorecard results.  With the metrics that are individually based and focused this is possible but there are also other metrics that must be met as a group or functional area of the organization that cannot be tied back to a specific individual.  This could be a great way to promote incentive pay to user change in the organization but there is a fine line between driving results and pay for performance.  These types of decisions will also need to incorporate the culture of the organization and the type of environment the organization is trying to build.  The metrics will drive the actions of the organization and that can have a positive or negative impact depending on the end state deliverable.

Application

As previously discussed the application of the balanced scorecard is focused on the strategic alignment with the vision of the organization and the actions of the staff to achieve that vision.  The arduous part of utilizing the balanced scorecard is the preparation and implementation of the management tool.  There are key areas that must be taken into consideration for the implementation of the tool.  The first is the buy-in from leadership of the organization. The balanced scorecard is a top down implementation that requires the foundation to be laid and supported by leadership.  The success of the balanced scorecard hinges upon the correlation between the actions derived from the projects and the vision of the organization. To employ the balanced scorecard there must be an understanding of what results the organization wants to achieve from the implementation of the scorecard.  The objectives, metrics, targets and projects that result from the implementation of the scorecard are the real drivers of the change and the scorecard is the vessel into the visibility of that change.  The effort to commercialize the idea throughout the organization will also provide the opportunity to garner feedback and critical information on what to measure, how to measure it and what the intended results are.

            The balanced scorecard is a tool that will allow the strategic mapping of the vision developed by leadership to the key performance indicators that visually depict what success looks like for the organization.  The alignment of key functional actions throughout the organization will provide a synergistic approach to achieving success.  The balanced scorecard is the management tool that can provide that guidance and feedback needed to allocate resources to achieve the outcomes outlined by leadership in the vision.

Works Citied

Cooper, D. F., Grey, S., Raymond, G., and Walker, P. Project risk management guidelines, managing risk in large projects and complex procurements. John Wiley & Sons. 2005. Print.

Highsmith, J. A., & Highsmith, J. Agile project management, creating innovative products. Addison-Wesley Professional. Print.

Kanaracus, C. Survey finds erp software project overruns ‘distressingly common’. 22 June. 2013. Web. http://www.cio.com/article/710777/Survey_Finds_ERP_Software_Project_Overruns_39_distressingly_Common_39_?taxonomyId=3009

Leach, L. P. “Critical chain project management”. Norwood, MA: Artech House, INC. 2005. Print.

Magal, S. R., and Word, J. (2011). Integrated business processes with erp systems. RRD/Jefferson City: Wiley. 2011. Print.

Miller, D. “Building a project work breakdown structure: visualizing objectives, deliverables, activities, and schedules.” ESI international Project Management Series. Auerbach Publications. (2009). Print.

Monk, E., and Wagner, B. Concepts in enterprise resource planning. (3 ed.). Boston, MA: Course Technology Cengage Learning. 2009. Print.

Prencipe, A., A. Davies, and M. Hobday. The business of systems integration. Oxford University Press, USA, 2007. Print.

Project Management Institute. “A Guide to the Project Management Body of Knowledge (PMBOK Guide) Fourth Edition.” Project Management Institute. Newtown Square, PA. (2008). Print.

Kaplan, R. and Norton, D. “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76. Print.

Wheelen, T. L., and Hunger, D. Strategic management and business policy, achieving sustainability. (12th ed.). Upper Saddle River, NJ: Pearson College Div. 2010. Print.

Categories
Accounting

Independent Auditors of the organisation’s accounts

The role of the independent auditor is to plan and perform the audits in order to obtain reasonable assurance of the financial records of the business and ensure these records are free from material errors. The independent auditor assesses the effectiveness of a company’s internal control system and its financial statements in order to develop an opinion as to the accuracy of these systems. Additionally the independent auditor’s task aims at addressing the risk of material errors and misstatements in the company’s financial records. The primary goal of external auditing conducted by independent auditors is to determine the extent to which the company adheres to managerial policies, procedures, and requirements. The independent auditor then forms an opinion as to the fairness and dependability of the statements of the company. This opinion is communicated to the appropriate body or board in the form of a report.

An independent auditor’s report is a formal opinion or disclaimer issued by the auditor concerning the accounting records, financial position, and the internal control system of a company. These reports are not evaluations but merely opinion as to whether the information existing is accurate and free from errors. These reports can contain unqualified opinion and this implies that the auditor’s opinion is that the financial accounts give a true and fair representation of the company. On the other hand, a qualified opinion report indicates that the auditor identified a few areas that do not comply with the required standards but the rest of the financial statements are presented fairly. An auditor can also give an adverse opinion report where the auditor establishes that the financial reports of the company are materially misstated and when considered in its entity they do not conform to the required standards. However, an auditor can fail to form a formal opinion usually due to various reasons and such an opinion is termed as a disclaimer of opinion.

