Mba 503 - Milestone 3

MBA 503: Milestone 3

It is important for an organization to have reporting regulations and policies in place to meet the requirements of the GAAP, Securities Exchange Act of 1934, Global Consumer Products Group, International Accounting Standards Board’s (IASB), and the Financial Accounting Standards Board’s (FASB).  

Some of the most important reporting factors for an organization accounting practices include the reporting of an organizations control procedures, segment financial information, estimates and assumptions, investments and fair value, and the reporting of leases. We will explore the reasons why these reporting factors are important, and how Starbucks effectively reports their financial data.

Reporting control procedures allow for organizations to effectively control the reduction of risk to lost assets, and they help to ensure that information is reported completely and accurately so that the information the financial reports are reliable and that the plan set in place complies with all law and regulations. (AICPA, 2017) Starbucks regularly discloses their controls and procedures by periodically filing their reports according to the requirements under the Securities Exchange Act of 1934.  In doing so, Starbucks ensures that they are reporting within the set times specified by the SEC’s policies.  Starbucks also ensures that the reporting of control procedures is also communicated to upper management, primarily the CEO and CFO, respectively so they are able to review the reports for the proper reporting of required disclosure guidelines. Starbucks filed their certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 in exhibits 31.1 and 31.2 to the 10-K in the fourth quarter of 2009’s fiscal year. (Wikinvest, 2017)

Reporting of segment information required, allows for organizations to separate accounts by the individual divisions of the organization, its subsidiaries or other segments.  In annual reporting, the purpose of organizational segment reporting is to provide a picture of a public company’s performance to its shareholders.  The evaluation of each segments income, expenses, assets, liabilities by top management allows for a more accurate assessment of profitability and risk. (Investopedia, 2017) The Starbucks Corporation utilizes three reporting segments which include the following:

United States Segment, which includes the US Foodservice business, retail stores and specialty operations

International Segment, which includes retail stores and specialty segments.

Consumer Products Segment, which includes coffee, tea and other products sold in grocery stores, warehouse clubs and convenience stores.

The reported total net revenues at the end of the 2009 fiscal year “United States (“US”) (73%), International (19%) and Global Consumer Products Group (“CPG”) (8%).” (Wikinvest, 2017) Starbuck’s financial information has been included in Note 18 and included in Item 8 of the annual report on Form 10-K located at the Wikinvest website notated on the work cited page.

The reporting of estimates and assumptions are required so an organization can utilize historical financial statements to the effects of past business transactions and events, or the present status of assets and/or liabilities.  Inventory, accounts receivables, property and casualty insurance loss reserves, revenues from contracts and pension and warranty expenses are examples of a few accounting estimates and assumptions organization review. (AICPA, 1989) Starbucks utilizes the U.S. GAAP requirements to report their assets, liabilities, revenues and expenses.  Specifically, Starbuck’s reports include estimates for “asset and goodwill impairments, stock-based compensation, forfeiture rates and future asset retirement obligations; assumptions underlying self-insurance reserves; and the potential outcome of future tax consequences of events that have been recognized in the financial statements.” (Wikinvest, 2017) Since these assumptions and estimates are just as they are, the actual financial outcomes may be different.

The reporting of investments and fair value as defined by the AICPA states that this specific reporting in a valuation technique which includes a market, income and cost approach.  More specifically each of the investments may require certain inputs of specific circumstances per valuation technique.  The FASB and ASC 820 explains three levels of inputs which include, level one inputs which are quoted prices in active markets for a specific investment that is measured daily, where the prices come from the New York Stock Exchange, NASDAQ and the Chicago Board of Title, level two inputs which are inputs directly or indirectly observed for the asset, such as matrix pricing, yield curves and indices, and the third level of inputs are unobservable inputs for the asset which may include investment manager pricing for private placements, private equities and hedge funds. Starbuck’s reports their carry value of cash and cash equivalents to explain approximate fair values because of their short-term maturity, as well as, investments in marketable debt and equity securities, equity mutual funds and equity exchange-traded funds which are based on quoted market prices from the last business day of the fiscal year. When an observable market price is not present, Starbucks estimates the fair value using their own valuation methodologies which include the comparison of their security with the securities of publicly traded companies or competitors in their similar line of business, then applying revenues to estimate future results and estimating discounted cash flows.  These figures can be seen in Note 3, Note 7 and Note 5 for the methods used to measure fair value. “The fair value of the Company’s debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying value of short-term debt approximates fair value. The estimated fair value of Starbucks $550 million of 6.25% Senior Notes was approximately $591 million and $536 million as of September 27, 2009 and September 28, 2008, respectively.” (Wikinvest, 2017)