Financial Accounting Standards Board - Essay Example

The financial records of the two companies have been compared in accordance with the Financial Accounting Standards Board (FASB’s) accounting standards (American Institute of CPA 2013). Evidence of such standards is the financial records representation of Financial Accounting Standards No.160, titles “Noncontrolling Interests in Consolidated Financial Statement.” FAS NO.160 became effective, starting Dec.15, 2008 (Financial Accounting Standards Board 2013). Its pronouncements have been applied in reporting of minority interests (Morgan et al 2009). What auditing standards are used by the external auditors? The independent auditors have applied guidelines forwarded by the Auditing Standards Board (ASB) which issues pronouncements on auditing practice (Dauber, 2009;Rittenberg et al 2011). Analyze and comment on the differences in the annual statements found on the companies' websites. Provide a few specific differences in content and format. The major differences in the two companies’ financial records are evident in the Balance Sheet and Consolidated cash flow statements. To start with the balance sheets, Frazer Group Items are represented under three main classes; Current assets, Current liabilities and Equity. This is different from Caribou’s Balance sheet which has clear entries for, Assets (both current and non-current), Liabilities, Equity, and Minority Interests (Whittington et al 2011). In regard to consolidated cash flow statement, Caribou’s has clear entries for, Cash Flow for Operating Activities, Cash Flow from Investing Activities, from Financing Activities, and Net increase/decrease in cash and cash equivalents. This is quite different from Frazer Group’s which clear entries for, operating activities, investing activities, and financing activities appearing less complex (Whittington et al 2012). Which one of the two companies is the most profitable? Financial records reported in "000,000" CARIBOU COFFEE FAZER GROUP 2010 2009 2008 2010 2009 2008 Tangible assets 101.725 93.727 89.572 378.1 389.6 369.4 Shareholders’ Equity 62.466 50.776 44.008 126.5 120.4 118.8 Stocks 25.931 13.278 10.724 57.2 51.5 46.8 Retained Earnings 12 7 0 310.5 300.9 275.4 Turnover 242.293 283.997 262.539 1513.6 1441.1 1159.7 Personnel costs 105.993 101.169 99.865 508.7 480.9 477.6 Operating profit 15.193 10.107 5.541 58.5 44.5 135 Profit before taxes 14.926 9.721 5.306 58.4 32.9 31.9 Net profit 9.797 5.138 4.825 58.4 32.9 24.6 Operating profit before WC 7.517 15.594 10.264 148 112.3 102.7 Dividends received 1.1 1.2 1.1 Cash from operating activities 23.092 23.578 22.462 117.7 118 116.5 Fazer Group is by a large extent the most profitable company. Looking at the net profit generated in the three years, 2008-2010, Fazer Group had an increasing profit ranging between $24.6 million to $58.4. The financial year, 2009-2010, was the Group’s most profitable year (Fazer Group 2010). This is unlike Caribou Coffee which in the three years under examination recorded a net profit ranging, $4 million to $9.7 million (Caribou Coffee Financial Records 2005-2011). Financial year 2009-2010, was the company’s most profitable recording a net profit of $9.7 million. Looking at the figures recorded, based on net profit which is a reasonable pointer of a company’s profitability it is clear that there is a marginal difference in profitability in favor of Fazer Group (Weirich et al 2012). Compare growth of revenues versus income over time and between the two companies. In this case, the basis of the revenue growth is sales. Starting with a look at Fazer Group which is by far the bigger of the two entities we realize an irregular growth in revenue in the three years under observation. In 2008, the company’s sales were $369.4 million, in 2009, the sales increased to $389.6 million, later in 2010, the sales declined to $378.1 million. This represents a growth of 5.5% in sales for the year, 2009-2010, and a growth of -2.95% for the year 2010-11. This represents a general trend at the time as the recession reached its peak in the year 2009-10. A look at Caribou Coffee reveals a similar trend, in 2008 the company sales averaged $262.5 million this increased to $283.9 in 2009, and declined in 2010 to $242.3 million. In terms of percentages, the company sales grew at 8.15% in 2009, and -14.68% in 2010 again showing a downward outlook for the company in 2010. However, it is clear that Caribou coffee was hardest hit by the recession judging from the growth in sales, even though both companies sales declined in 2010, Caribou’s Coffee declined more as marked by -14.68% as compared to Frazer Group’s -2.95%. A revenue comparison would be best done by developing the percentage growth for the two companies. As discussed earlier, income unlike revenue registered a positive growth for the three years under examination. For the year 2008-2009, Frazer Group’s income grew by 33.74%, for the year 2009-2010, the company’s revenue grew by 11.5% which was impressive given the economic conditions at the time. Caribou Coffee’s revenue also recorded a similar trend albeit at a slower pace in the first in which it recorded an income growth of 1.3%. In the next financial year, 2009-2010, the company’s income growth tipped Frazer’s growing by 90.8% which was again impressive given the economic conditions at the time. In general, the two companies’s represented similar growth trends in both revenue and income for the three years under examination. Even though the growth values are different it is possible to identify a common growth channel. How can you explain the difference in profitability between the two companies? The differences in growth between the two companies can be linked to the level of investment both within the company and beyond. Pointing on one conspicuous item, we realize that Frazer Group has extensive investments which yield dividends this cannot be said of Caribou which lacks any dividend entries. Secondly, the scale of operations might also be a major explanation for the extensive difference in revenue and income. References American Institute of CPA. (2013). Statements on Auditing Standards . Retrieved April 17, 2013, from American Institute of CPA: http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx Caribou Coffee Financial Records. (2005-2011). Financial Records . Retrieved April 17, 2013, from Corporate-ir: http://phx.corporate-ir.net/phoenix.zhtml?c=192910&p=irol-reports Dauber, N. A. (2009). The complete guide to auditing standards, and other professional standards for accountants, 2009. Somerset, N.J: Wiley. Fazer Group. (2010). Summary of Financial Statements 2010. Retrieved April 13, 2013, from Fazer Group: http://www.fazer.com/Documents/Fazer%20Group/Annual%20reviews/Fazer_attachment_EN.pdf Financial Accounting Standards Board. (2013). Presentation of Comprehensive Income: Reclassifications Out of Accumulated Other Comprehensive Income. Retrieved April 13, 2013, from FASB: http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176159626583 Morgan, R. G., Martha, M., & Morgan, K. N. (2009). Accounting For Noncontrolling Interests in Consolidated Financial Statements: An explanation of FASB Statement No.160. Retrieved April 17, 2013, from TSCPA: http://www.tscpa.com/content/files/tscpa/Journal/articles/fasb_160.pdf Rittenberg, L. E., Johnstone, K. M., & Gramling, A. A. (2011). Auditing. Mason, Ohio: South-Western. United States. (2010). Accounting and auditing standards: Pending proposals and emerging issues : hearing before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises of the Committee on Financial Services, U.S. House of Representatives, One Hundred Eleventh Congress, second session, May 21, 2010. Washington: U.S. G.P.O. Weirich, T. R., Churyk, N. T., & Pearson, T. C. (2012). Accounting & auditing research and databases: Practitioner's desk reference. Hoboken, N.J: Wiley. Whittington, R., Delaney, P. R., & Feller, A. L. (2011). Wiley CPA examination review: 38th edition, 2011-2012. Hoboken, N.J: John Wiley & Sons. Whittington, R., & Delaney, P. R. (2010). Wiley CPA exam review 2011: Auditing and attestation. Hoboken, NJ: Wiley. Read More