The independent auditors make these reports on the fair presentation of the company financial records in accordance with any professional standards. The standards that govern independent auditors are either the Generally Accepted Auditing Standards (GAAS) or International Standards on Auditing (ISA). The independent auditors make reference to these standards in forming an opinion on the company’s financial presentation and in coming up with the auditor’s report. The purpose of these auditing standards is to provide engagement standards for the profession, outline the procedures to be followed, establish a guideline on engagement and set out professional ethics. The Generally Accepted Auditing Standards provide for the qualifications on an auditor and provides for the standard of work expected from an auditor. It also provides for the performance of the audit report and sets out the prerequisites necessary for the auditor to act independently. In essence, these standards govern the engagement of an auditor in conducting the audits. Similarly, the International Standards on Auditing governs the engagement of the auditor   in forming an opinion on the financial position of the company.  In addition, these standards provide for the responsibilities of the auditors and provide standards for the performance of audits. Conversely, the standards set out how audits are conducted including planning of audits, the collection of evidence, working with experts and the formulation of audit reports. Simply put, these standards define how auditors should conduct audits

Categories
Accounting

Coca Cola 2012 Annual report

Coca Cola 2012 10-K

The annual report is usually divided into several sections to make it easier for the reader to access the desirable information. Coca-Cola’s (Coke) annual report for the fiscal year has been divided into four main parts, with each part containing different sections. The first part covers sections which provide us with basic introduction to the company. The first section gives us general overview of the business such as scale of operations, geographical concentration, financial strength, products, and marketing strategies. Other sections include risk factors that could have material negative impact on the business, legal issues currently facing the company or that may arise in the near future, and the leadership of the company. The second part of the annual report primarily deals with financial data and analysis. The sections covered in this part include capital structure, financial statements such as income statement, balance sheet, and cash flow statement, accounting principles used in preparing the financial statements, and company’s control mechanisms. The third part primarily deals with sections such as management and leadership of the company, executive compensation, and board of directors etc. The fourth and final part is the shortest component of the annual report and contains such information such as a list of important sections within the annual report, and definitions/explanations that may help the reader better understand the annual report (Coca-Cola, 2013).

Even though the company’s sales and net income figures during 2012 were better than 2011, the performance was quite disappointing as compared to the year 2010. Coke’s net income was higher in 2010 than 2012 even though the sales revenue in 2010 was about three-fourth the 2012 level. A closer study reveals that both cost of goods sold as well as marketing expenditure has significantly increased over the last few years which may be a sign of economic recovery as well as more intense competition with Pepsi. This may also be why we note in the balance sheet that there was a significant decline in cash reserves between 2011 and 2012. We also note a notable increase in loans and notes payable during the same period which also explains declining profitability as compared to 2010. Despite growing competition, the company took steps to further expand its scales of operations as evident by higher levels of capital investment during 2012 as compared to previous two years. This is especially evident in the investing section of the cash flow statement.

As far as primary assets are concerned, Coke’s largest long-term assets are property, plant, and equipment at about $14.48 billion and goodwill at a little over $12.2 billion. This is not surprising because Coke has one of the most valuable brands in the world and the nature of company’s operations requires huge capital investments in buildings and manufacturing equipment. In addition, the company also owns part of its global distribution network. The company’s largest short-term assets are cash, cash equivalents, and short-term investments at a little over $13.4 billion. This may be due to the fact that the company requires significant short-term liquidity to conduct its day-to-day operations.

As far as company’s internal control system is concerned, the management reports its regularly conducts internal audits and management reviews and also carefully selects and trains qualified personnel. But the management also states that no internal control system can prevent all instances of unethical behavior or misstatements and there is also a possibility that the severity of risks exceed the effectiveness of the internal control system.

 

 

Reference

 

Coca-Cola. (2013). Form 10-K. Atlanta, Georgia: The Coca-Cola Company.

 

 

 

 

 

Categories
Accounting

Citibank Financial Meltdown and Analysis

Introduction

The financial meltdown of Citibank in 2008, according to some authors could easily have been predicted based on the market and the strategy of the financial institution. (Gleenlaw et al. 2008)  Citibank was present in the mortgage and housing finance market and held a great market share worldwide. The country currently operates in more than one hundred countries. It has a history of more than 200 years.

