Though ratio analysis should not be used alone as there are several limitations in the usefulness of their data, they will give general historical information. Managerial decision-making should consider all factors in leveraging their position within their specific industry to excel and continue to generate positive revenue. Financial statements are the driving forces behind understandings a company’s financial position in the market place. Financial statements can effectively communicate what financial decisions have been made, how the bottom line was affected and what are the necessary steps to keep a company in business. Financial statements give the relative fiscal health over a period through interpretation; by identifying corporate strength and effectively examining overall managerial decision-making through ratio analysis.
The paper focuses on how budgets and performance reports assist the furniture maker in the decision making process, and how ethics might influence his decisions. In addition, the paper focuses on the most relevant accounting information necessary for appropriate business decisions. Budgets and Performance Reports A budget is a quantitative expression of a plan of action (Horngren, C., Sundem, G., Stratton, W., Burgstahler, D, & Schatzberg, J., 2008). Budget reports specify allowable expenditures of each business function, and allow the business to control costs. Performance reports depict the businesses complete budgeting management system.
GAAP stands for Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements.
The existence assertion is to make sure that the client and accounts exist, the completeness is to make sure that all of the balances are recorded, and the valuation is to make sure that the balances are recorded at the correct amount. It is important that the auditor obtains a confirmation from a third party for the information in accounts receivables. After communicating and obtaining the information, the auditor is to evaluate the information (SAS No. 67, AU Section 330.11). The audit objectives auditors use to perform year-end sales cutoff tests are to determine if the information they obtained by the confirmation reduces the audit risk level.
Hammersmith Tools Limited The underlying accounting policies have been applied in the preparation of the financial statements of Hammersmith Tools Ltd. Statement of Accounting Policies For the Year ending 31 December 2011 1. Purpose The purpose of the following statement of Accounting policies is to act as a guide to non-accounting employees on basic accounting procedures that are employed in the company while determining the overall profits of the company. 2. Basis of Preparation The financial statements are prepared in accordance with the applicable law and under the convention of Historical cost.
TABLE OF CONENTS INTRODUCTION PG 1 COMPANY EVALUATION PG 2 COMPLIANCE AND RECOMMENDATION PG 4 SUMMARY / CONCLUSION PG 5 REFERENCES PG 6 Introduction The primary objective of Accounting Ink, is to provide LJB Company with the required information to consider the regulations for converting to a publicly traded company. Within this analysis we will identify internal controls currently being used within business operation and the required mandated internal controls enforced by the Sarbanes Oxley Act. Internal Controls are established and or regulated by the Sarbanes-Oxley Act. There are six principles of internal controls 1) Establishment of responsibility, 2) Segregation of Duties, 3) Documentation Procedures, 4) Physical Controls, 5) Independent Internal Verification and 6) Human Resource Controls (Keller, 2012). Companies and their independent accountants or auditors should report the effectiveness of the companies internal controls based on these six principles.
• How has the firm’s mission statement and six (6) key values helped to determine its core accounting business practices? • What is meant by Irv Katz’s business strategy: “Don’t just have clients; have partners for life”? 2. How does Katz, Sapper & Miller ensure superior customer service and client satisfaction? Consider the following: • What kinds of accounting, audit, and tax services does the firm provide?
Starbuck’s Ethics and Compliance Ethics and compliance is a vital part of Starbucks success. Their organizational mission includes inspiring and nurturing the human spirit by indulging one person, cup, and neighbor at a time (Our Starbucks Mission Statement, n.d.). The leaders of this publicly traded companies are responsible for ethical compliance as it relates to the Security and Exchange Commission (SEC), and they are also responsible for filing annual financial reports. These financial reports are required by the SEC to help investors make decisions about their investors. The board of directors is responsible for overseeing and exercising corporate powers and certifying the company’s business affairs while managing the goals and objectives for long-term interests of the shareholders.
The accrual method works best for these businesses because revenues and expenses can be balanced at the end of every reporting period. They simply need to refer back to the account when cash is paid and make an adjustment entry. The accrual method is most notable for its accuracy in reporting transactions. Accountants must adhere to what is known as the generally accepted accounting principles or GAAP. The accrual method is GAAP compliant because it follows the revenue recognition principle which states that each financial transaction must be reported in the accounting period in which it occurs.
These ratios are most useful when compared to other ratios such as the comparable ratios of similar businesses or the historical trend of a single business over several business cycles. Horizontal analysis is a type of fundamental analysis in which certain financial data is used to assess a company’s performance over a period of time. Horizontal analysis can be assessed on a single company over a period of time, comparing the same items or ratios, or it can be performed on multiple companies in the same industry to assess a company’s performance relative to competitors. Vertical analysis is a method of analyzing financial statements in which each item in the statement is represented as a percentage of a single larger item. Vertical analysis makes comparisons between two or more companies in the same industry easier.