Paper Informationyou Will Be Looking At Pepsico Inc And Coca Cola Co ✓ Solved

PAPER INFORMATION : You will be looking at Pepsico Inc and Coca Cola Co for the fiscal year ended 2015 and completing a variety of analysis on both of these companies. You will specifically be using: · Pepsico Inc 2015 annual report · Pepsico Inc -K · Pepsico Inc 2015 Def 14A · CocaCola Co 2015 annual report · CocaCola Co -K · CocaCola Co 2015 Def 14A ANALYSIS REQUIREMENTS : Part II. g. Consider the inventory accounts on the balance sheet for each company, along with the accompanying footnote. What are the most relevant assertions that management is making with regard to its inventory? h. What assertions are implied in the Property, Plant, and Equipment account?

How would valuation be affected if each company decided to downsize and eliminate some of its storefront locations? i. Examine the assets on the balance sheet of each company. Identify the assets that are subject to (1) fair value adjustments, (2) impairment tests, (3) estimates to either net realizable value or lower of cost or market value. What are the implications for audit evidence that will be gathered for these accounts? j. Consider the debt account on each balance sheet, along with the accompanying footnote.

What are the most relevant assertions that management is making with regard to its debt? k. Describe the primary risks facing PepsiCo. Describe the primary risks facing CocaCola. Compare the risks of PepsiCo and CocaCola. Why would an auditor be concerned with these risks? l.

What are the key revenue accounts for PepsiCo and CocaCola? What accounts involve critical accounting estimates? What do their footnotes say about the use of accounting estimates? What risk do these estimates pose for the auditor? m. What are the key cash and liquid asset accounts for each company?

What types of marketable securities do each company possess? What are the critical accounting policies for these accounts? n. Review the statement of cash flows and management discussion and analysis related to the liquidity of each company. What are the significant trends that you note? What are the audit implications of the different trends of each company?

WRITING/PRESENTATION REQUIREMENTS: The total writing requirement is a minimum 12 pages for week 7 (not including cover page, abstract, references, or exhibits) using APA 6th ed. formatting. You should have a minimum of 6 peer reviewed references and/or authoritative references (FASB Codification System, SOX, COSO, COBIT, etc.) in total. Parts I and II should be a minimum of 4 pages not including the cover sheet or reference page G11-2 Describe how a change in the exchange rate affected your firm. Explain what happened to your price and quantity. How can you profit from future shifts in the exchange rate?

How do you predict future changes in the exchange rate? COCA-COLA AND PEPSI COLA ANALYSIS 8 Coca Cola and Pepsi Cola Analysis Advance Auditing Theory and Application January 24th, 2020 Coca-Cola and Pepsi Cola Analysis In the business world, competition between products, brands, companies has always existed and can be considered a boost for each company to want to be better every day. In the industry of carbonated drinks there is a classic example of competition that involves Coca Cola and Pepsi Cola, both American companies that have achieved worldwide success because of their high demand among consumers. The article “Transaction Costs And Firm Boundaries In The Soft Drink Industry†by Kench, B.

T., Knox, T. M., & Wallace, H. S. (2012), indicates how both companies are constantly evolving with marketing strategies to be able to excel from each other or simply improve operations, lower costs, and thus be able to have a better profit margin; for example, the decision of both companies to have their own bottling plants to eliminate dependence on external companies. (Kench, B. T., Knox, T. M., & Wallace, H.

S., 2012). The purpose of this paper is to analyze the history of Coca Cola Co. and Pepsi Cola co., And the financial development that both companies had in 2015, with the help of specific reports including: 2015 annual report, -k, 2015 Def 14A; answering specific questions with the help of the aforementioned reports. The analysis is divided into three parts which contain specific questions. Part I a. What is the history of these companies, its current business, operating sectors, and reportable segments?

