Index Financial Reporting RulesControl ProceduresSegment InformationEstimates and AssumptionsInvestments and Fair ValueLeasingFinancial Reporting ValuationReferencesStarbucks is a large, multibillion-dollar company best known for its coffee. The organization opened its first store in 1971 in Seattle, Washington. As of April 26, 2018, there are 28,209 stores operating in over 70 countries worldwide. Since its inception, the organization has evolved from a coffee company to a company offering a variety of products. In the latest fiscal year, Starbucks reported revenue of $24.72 billion, an increase of 10.24% over 2017. Accounting “measures business activities, processes data into reports, and communicates results to decision makers ”. Businesses can evaluate their success using accounting techniques. A horizontal analysis is defined by the percentage of change in the balance sheet between reporting periods, where a vertical analysis expresses balance sheet items as a percentage of a specified base, equal to 100%. Using the FY18 Annual Report on Form 10-K, this essay will perform a financial analysis of Starbucks by performing a horizontal and vertical analysis of accounts receivable, asset acquisition, depreciation, amortization, and debt financing to interpret financial data and ratios from 2018 compared to 2017. The analysis will also consider some of the generally accepted accounting principles (GAAP) and other government regulations that require organizations to disclose their financial statements to the public. Analytics like this can provide guidance to Starbucks executives as they make informed decisions and create strategies for the organization. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essayFinancial reporting rulesGAAP, or generally accepted accounting principles, are a rigorous set of rules that organizations must follow when preparing financial statements. GAAP works to keep organizations transparent with critical information. GAAP promotes a level playing field by allowing certain information to be searched. GAAP offers investors the opportunity to analyze an organization's financial strength by making their financial statements readily available. This allows investors to make sound economic decisions when choosing which organization they want to invest in because all financial information is accessible. Audit Procedures In the early 2000s, there were two major scandals that changed the world of financial reporting, Enron and WorldCom. It was then that organizations realized the need to implement procedures to protect organizations and stakeholders from fraudulent acts. Congress took action by implementing SOX, the Sarbanes-Oxley Act. In 2002, SOX mandated specific audit procedures to help keep organizations fair and open. The law provides a significant penalty if false or inaccurate financial statements are revealed. More importantly, the CEO is held accountable for any fraudulent information provided to investors or in the financial report. As with other organizations, Starbucks has implemented its own internal control procedures to remain transparent. “Internal controls are the mechanisms, rules and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability and prevent fraud.” One way to create an internal procedure environment is asystem of checks and balances. This system promotes the separation of some job functions, so that another job function can "balance" procedures to prevent fraudulent acts and inadvertent errors. In Starbucks' 2018 fiscal 10-K report, the company disclosed its control procedures on page 90. The organization's internal control and procedures are as follows: “We maintain disclosure controls and procedures designed to ensure that material information that must be disclosed in our periodic reports filed or filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are recorded, processed, summarized and reported within the time periods specified in the rules and SEC forms. The report also states that: “During the fourth quarter of fiscal 2018, we conducted an evaluation, under the supervision and participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act." The report mentions the process of documenting and testing East China's internal controls over financial reporting and the plan to incorporate East China into our assessment of internal controls over financial reporting beginning in the first quarter of fiscal 2019. The company also describes its internal controls as maintaining such detailed records, providing established level documentation of transactions financial, reporting and expense reporting. The organization currently and previously employs Deloitte & Touche, an independent registered public accounting firm, to conduct the external audit to review its internal controls prior to final submission of financial reports. Deloitte stated that the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on the criteria established in the Internal Control - Integrated Framework issued by COSO. Segment Information In organizations, each operating system of those organizations is classified into segments, and each segment provides individual financial information. What this division and separation does is provide greater organizational transparency. This is another form of screening procedure. Investors have the opportunity to research each segment individually to gain insights into which aspects of the organization are financially successful. According to Starbucks' 2018 fiscal 10-K report, the company reports four reportable segments: Americas, including the United States, Canada, and Latin America; China/Asia Pacific (“CAP”); Europe, Middle East and Africa (“CAP”); EMEA”);Channel Development”.Revenues from our reportable and corporate segments and other as a percentage of total net revenues for fiscal 2018 were as follows: Americas (68%), CAP (18%), EMEA (4%), Channel Development (9%) and Corporate and Other (1%). According to the report, the Americas segment is the most mature business and has reached significant scale (2018). GAAP requires a segment to be reported if “a segment represents 10% of total revenues, 10% of total profits, or 10% of total assets.” This means that although other segments exist, they are still in their infancy. Estimates and Assumptions Under GAAP, organizations are required to provide reporting of estimates and assumptions. GAAP requires “the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.” GAAP dictatesFurthermore, companies are required to use accrual accounting rather than cash accounting. This estimate improves accuracy and keeps information current. According to the 2018 10-k, there were no significant changes in their estimates or assumptions, other than those related to the decision to close certain company-operated stores in the United States and Canada, which had a material impact on the outcome of their depreciation calculations. Following GAAP guidelines, Starbuck's provides examples in their report as follows: "Examples include, but are not limited to, estimates of inventory reserves, asset and goodwill write-downs, assumptions underlying self-insurance reserves, income from value cards unredeemed deposits, share-based compensation forfeiture rates, future asset retirement obligations, and the potential outcome of future tax consequences of events that have been recognized in the financial statements “Investments and Fair ValueReporting Investments and Fair Value Offerings another level of transparency for the organization's financial reporting. Fair value accounting requires companies to measure and report certain liabilities and assets on an ongoing basis with an approximation to what would essentially be the "fair market value" or the exchange price expected to be received. Starbuck establishes several methods of investments that are recorded as fair value in their 2018 report, including trading securities, stocks and cost method investments. The 10-k report describes fair value in three levels. Level 1 is the book value of cash and cash equivalents. Level 2 is when there is no quoted price in the active market, they determine fair value using easily observable data. Level 3, is when the organization reports that its fair values ​​of assets and liabilities are measured on a non-recurring basis determines the fair value of auction rate securities using an internal valuation model. Property, plant and equipment would fall under the definition of Level 3. Leases According to Harrison, W.T., Horngren, C.T. and Thomas, W., there are four ways to classify whether a lease is a capital lease or not: “The lease agreement transfer ownership of the leased property to the lessee upon expiration? Does the lease include a bargain purchase option? Does the lease term exceed 75% of the estimated life of the asset? Is the current value greater than 90% of the market value of the asset? The lease must meet at least one of the criteria to be specified as an operating lease. Under GAAP guidelines, organizations are required to report on their leases. This gives investors the opportunity to see how much an organization is paying for spaces it doesn't own and what spaces the organization actually owns. Similar to other financial reporting guidelines, this adds an additional layer of transparency for stakeholders and investors. All organizations are required to account for any lease that represents a liability or asset for more than 1 year. The 10-k report states that Starbucks leases retail stores, roasting, distribution and warehouse facilities and office space for corporate administrative purposes through operating leases. Additionally, Starbucks recognizes the amortization of lease incentives, premiums and rental expenses on a straight-line basis from the initial possession date. Please note: this is just an example. Get a customized paper from our expert writers now. Get a Custom Essay Evaluation of Financial ReportingHistory has proven the importance of implementing a rigorous