Pepsi and Coke Auditing Case

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Pepsi and Coke case: REVENUE 1a. What are the key revenue cycle accounts for Pepsi? What accounts involve “critical accounting estimates”? The Key Revenue Cycle accounts for Pepsi include: Cash and cash equivalents, Accounts and notes receivable, Net Revenue, allowance (doubtful accounts, net amounts charged for expense, deduction, others), Sales incentive (sales discounts) and other marketing spending, Distribution cost, Software cost, Commitments and contingencies, Research and development, Commitments and contingencies, and bad debt expense. Among them, critical accounting estimates includes: Sales revenue, Receivables, and sales incentive, and bad debt expense. 1b. What dose Pepsi say in Footnote 2 about its use of accounting estimates? What risk do these estimates pose for the auditor? The preparation of our consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Estimates are used in determining, among other items, sales incentives accruals, tax reserves, stock- based compensation, pension and retiree medical accruals, useful lives for intangible assets, and future cash flows associated with impairment testing for perpetual brands, goodwill and other long- lived assets. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effect cannot be determined with precision, actual results could differ significantly from these estimates. First of all, these estimates play important roles in the revenue cycle accounts. These estimates can
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