Categories
Accounting

Managerial Accounting: Theory and Practice

Table of Contents

Introduction……………………………………3

 

Managerial Accounting Definition……………4

 

The Aims of Managerial Accounting…………5

 

Economic Theory……………………………..5

 

How Economic Theory is Practiced…………..7

 

Conclusion…………………………………….8

 

References……………………………………..9

Categories
Accounting

Role of auditors

Q1 | Certified Public Accountants (CPAs) have a professional responsibility to their body and profession to adhere to an established code of ethics and behave in a legally responsible manner to their profession i.e. uphold professional accounting standards.  They are not the moral conscience of their clients but do have a duty to advise them on proper standards of accounting practice and taxation advice. Such advice e to work within the legal frameworks of the law and to point out any considered wrongdoings or misappropriations.  CPAs cannot govern their clients businesses but have more of a professional responsibility than that of a moral code.

CPAs are however expected to adhere to a professional code of ethics and breaches of such may result in disciplinary action by the professional body. In serious cases of misconduct, they can be removed from the professional register of Accountants. (AICPA, 2012).

S.51 of the Professional Code of Conduct puts this into context “These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.” (AICPA, 2012).

Categories
Accounting

Dent’s definition of culture in his study of Euro Rail

Accounting is a common practice for most organizations. Systems of hierarchical accountability, planning and budgeting activities, budgetary controls and remuneration arrangements, and performance appraisal procedures rely on accounting practices in more or lesser extent. Accounting is therefore, likely to be implicated in the cultural systems of organizations (Dent 442). Culture has many definitions depending on the circumstance with which they are applied. Culture is ordered clusters of significance, shared web of meaning through which individuals learn to appreciate the meaning of experience as guiding by action (Dent 444). Culture is produced as well as reproduced through interaction and action.

Categories
Accounting

Question and Response

Case Background

What constitutes organizational development? For business organizations that has withstood the different twists and turns of the tides of time, it is evidently essential that change is considered as an element that constitutes organization development. True, as the society advances, the was businesses are directed also takes differential conditions of adjustments. In relation to this, the case study on EuroRail handled by Jeremy Dent shows a distinctive indication on how modern businesses intend to develop accordingly. In this particular research, Dent intends to show how the aspects and principles of modern accounting actually help in defining the pathway taken by businesses as they change their culture and their operational approaches in the hope of creating adjustments that would make it easier for their company to embrace the new age culture of modern businesses. To be able to examine how Dent places an indicative consideration on specific elements of research and how he utilize the information he gets to actually provide a clear vision on what should be considered in relation to modern business management, several questions of research shall be given particular attention to in this discussion.

Categories
Accounting

ESTATE OF Lucille P. SHELFER, Deceased, the Quincy State Bank, Personal Representative, Respondent, v. COMMISSIONER OF INTERNAL REVENUE, Petitioner Case Summary

Mrs. Shelfer specifically hopes to create a distinctive petition to be able to get full ownership of the property that she and her deceased husband owned. In relative connection to the provisions of marital properties [also noted as conjugal properties], she seeks to get what she believes is rightfully hers. In this case, she then contends to the commissioner of internal revenue that she has the right to the full income from the property and yet she should be waived from the taxes that it is noted to be subjected to.

Categories
Accounting

ESTATE OF Lucille P. SHELFER, Deceased, the Quincy State Bank,Personal Representative, Respondent,v.COMMISSIONER OF INTERNAL REVENUE, Petitioner. Case Brief.ppt

ESTATE OF Lucille P. SHELFER, Deceased, the Quincy State Bank,Personal Representative, Respondent,v.COMMISSIONER OF INTERNAL REVENUE, Petitioner. Case Brief

Categories
Accounting

MEMO: Landline Corporation’s Policy on Revenue Recognition

This case is about Landline Corporation, a publicly-owned telecommunications firm that provides routing and billing services to specialty phone lines.  As part of the firm’s contract with PRU, a provider of psychic services, Landline provides two services: 1) The entity routes the calls from callers to a psychic from PRU; 2) The entity bills for the call and transfers money to PRU based on the usage of psychic services.  This memo will first explain general principles surrounding revenue recognition for entities that provide services for another entity; the memo will then explain how Landline should account for these transactions.

Categories
Accounting

Research Problem Number 1: Estate of Lucille P. Shelfer

D. What is Rule 122 (a)

This rule of court identifies the significance of transfer of properties to a joint owner of the element and the adjoining power of the implication of responsibilities that are placed upon the said property. For instance, if a couple owns a land property and one of them dies, the succeeding person [the widowed] will take possession of the said property including that of the responsibilities that comes with it especially in relation to paying taxes.