Financial Reporting Rules and Benefits

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Table of Contents

Introduction
Discussion
Conclusion
References

Introduction

Financial reporting is vital for any business as it provides information necessary for making decisions on the effective allocation of resources. Several rules guide the presentation of financial statements and reports. Control procedures are required concerning the policies used in maintaining accurate records of the state of the company’s assets. Records may include receipts of different transactional expenditures made according to the reasonable accounting principles of the company. These make the analysis of financial data on present and disposed assets efficient. Financial statements that are important to different stakeholders are prepared to create a good platform for plans. Moreover, control procedures ensure all members of an organization perform their roles within the ethics and rules provided. Hence risks, errors, and fraud cases are eliminated, and effective operations are carried out, molding a substantial reputation.

Discussion

Starbucks applies several control procedures to determine the quality of products, the required resources, and employees’ wages. These have made the business more successful compared to respective competitors such as McCafe. Starbucks’ culture, values, and beliefs help to guide employees’ behavior and activities. A favorable work environment of trust is created through various channels of communication (Elena, 2020). Hierarchical and bureaucratic control is exercised from time to time to monitor how services are offered to customers. The highest degree of hygiene and excellence is applied in making coffee and other products to ensure quality. In addition, the company does not franchise, thus guaranteeing maximum control and preventing unnecessary misunderstandings with buyers who can destroy the brand. For Starbucks, well-organized internal control processes and adaptation to progressive technology over the years have significantly reduced the need for external auditors who take up extra time and funds.

Segment information is required to make creditors, managers, and investors aware of the financial position of various operating units and be able to make decisions that enhance growth. From the information provided, investors may choose to continue investing or drop their investments due to the company’s performance. Creditors may decide to renew the terms of their involvement, while managers may choose to disintegrate or expand respective segments. In this way, resources are appropriately allocated and utilized (Blokdyk, 2021). External financial reports and internal management reports are made more accessible when covered separately in analyzing productivity, profitability, and possible shortcomings. In recent years, the segment information of Starbucks has shown an appreciable increase in net revenues.

The company’s president has accorded success to the values upheld and good relations with shareholders and customers. Many coffee houses have been opened in several countries and states, and employees’ wages have been increased to maintain their high-quality services. This information has drawn more investors and consumers to Starbucks, thus driving long-term development.

Reporting estimates and assumptions are essential in making wholesome financial statements that can be used to prove a company’s accuracy of its financial state and predict probable events. Estimates are made from previous occurrences but affect the current and future periods. They are to be recorded as they can be used for future reference (Borosky, 2022). Assumptions are made depending on aspects such as credibility, objectivity, and consistency. All these help to reach the set objectives. At Starbucks, estimates are used to approximate the life of the property it owns and the benefits that come along due to the dynamic marketplace and depreciation values. Therefore, managers know when they are required to come up with new products or improve the already existing ones.

Investments and fair value accounting are required in financial reporting to measure the value of certain expenses, assets, and liabilities, which changes over time, leading to an increase or decrease in losses or profits. Fair value and investment accounting can be used to make valuations on many different assets and reflect a company’s actual income. Furthermore, it assists businesses in surviving challenging financial periods through cost reduction (Pivnyk, 2021). The current share price of Starbucks seems to be relatively fair due to increased revenue, and it could attain long-term growth. The price-to-earnings ratio has helped determine the appropriate value.

Leases are accounted for and reported for a company to realize the extent of the financial impacts created. There is a need to use developed leasing standards to base strategies, goals, and decisions on accurate financial information. This includes the differentiation of rental contracts as capital or operating leases. Operating leases, for instance, have a flexibility advantage in upgrading assets and reducing losses (Srhoj, 2022). Capital leases raise the sum valuation of assets on a company’s balance sheet, unlike operating leases. This affects the business outlook from the investors’ perspective on various elements. Return on assets may decrease, leading to turnover, which could also affect the efficiency and productivity of operations.

Conclusion

Reporting leases show the company’s debt that might be invisible on the balance sheet. Therefore, businesses must structure their lease contracts appropriately (Verdi, 2019). The Starbucks Company primarily leases warehouses, office spaces, and retail stores, which are calculated on the lease accounting and included in the financial reports. Conclusively, financial reporting has numerous benefits and assists in enhancing businesses’ performance and financial health.

References

Blokdyk, G. (2021). Financial Ratio a Complete Guide– 2020 Edition. 5STARCooks.

Borosky, P. (2022). Beginner’s Guide to Understanding Financial Statements and Financial Ratios. Independently published.

Elena, D. (2020). Risk-Based Internal Control over Formation of Financial Reporting. International Conference on Integrated Science. pp. 42-52.

Pivnyk, K. (2021). Significant Financial Ratios to Assess the Company’s Financial Policy Effectiveness. Financial Analytics: Science and Experience, 14(3), 347-360.

Srhoj, S. (2022). Can we Predict High Growth Firms with Financial Ratios? Financial Internet Quarterly, 18(1), 66-73.

Verdi, S. (2019). The Effects of Financial Reporting and Disclosure on Corporate Investment. Journal of Accounting and Economics 68 (2-3).

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Financial Reporting Rules and Benefits

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