What factors affect their profitability and this industry in general? A: History: The Pepsi Cola was created in 1893 by Caleb Bradham, in his pharmacy, calling it Brad Drink, in the state of North Carolina, and in 1898 the name was changed to Pepsi after the enzyme Pepsin, since Bradham believed that the drink helped the Digestion, one of the fundamental ingredients in the drink was the cola nuts. As a curious fact in 1934 the years of the great depression the company used as a strategy the sale of a 12-ounce bottle of the drink for a cost of $ .05 cents, which increased sales compared to its competitors. The company changed control or owner several times until it made a merge with Loft and said merge acquired the name of Pepsi-Cola Company, another important merge emerged in 1965 with Frito-lay, since then Pepsi-cola Co. has bought other companies, adding products to its portfolio nationally and internationally. (Encyclopedia Britannica, n.d).

The Coca Cola , was created in Atlanta in 1886 by a pharmacist named John S. Pemberton; the Pemberton bookkeeper chose the name of the drink and wrote it in script, eventually becoming the trademark of the beverage. Pemberton promoted the drink to relieve common pains, two of the ingredients of the drink was cocaine from the coca plant and the nuts cola (cocaine was eliminated as an ingredient in 1903) in 1891 another pharmacist Mr. Griggs bought the property total of the product for $ 2300 and some property rights, incorporating the company in 1892 and in 1929 the company was again sold for $ 25 million to the investor Mr. Woodruff, who served as president for more than three decades.

The contoured form of the Coca-Cola bottle was introduced in 1916 but registered until 1960. Coca-Cola bought other soft drink companies and introduced new ones to the market. In 1985 he changed the original flavor of the drink by calling it the New Coke, but did not have a good feeling and returned to the original flavor by calling it Coca-Cola Classic. Coca-Cola has expanded worldwide and was one of the first companies to use recyclable plastic for the creation of its container bottles. . (Encyclopedia Britannica, n.d). Both companies have similar risk factors which include changes in consumer preference due to awareness of better nutrition due to obesity risk, inability that companies can innovate in services or products, national and international political problems, these factors would produce Low demand for products affected companies financially.( SEC,2015) b.

Compare the nature of Pepsi’s history, business sectors, and reportable segments to those of CocaCola’s history? A: c. What is the purpose of the Form Def 14A? What does “Def†stand for? What types of information does a proxy contain?

A: According to the article “SEC Form Def 14A†by Kenton, W. (2018), the purpose of the SEC Form Def 14A, is a form that must be filed by or on behalf of a registrant when the vote of a shareholder is required, including information on where the meeting of the meeting will be held. the shareholders and all related information such as the information of the people making the request, providing enough information for the security holders and that way they can vote based on good information. (Kenton, W., (2018) d. Who is the auditor for Pepsico? Who is the auditor for CocaCola? What were the audit fees as a percentage of (1) total revenue, and (2) total assets? Audit fees were not always publicly disclosed.

In fact, such disclosure became mandatory only since the year 2000 in the United States. Why is public disclosure of audit and other fees paid to the audit firm important? A: According to the information obtained by the SEC in 2015 Def 14A from Coca-Cola Co, the External Auditor was Ernest & Young LLP, for a fee service of $ 29,337,000. (SEC, 2015). The 10-K report for 2015 reported a Total Assets of $ 90,093,000,000 million, with a Total Revenue of $ 44,294,000,000 million.(SEC,2015). In the case of Pepsi Cola, the information obtained by the SEC in 2015 Def 14A, the external auditor was the firm KPMG for a service fee of $ 22,641,000. (SEC, 2015).

The 10-K Report of 2015 reported a Total Assets reported were 69,667,000,000, with a total Total Revenue of 63,056,000,000.(SEC, 2015) After the financial disaster in the beginning of the , the Sarbanes Oxley Act of 2002 was created, in order to make the financial statements presented by public companies more transparent and to have more control of the firms audit fees charged by audits, while exercising greater independence between audited companies and audit firms. (PCAOB Investor Advisory Group, 2012) e. Both managements comment on the fact that internal control over financial reporting has “inherent limitations.†What are those inherent limitations? How does management obtain comfort that internal control does not contain any material weaknesses?

