Amazon Financial Reporting?
Added on 2020-04-07
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ACCT20074 Final AssignmentTerm 2, 2017Student ID:..................................... Student name..............................................................
Question 1: There are several possible objectives for general purpose financial reporting. Explain what these objectives might be, and which one you think best applies to Amazon’s financial reporting (based on the information in the case study). Make sure that you fully explain your answer.Answer: Your answer is written here. The objective of financial reporting is to make the stakeholders aware of the financial performance of an organization. The various types of stakeholders include customers, managers, shareholders and regulatory bodies. Shareholders need financial statements to understand, whether the organization is capable of returning their investments. The parameters, which highlights the financial standings of a company comprise income per share along with return on capital employed and net profit (EY, 2010). Financial reporting tends to explain the facts that on whether the standards of the final reports have been complied with the legislations passed by the accounting bodies (Crown Copyright, 2015). Managers use financial statements making important business decisions. For example, the present trend of costs and profits enable them to ascertain that the business operations are running smoothly and are scheduled as per the plans. In case, if the profit level is observed to be low, then cost rises. Hence, it becomes reasonable to revise the entire process of cost control. The managers use income statement for the preparation of cash flow accounts. It reflects about the movement of cash that exists in the organization. Apart from determining the present status, the financial standards of reporting often enables the managers to take right decisions regarding future activities. Budgets can also be considered to be a product that allows the managers and top level executives to keep their costs under control. Other than investors, creditors often use financial statements to know that whether a business is capable enough to return the loans and advances. It includes the suppliers and banks (McGraw-Hill Global Education Holdings, LLC, 2017). The given case study explains that one of the prime objectives of the financial reporting pertaining to Amazon is to create awareness among the investors regarding the performance of the company. This is mostly because there has been an extensive focus on the return to investors. During 9/22/2017, Amazon experienced a fall with respect to its stock price by 1.05%. Such instances are can lower the confidence of investors. It led to further shrinkage in the value of shares of the company. The shrinkage in the stock price was much lower than expected, which enhanced issues for the Chief Executive
Officer (CEO). Such instances are observed to make the investors impatient. Investors were observed to be reluctant in making further investments until there has been rise in the amount of gross profit to the level of operating income. Operating income is calculated by deducting depreciation from gross profit. Concerns of the CEO-Jeff Bezos, of Amazon believed that further investments is supposed to cause decline in the levels of earnings and profits resulting to shrink the share price. This clearly indicates that the key intention of financial reporting was to create awareness among the shareholders (Schaefer, 2014). The case study mentions regarding the fact that there has been a rise in the revenue earnings of Amazon during 2014, butit has not been possible to gain confidence of the investors. It is thus observed that although, Amazon has provided a return of 700% to the investors over the last ten years but retardation in the level of profit and revenue has created a significant problem for the investors. Therefore, the company’s company also mentioned about the initiatives that are likely to increase the share price of the online retailer. For example, the CEO has focused on concentrating its resources in the areas of grocery delivery, as it provides opportunities for rise in profit level and earnings. The CEO appears to be quite tensed regarding the facts that share prices are not always in a bullish situation. The initial public offering (IPO) done by Alibaba is supposed to curtail down investments, as investors tend to shift stock trading from Amazon. To conclude, it can be asserted that the management of Amazon uses financial related reporting to reveal the investors about its performance (Schaefer, 2014). References:Crown Copyright. (2015). Treasury instructions 2015. Publications, 1-78.EY. (2010). Supplement to IFRS outlook. Publications, 1-4. McGraw-Hill Global Education Holdings, LLC. (2017). Objectives of financial reporting. Retrieved September 25, 2017, from http://highered.mheducation.com/sites/0072994029/student_view0/ebook/chapter1/chbody1/objectives_of_financial_reporting.htmlSchaefer, S. (2014). Amazon under fire: what happens when sales growth isn't enough?’ ). Retrieved September 25, 2017, from http://www.forbes.com/sites/steveschaefer/2014/07/25/amazon-under-fire-what-happens-when-sales-growth-isnt-enough/
Question 2: From the case study, it appears that the CEO of Amazon, Jeff Bezos, might be receiving bonus company stock based on accounting outcomes (reported profit, for example, or share price performance). Let us assume for now that this is true. Would Jeff Bezos or Amazon's shareholders prefer Amazon to use conservative accounting methods such as historical cost? Fully explain the likely preferences of both parties.Answer: Your answer is written here. The CEO of Amazon, Jeff Bezos is observed to receive bonus or stock option plan, as it is mentioned that he obtained an income of $29.3billion from the company as on 2014. His return is observed to decrease due to fall in the share price caused by declining profit and earnings (Schaefer, 2014). Conservative methods of accounting clearly states that that there is a proper requirement of maintaining scrutiny, so that all the probable chances are easily detected. It further mentions that the financial statements must contain information relating to expenses and revenues of a particular period. It is clearly depicted that losses mustbe recorded and there is no such need of including the expenses. This is because timely measures can be taken formitigating away the losses that is to be incurred in the future. Thus, it can be concluded that the principle of conservatism is truly applicable from perspective of shareholders and the CEO. In a situation, when there has beena fall in the share price due to slump in operating profit, making it essential for making a detailed account for the losses that are faced by Amazon. This in turn will assist in reducing the chances of losses that can be faced by Amazon (VLE, n.d). Precisely, it is important for the management to focus on the factors, which are responsible for lowering the revenue, profits and shareholders’ return of the company during the year 2014. It can be due to rise in operating costs, enhancement in tax rate or ineffective expenditures made on promotions. Thereafter, the management has to take remedial steps, which are effective in covering the costs by earning large revenue. The various aspects of losses that have to be considered by Amazon, while preparing the financial statements include providing provisionon account of bad debts, loss on issue of debentures, which have been issued at discount. Depreciation of assets isalso to be considered by the management while preparing the financial statements. Even a small amount of
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