Company Informationthe Goal Is To Review A Critical Management Account ✓ Solved

Company Information The goal is to review a critical management accounting issue in the company (Starbucks or Facebook) you have chosen. Generally, accounting issues can be found in the MD&A or in the report of operations section of the Notes to the Financial Statements of the Annual Report. In your review (paper) you are to clearly identify the accounting issue first (based on the topics we covered during the course), and to provide background on the company and its strategic environment. Determine how the company confronted and addressed the issue – or did not. You'll support your opinion by evaluating the company’s financial statements using financial analysis techniques (such as trend, ratio, horizontal and/or vertical analysis).

After describing how the company responded, evaluate the short-and long term strategic decisions. If you had been the decision maker, what would you have done differently? In addition, your review should include the technology and communication techniques the company used, as well as to explain how this issue presented a legal, ethical, and/or social sustainability concern. The Final Project should not exceed 5 pages of content, not counting the Cover and Reference pages. The Final Project should be reflective of proper APA style.

Please refer to this link to the APA Style Guide (Links to an external site.) on Rivier's Regina Library Webpage for more information on style and writing of research papers. Use Starbucks' Annual Reports (Links to an external site.) . Here is the link to the SB2017 PDF – 10-K Annual Report (Links to an external site.) . Use Facebook's Annual Reports (Links to an external site.) . Here is the link to the 2017 PDF – 10-K Annual Report (Links to an external site.) .

The 8-K’s are the Quarterly’s and the students should not use those. Please limit this assignment to three pages of content, excluding the Cover and References pages. All papers should include: - Introduction paragraph - Body of your paper - Concluding paragraph - Cite using APA in text AND a full references section at the end. Missing one of these elements will require that you resubmit the paper. - Cite in text financial reports as title and year, such as (Facebook Annual Report, 2021) - Cite financial reports in references section using company report, year, and link, such as: Facebook Annual Report. (2021). Retrieved from

Paper for above instructions

Introduction

This paper focuses on a critical management accounting issue faced by Starbucks Corporation, specifically its approach to revenue recognition. Starbucks’ annual reports reveal various management accounting concerns, including how the company recognizes revenue from its diverse sources, such as retail sales, food services, and the sale of packaged coffee products. Understanding Starbucks' revenue recognition practices is essential to evaluate how the company navigates its financial landscape, particularly in light of its strategic goals and objectives. The following sections are dedicated to presenting an overview of Starbucks, analyzing its financial statements, exploring the implications of revenue recognition issues, and discussing potential alternative strategies.

Company Background

Starbucks Corporation, established in 1971, is one of the world’s leading coffeehouse chains with more than 30,000 stores globally (Starbucks Annual Report, 2021). Known primarily for its specialty coffee, Starbucks has expanded its offerings to include teas, fresh food, and merchandise. The company's strategy revolves around creating a unique customer experience, emphasizing high-quality products and a strong brand identity. Starbucks operates under a robust set of ethical guidelines that support social sustainability while navigating its business challenges (Harrison & Wicks, 2013).
Globally, the coffee industry has experienced significant growth, and Starbucks takes pride in its socially responsible sourcing and commitment to community building (Higgins, 2016). However, as revenue sources diversified, Starbucks began confronting the intricacies of revenue recognition in line with financial reporting standards. This issue is pivotal as it impacts the company’s profitability, strategic planning, and overall market performance.

Revenue Recognition Issue

Starbucks primarily recognizes revenue when control of the goods or services is transferred to customers. However, ambiguity in recognizing revenue arises from various business operations, including company-operated stores, licensed stores, and packaged goods. According to the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS), revenue recognition is a multifaceted process dependent on performance obligations and the timing of completed transactions (KPMG, 2021). Starbucks has to exercise judgment in determining the appropriate timing and amount of revenue to be recognized from its different operations.
From the analysis conducted in the MD&A section of Starbucks's 2021 Annual Report, the challenges associated with recognizing revenue accurately could have severe implications on the financial statements—impacting both short-term earnings and long-term strategies (Starbucks Annual Report, 2021). The company experienced fluctuations in revenue due to varying consumer behavior, exacerbated by external factors like the COVID-19 pandemic, which disrupted supply chains and consumer spending.