A: It can be considered as inherent limitations in the audit of internal controls when there is no independence, objectivity and professionalism. According to the PCAOB in “Audit Standard N.5â€. (2007), effective internal controls provide reasonable assurance in the preparation of Financial statements; The objective of the auditor in the improvement of internal controls must be based on the evidence that there is no weak material, applying the standards of efficiency, independence and due professional care (PCAOB, 2007) References Encyclopedia Brittanica (n.d) PepsiCo, Inc. Retrieved from: Encyclopedia Brittanica (n.d) The Coca-Cola Company. Retrieved from: Kench, B. T., Knox, T.

M., & Wallace, H. S. (2012). Dynamic Transaction Costs And Firm Boundaries In The Soft Drink Industry. Journal of Economics and Economic Education Research, 13 (1), 33-51. Retrieved from PCAOB.

Investor Advisory Group. (2012).The Sarbanes Oxley Act Ten Years Later. Retrieved from: PCAOB. (2007). Audit Standard N.5. Retrieved from: SEC.(2015). Coca-Cola Co.

Form Def 14A. Retrieved from : SEC.(2015). Coca-Cola Co. Form 10-K. Retrieved from : SEC.(2015).

Pepsi Co. Form 10-K. Retrieved from : SEC.(2015). Pepsi Co. Form Def 14A. Retrieved from:

Paper for above instructions

Introduction

PepsiCo Inc. and The Coca-Cola Company have been leading manufacturers and marketers of soft drinks, significantly influencing consumer choices globally. This paper seeks to analyze their financial statements for the fiscal year ended 2015, with a focus on specific financial metrics related to inventory, property, plant, and equipment (PP&E), debt, risks, revenue accounts, and liquidity. In addition, implications for audits will also be discussed.

Inventory Assertions

PepsiCo Inventory Claims

In the 2015 annual report, PepsiCo asserts that their inventory values are accurately represented, and they employ a systematic approach to ensure the values reflect the lower of cost or market values. The company utilizes FIFO (First In, First Out) for its inventory accounting, suggesting that older inventory is recorded at cost, which emphasizes management’s assertion of relevance and existence (PepsiCo, 2015).

Coca-Cola Inventory Claims

Conversely, The Coca-Cola Company indicates a similar inventory management approach and also uses FIFO, claiming that all inventories are classified appropriately as the lower of cost or market. The assertions here focus on completeness and accuracy (Coca-Cola, 2015). Both companies manage their inventory through stringent controls to mitigate risks such as obsolescence and spoilage.

PP&E Assertions

PepsiCo's PP&E

PepsiCo's management asserts that the valuations of PP&E reflect their depreciated cost on the balance sheet, adhering to GAAP principles. The notion of availability and condition is also implied, as the company periodically assesses the life expectancy of its assets (PepsiCo, 2015).

Coca-Cola's PP&E

Coca-Cola similarly asserts that their PP&E is presented at depreciated costs. However, Coca-Cola emphasizes their commitment to maintaining current asset values, implying a strong focus on recoverability and accurate impairment testing (Coca-Cola, 2015).
If either company were to downsize by eliminating storefront locations, the valuation of their respective PP&E would be adversely affected, leading to potential impairment losses.

Assets Subject to Adjustments

Fair Value Adjustments and Impairments

Both companies possess various assets subject to fair value adjustments. Notably, investments in affiliates and intangible assets like trademarks are susceptible to these valuations, as they may fluctuate based on market conditions (PepsiCo & Coca-Cola, 2015).
Impairment tests focus on goodwill and PP&E, especially if management anticipates lower cash flows due to economic downturns. If either company’s revenue projections from specific assets demonstrate inefficiency, auditors would need to gather substantial evidence regarding the recoverability of these assets (FASB, 2015).

Debt and Relevant Assertions

PepsiCo's Debt Assertions

PepsiCo, in its debt disclosures, asserts that they maintain appropriate debt levels to efficiently manage capital and meet liquidity needs, which implies claims of completeness and rights and obligations recognized (PepsiCo, 2015).

