Google Analysis and Audit Plan 2009 - Assignment Example

Running header: Google Analysis and Audit Plan 2009 Student’s name: Instructor’s name: Subject code: Date of submission: Google Analysis and Audit Plan 2009 This project aims at analyzing a public company whose stocks are actively traded on the New York, NASDAQ or other over-the-counter exchanges. Our group will deal with Google Company and also develop the audit plan for the year 2009. The company’s industry: Google operates in the global technology industry. Their main focus is on improvement of the ways in which individuals connect to and access information. Google’s innovations are mainly in the areas of internet advertising and web search .Google’s brand is among the most renowned brands globally. The automated search technology assists people in accessing useful information from their online index instantly. The raw materials used by the company: Technology is the raw material used by Google to create quality products for sale to its customers. Google also makes use of information as a raw material to its various information search services. The information is processed to a form acceptable to the customers. The size of the company: Google is a very big company based on its sales revenue, the asset base and the number of employees it employs. In the year 2009, its sale revenue was 23,650,563,000 dollars. This was an increase from the previous year’s sales of 21,795,550,000 dollars. In the same period, its total asset as amounted to 40,496,778,000 dollars compared to 31,767,575,000 dollars in 2008.current assets amounted to 29,166,958,000 dollars in 2009 an increase from 2008’s 20,178,182,000 dollars. Since its inception in September 2008, the number of employees has grown to more than 10,000 employee’s world wide. This shows that Google is a relatively large company. Google’s primary products: According to the financial report, Google’s primary products include Google websites and Google network websites. Location: According to the annual report, the company’s head quarters are located at 1600 Amphitheatre parkway, Mountain View, CA 94043. Google’s association with other companies: Since its inception, Google has been acquiring many companies which are mainly small venture capital companies. It acquired Keyhole inc. in 2004 and renamed its product to Google earth. In 2006, it acquired You Tube at a cost of 1.65 billion dollars. It has also acquired other companies like double click, Grand central and aardvark. Google has as well established partnership with various other organizations. The companies include NASA Ames research, Sun Microsystems, AOL of Time Warner, and Mobi Top-level Domain among others. The annual reports: The annual report intends to portray how the company performed financially in the year ended 31 December 2009. It is intended to show the shareholders how their company is performing in terms of profits, assets and the value of shares which is the main interest of the shareholders. Functional segments of the annual report. The following are the functional segments of the report: Management report-This segment contains the composition of the management team as well as the management’s analysis of the company’s performance in the year in question. The management also analyses the business environment brief, the challenges faced in the year in question and the way forward. The auditors report-This segment contains the auditor’s opinion with regard to the company’s financial statements prepared by the management. The published financial statement-This segment shows how the company performed financially during the year 2009 and compares them with those of the previous year. Notes to the financial statements -The segment contains explanations to the published financial statements and details on how the figures were reached at. Differences between the traditional financial report and the 10-K form: In addition to providing additional details on the contents of the annual report, the 10-K contains other segments which include the analysis of Google Company and the risks that it faces, other properties that it owns and legal proceedings among others. In other words, the 10-k form is more detailed than the annual report. The 10-k form analysis; The company’s industry: The company is among the leading global technology providers mainly focusing on improving people’s connectivity to information. The size of the company: In the year 2009, its sale revenue was 23,650,563,000 dollars. Its total asset as amounted to 40,496,778,000 dollars. Current assets amounted to 29,166,958,000 dollars. The company employs 20000 workers. This shows that Google is a relatively large company. The company’s primary products: Generally, Google generates their revenue through offering relevant and cost effective internet advertising to their customers. The main products offered by Google include the following. The Google’s ad Words program-the program is widely used by businesses in advertising their products or services. Google web search services-Google provides web search services to its customer. The service helps the customers access various types of information ranging from weather, business, finance, science among others. Google Adsence this service helps content owners to market their content though the internet. This helps create better web content for people in need of information. You Tube-this is a service aimed at helping advertisers market their products through the use of video services. Other services offered by Google include email services and Google enterprise services among others. Location: Google’s head quarters are located at 1600 Amphitheatre parkway, Mountain View, California 94043. Google’s association with other companies: The company successfully acquired m ten companies at a total of 91.6 million dollars. The company has also signed many lease agreements in respect of its offices and some of its properties. Functional segments of the report: The following are the functional segments of the report according to form 10-K. -business analysis, -analysis of business risk, -legal proceedings, -management discussions and their analysis of financial conditions and operation results, -financial statements, -management composition details and -Ownership and details on the stock market where Google is registered. The industry economic factors: The economic condition prevailing in the world economies is a key economic factor in the technology industry. People tend to use the internet services more provided the economic conditions are good. However, in the current scenario, the rate of internet usage has gone down due to depressed economies in the world. Competition has also intensified in the industry. The industry is also in its maturity and hence earnings are stabilizing implying that the rate of revenue growth is slowing down. The industry is also faced with uneven economic recovery in various economies of the world. This has impacted negatively on the industry’s revenue. Google Company is in maturity stage of its life cycle as can be confirmed by the fact that the rate of growth of its revenue is gradually declining. This is attributed to the fact that most of its advertising markets have matured across the world. Success factors for Google: The key success factors for the industry include the following. -the quality of information displayed in various search result pages. -the number of searches made in a company’s website, -The number and quality of adverts displayed on a company’s website, -the amount spent by the advertisers on the Google website, -The number of advertisers and the length of their adverts and -The value that advertisers get from advertising in a company’s website. Google’s success can be attributed in the ability to provide quality content to users. This makes the website popular. As a result, advertisers get returns and hence make purchases after purchases. Key business risks related to Google’s business: Intense competition-Google faces intense competition from different industries which include traditional search engines, internet commerce sites, media companies, social network sites and other similar companies. There are older companies which may use their experience in research and development as an advantage at the expense of Google. Other upcoming companies may also innovate aggressively to Google’s disadvantage. If this happens, Google’s customers, revenue and growth rate may decline drastically. Risk of laxity in innovating-The success of any company in the industry depends on its ability to provide quality products and services that make internet use more useful and enjoyable to the customers. Therefore, Google must continually be innovative. If this does not happen, Google will no longer be competitive and hence its revenues and overall operating result will suffer. The risk of loss of advertisers-The main contributor to Google’s excellent performance is revenues generated from advertising. Therefore, Google must come up with ways of maintaining high numbers of advertisers. Any decline in advertisements could have detrimental effects to Google’s business. The risk of increased regulatory scrutiny that could have a negative impact on the business-The business is subject to many laws both at home and abroad. Some of the laws are hard and expensive to comply with. Sometimes governments pass laws that make Google’s products les useful to the users or compel companies to change their practices. However, if the company is not able to obey the legal provisions this could have negative effects on the business. Privacy and security concerns which relate to Google’s technology may damage its reputation hence deterring existing and potential users from using its products. Key accounting considerations for the industry: The industry is a service industry operating in various countries. The following are the main accounting considerations that pertain to this industry. -Revenue recognition –the companies are required to analyze the various sources of revenue that constituted the overall revenue of the company. -the companies must make all disclosures regarding to the components of the cost of revenue. -Foreign currencies-the companies usually operate in many countries. The financial statements of the subsidiaries must therefore de converted to local currencies. -Taxes recognition-tax must be recognized under the liability method. Differed interest must also be recognized as appropriate. -Assets-the assets must be depreciated as appropriate and goodwill tested for impairment as appropriate. Development and research costs-these costs are expensed before the technical viability of their products is established. Legal considerations for Google: Google being a multinational company operates under different legal requirements depending on the countries its branches are located. Therefore, there is an obligation to comply with these legal provisions. The company has an obligation to obey all taxation laws of the various countries in which it operates. Social considerations: Google like any other company must be socially responsible. Its products must also be socially acceptable to avoid being in conflict with established laws as happened in china. The company’s financial strength: Google derives almost all of its sales from advertising services. However, this is likely to change in the near future as more and more companies enter the advertisement industry. Google’s capital is mainly composed of preference stocks, common stock (class A& B,) and retained earnings. Google’s capital amounts to 40,496,778,000 dollars. Market response to the company’s stock was excellent as can be seen from the graph below. Comparison of 5 year cumulative total return* , The basic earning per share was 20.62 dollars while the diluted earnings per share were 20.41 dollars. The company compared fairly well with other companies in the industry having realized one of the highest earnings in the industry (Google inc. 2009). Audit plan Audit objectives-The objective of the audit is to give an independent opinion regarding the credibility of the financial information. The audit will also issue a letter of management citing areas that require improvement. Major risks-Since the company is a multinational company, it exposed to the following risks. -Foreign exchange risk- the company operates in a number of countries which use different currencies. The exchange rate may therefore vary. There may be under or overestimation in converting the currencies. -Interest rate risk- the company invests excess cash in government securities. The rates may vary hence affecting the profits from investments in securities. -Failure to disclose all revenue- as the company operates in many countries; some revenue may fail to be disclosed making the reported profit to be less. Minor risks-minor risks include the risk of closure due to competition, the risk of drastic reduction in company’s profits and the risk of closure due to non compliance with legal provisions. If the management is faced with tremendous pressure concerning the entity’s financial performance, it might overestimate revenue from various sources or underestimate the cost of revenue in a bid to portray the financial conditions as being better. It will be appropriate to reduce the assessed control risk in order to enhance reporting efficiency .the management should therefore maintain an effective internal control mechanism in order to enhance performance and credibility of the financial reports. Allocation of audit efforts among different geographical areas: Allocation of audit efforts in different geographical regions will depend on the size of business in a certain geographical area. Bearing in mind that the audit period is one month only, the audit in different areas will be carried out concurrently. Each continent will have its own audit team. The US will have the biggest team followed by Europe and finally the rest of the world. This is based on this year’s earnings report that shows US contributed to 47 percent of the total profit, Europe 13 percent and the rest of the world contributed 40 percent. After the audit we would expect to issue an unqualified report since the management seems to have implemented the recommendations of the internal auditor, management letters and there is a strong internal control mechanism. Reference: Google inc. (2009). Annual report for 2009 and 10-k form .Washington DC. Retrieved April 20 2010 http://www.sec.gov/Archives/edgar/data/1288776/000119312510030774/d10k.htm#toc Read More