Financial Analysis

A vertical analysis of Starbucks’ financial statements reveals trends in revenue by segment—retail, food services, and packaged products. For instance, following the pandemic, the retail sector's revenue dropped while packaged goods saw a surge owing to increased demand for at-home coffee consumption (Starbucks Annual Report, 2021). Using ratio analysis, metrics such as the gross profit margin and the price-to-earnings ratio indicate the health of Starbucks' revenue generation strategies. According to the analysis, Starbucks had a gross profit margin of 28.98% in 2021, signifying its efficiency in managing direct costs relative to its revenues (MarketWatch, 2021).
Conversely, a horizontal analysis reflects trends over several years, unveiling that store-comparable sales dipped by around 5% during the prime months of the pandemic, showcasing the detrimental impacts on foot traffic and customer attendance (Starbucks Annual Report, 2021). These findings highlight the necessity for Starbucks to adapt its revenue recognition practices in response to evolving consumer behavior and global economic conditions.

Company Response and Strategic Decisions

In addressing the issue of revenue recognition, Starbucks adopted a proactive approach by revisiting its revenue recognition policies in line with the new accounting standards established by FASB (Starbucks Annual Report, 2021). The company implemented technological solutions to track sales and improve its reporting accuracy. For example, integrating data analytics and business intelligence systems enabled Starbucks to better forecast sales and manage inventory effectively (Cohen, 2018). Furthermore, Starbucks invested in omni-channel strategies, promoting its mobile app to enhance customer reach and engagement, which contributed to increasing its revenue in challenging market conditions.
In the short term, Starbucks focused on improving customer experience to recover from pandemic-related losses and stimulate growth in both traditional retail and digital sales avenues (Starbucks Annual Report, 2021). In the long term, the company is committed to expanding its global footprint while introducing innovative products aligned with consumer preferences.

Alternative Strategies

If I were the decision-maker at Starbucks, I would prioritize a more comprehensive risk management approach focused specifically on revenue recognition. This includes investing in training for accounting and finance staff to ensure that all employees understand the implications of new accounting standards. I would also suggest exploring strategic partnerships with fintech companies to develop more robust systems for tracking and recognizing revenue in a timely manner.
Enhancing transparency in communication about financial processes with stakeholders is crucial. Starbucks should engage in periodic disclosures about its revenue recognition policies and challenges as they arise, ensuring that investors are well-informed (Bhasin, 2020). This transparency could alleviate concerns and build trust among stakeholders, maintaining a positive corporate reputation.

Conclusion

In summary, Starbucks Corporation’s approach to the critical management accounting issue of revenue recognition is pivotal in shaping its financial health and strategic objectives. Through extensive financial analysis, the implications of its recognition practices were assessed, leading to recommendations for enhancing accounting policies and communication strategies. The resolution of this management accounting issue is essential for Starbucks to navigate the dynamic market while achieving sustainable growth in the future.

References

Bhasin, H. (2020). Importance of transparency in financial reporting. Marketing91. Retrieved from https://www.marketing91.com/transparency-in-financial-reporting/
Cohen, R. (2018). Data analytics in finance: A guide to financial analytics. Harvard Business Review. Retrieved from https://hbr.org/2018/06/data-analytics-in-finance
Harrison, J. S., & Wicks, A. C. (2013). Stakeholder theory, value, and firm performance. Business Ethics Quarterly, 23(1), 97-124. doi:10.5840/beq20132316
Higgins, M. (2016). Starbucks focuses on sustainability and social responsibility. BBC News. Retrieved from https://www.bbc.com/news/business-37244608
KPMG. (2021). Revenue recognition: An overview of the core principles. Retrieved from https://home.kpmg/xx/en/home/insights/2019/07/revenue-recognition.html
MarketWatch. (2021). Starbucks Corporation financials. MarketWatch. Retrieved from https://www.marketwatch.com/investing/stock/sbux/financials
Starbucks Annual Report. (2021). Retrieved from https://www.starbucks.com/investor-relations/financial-information/annual-reports
Starbucks Annual Report. (2020). Retrieved from https://www.starbucks.com/investor-relations/financial-information/annual-reports
Starbucks Annual Report. (2019). Retrieved from https://www.starbucks.com/investor-relations/financial-information/annual-reports
Starbucks Annual Report. (2018). Retrieved from https://www.starbucks.com/investor-relations/financial-information/annual-reports