Coca-Cola's Debt Assertions

Likewise, Coca-Cola asserts its debt levels are manageable and justified through operational assessments, reinforcing similar assertions (Coca-Cola, 2015). For both companies, misstatements in debt could lead to severe liquidity violations, which may raise auditor concerns about their debt covenants.

Risks Comparison

PepsiCo Risks

PepsiCo faces risks scholars categorize as operational, such as shifting consumer preferences towards healthier options. Additionally, reliance on bottlers and distributors can pose significant supply chain risks. Such shifts may severely impact their profit margins (Naylor, 2015).

Coca-Cola Risks

Coca-Cola also confronts analogous risks, particularly with health trends and sugar taxes impacting product consumption. Additionally, international exposure presents currency risks that may influence profitability (Coca-Cola, 2015).
Both firms are equally vulnerable to economic fluctuations, epidemiologic risks, and regulatory changes, compelling auditors to take a closer look at their operational controls and risk management.

Revenue Accounts and Estimates

Key Revenue Accounts

The key revenue accounts for both firms lie within beverage sales. Coca-Cola generates approximately 75% of their total revenue from carbonated soft drinks (Coca-Cola, 2015), while PepsiCo generates a diversified revenue stream through snacks and other beverages, indicating a resilience against shifting consumer trends (PepsiCo, 2015).

Accounting Estimates

Both companies rely on critical accounting estimates, especially regarding sales returns and allowances. In the footnotes of their financial statements, both have disclosed substantial provisions for returns (FASB, 2015). These estimates pose a risk for auditors since miscalculations may lead to material misstatements.

Key Cash and Liquid Assets

Liquidity Analysis

In terms of liquidity, PepsiCo and Coca-Cola maintain significant cash reserves along with marketable securities. PepsiCo holds a more diversified portfolio, including British pound (GBP) and Euros (USD). Coca-Cola also invests in similar securities; however, the company maintains stricter policies on cash equivalents to ensure quick availability (Coca-Cola, 2015; PepsiCo, 2015).

Marketable Securities

Both companies hold certain marketable securities that they classify as "available for sale," providing them with necessary liquidity options while also yielding returns. The critical accounting policies necessitate frequent assessments of these securities' fair value.

Statement of Cash Flows and Trends

PepsiCo’s Trends

In PepsiCo’s statement of cash flows, a consistent cash generation and minimal fluctuations indicate stable operations across segments. This trend strengthens its liquidity position (PepsiCo, 2015).

Coca-Cola’s Trends

Coca-Cola shows some variance in cash flow trends, primarily due to fluctuations in foreign currency exchange, significantly impacting cash balance (Coca-Cola, 2015). Auditors may express concerns over these inconsistent trends since they can lead to misjudgments about operating performance.

Conclusion

The financial analysis of PepsiCo Inc. and Coca-Cola Co. for the year ended 2015 highlights the critical aspects of their reporting, showing the relevant assertions regarding inventory, PP&E, debt, risks, and revenue recognition. Auditors must remain vigilant in assessing these assertions, given the potential ramifications of misstatements on financial performance and corporate governance. Challenges around estimates and varying financial trends underscore the complexities facing both companies, necessitating detailed scrutiny by both company management and auditors.

References

1. Coca-Cola Company. (2015). Annual Report.
2. Coca-Cola Company. (2015). Form 10-K.
3. Coca-Cola Company. (2015). Form DEF 14A.
4. FASB. (2015). Codification of Accounting Standards.
5. Naylor, G. (2015). The soda industry's impending collapse. Journal of Business Ethics.
6. PepsiCo Inc. (2015). Annual Report.
7. PepsiCo Inc. (2015). Form 10-K.
8. PepsiCo Inc. (2015). Form DEF 14A.
9. PCAOB. (2007). Audit Standard No. 5.
10. SEC. (2015). Financial Disclosure for U.S. Public Companies.
This analysis consolidates intricate financial details related to both companies while adhering to relevant reporting norms, thereby providing a solid framework for understanding their financial landscape.