Business Sustainability, Starbucks’ Accounting Techniques, GFC Impact, Ratings Agencies’ Role In GFC, And Enron’s Sufferers

Business Sustainability

The process of research analysis in the field of accounting is quite inclusive of the purpose to substantiate reality. Like an artist the construction of reality is been evaluated through the sculpture and how they present them. In case of accounting process and its implementation as a pragmatic approach to overcome the limitation regarding realistic technical crafts in the field of computations. In order to ensure that the social life of people that runs through economic activities in terms of production, consumption, exchange as well as distribution of products and services, it is essential that the accountants should take the lead not only to understand the objective aspects of accounting rather their significance should be subjective and interpretative within defined parameters of accounting system (Markham, 2015). The discussion reveals the disciplined approach towards accounting and its flaws and fortes in the process of efficient decision making regarding financial transactions and their effectiveness.

1. In my opinion the aspect of business sustainability can be feasible based on certain parameters upon which the business initiatives, activities and their corresponding implementation is dependent upon or render impact upon. To emphasize this aspect I can reflect the factors of cost, controlling risk associated with every business as well as the need for every business to ensure that its reputation is withheld in the long run (Hurley, 2018). Reduction in cost helps to boost the investment in production as extra unit of finds will become available. Moreover, channelization of the supply chain of raw inputs for the production of outputs in an optimized manner and through effective logistics reduces the wastage of raw materials and optimized the business activities. Apart from that, controlling the risk factors that are associated with the business initiatives in terms of financial, managerial or work place environment, etc. if gets mitigated then the efficiency of the workforce involved in the business and the earned an enhanced willingness towards their work as well as contributes in building a good organizational culture. Recycling the process of using renewable alternatives will effectively ensure reduction in the use of excess energy as well as raw factor inputs for the production process. Moreover, implementation of effective accounting procedures to estimate the cost that the business is going to incur for its endeavors in terms of investments of all its available resources is crucially important due to the reason that effective accounting system and process examination of the data and information related to financial activities makes the business process much more systematized as well as credible to the organization and its related entities as a whole. All these parametric factors that impacts the business fundamentally rejuvenates the possibility to make the business sustainable for the long run. Clearly, I understand the fact that there exists lots of unpredictable challenges when any business competes in the market but to remain as a better performing entity in the market every business needs to implement innovative approach and sustainable practice of what is being produced and distributed in the market by them to their target consumer base. As per me, therefore the notion of business sustainability is a practical impression that is being created by the business through its business effectiveness and the brand it creates itself to the target consumers for which it runs the business. In a more precise sense the sustainability of business is not only associated with the process of eco-friendly marketing and transportation mechanism that is concerned with the logistic chain of the company regarding its allocation of resources and deployment of financial goods and services but also business sustainability is associated with the effectiveness with which the business takes over the initiatives to manage, control and monitor the triple bottom line (Melé, Rosanas and Fontrodona, 2017). Triple bottom line is nothing but the efficiency with which the business is able to regulate its financial, social and environmental risks and the effectiveness with which the business is able to channelize the obligation and opportunities that it gets confronted with in its process of expanding in the market. All these three factors are interconnected while a business progresses along with societal relevance and these initiates sustainability mutually for both society as well as the business. Moreover, it renders sufficient impact upon the all the stakeholders especially the target consumer base of the business, employees and most importantly in the profitability of the business.

Starbucks’ Accounting Techniques

2. The basic techniques that are applied by Starbucks for minimizing their tax expenses is related to their strategized implementation of royalties on intellectual property. The notion of transfer pricing is the accounting technique that was implemented by Starbucks in an effective manner. The company told the investors that the company is running in profit whereas in reality the company has running through losses for consecutive years (Sorensen and Miller, 2017). Due to these reason the taxman use to oppose certain deductions in tax. Media commentators appropriately suggested that the secret way of tax avoidance by Starbucks was a master piece strategy which is impossible for common public to understand the process of their tax avoidance. Starbucks executed mere transfer of papers between the parent company and that of the subsidiary (Beatty and Liao, 2014). The company formed Starbucks trading in Switzerland which brought raw beans from South America and resold them to the subsidiaries of Starbucks for roasting purpose at a markup of 20 %. Interestingly, the beans were not shipped to the land locked Switzerland rather it was transferred directing to the subsidiaries for roasting. However, the transactions were processed in the financial database of Starbucks Switzerland (Collier, 2015). Notably, there existed no need for these middle man as it would have been easily ordered and processed by the Starbucks UK directly. However, Starbucks UK use to pay this 20 % and deducts it from the tax the company pays in United Kingdom (Askary, 2017). This was the strategy that the company carried forward in all of its business transactions for which the tax man cannot allowed this obvious dodge. Through transfer pricing the internal services that any company executes are being permitted in taxation though it is not allowed if the same services are being bought from outside business sources. Thus through this accounting technique of transfer pricing artificial expenses were created and profits were shifted by Starbucks as transfer pricing was legal. So the strategic manipulation of Starbucks led it to save its tax in comparison to other similar big firms. By 2012 it was been found that world 3^rd largest company like KFC have earned a revenue of 1.2 billion while it have given tax of 80 million upon it. While in case of Starbucks which on the same year have a revenue generation of 1.1 billion has the amount of tax paid was only 15 million (Singh, Mishra and Das, 2017).

3. The reason behind the impact of Global Financial Crisis globally is due to the reason that the crisis took place within the financial industry based on the major plinth of processing economic activities which are banks. It was been found that there exists deregulation which allowed banks to engage in trading hedge funds with derivatives (Lehman, Hammond and Agyemang, 2018). Moreover, to support the profitable sales of the derivatives banks demanded for greater amount of mortgages which led to financial crisis in a global sphere and invigorated the great recession after the great depression of 1933 which was investigated by Keynesian economics. Banks have global existence and hence any economic crisis related to credit crunch gets siphoned off globally from one place to another (Rey, 2015). The global financial crisis caused a loss in confidence of the investors which as a result of a sub-prime mortgages created a liquidity crisis.

Global Impact of the GFC

4. Notably, the credit rating agencies estimates the risk that are being associated with specific borrowing entities and debt securities. They provide independent evaluation regarding creditworthiness of the securities that are being issues by corporations as well as the government. Their credit rating are effectively tool in helping the borrowers to gain their access in financial services like loans and credit cards. Apart from that it provide easy access while borrowing money and initiating financial transactions with financial institutions (Gendron and Smith-Lacroix, 2015). Thus, credit rating agencies accomplished a crucial role in marketing of the collateralized debt obligation and risky mortgage supported securities. Accurately rating the bond obligations and scrutinizing the diversification into the financial restructuring and rating the complex security products. In the GFC, the credit rating agents like Fitch Group, Standard & Poor (S & P), Moody’s are the credit rating agents that helped to reformulate the public policies in the US during the financial crisis (Claessens and Kodres, 2014).

5. Enron was basically an electric company majorly though it was involved in various more business. The growth of revenue for Enron was surprisingly interesting if viewed for a period of 5 years from 1995 to 2000. Any shareholders who is interested to increase its money will be eager for investments. Investors of the stock market who invested in Enron were mere gamblers and not speculators. A data base of the stock prices for 2000 to 2002 reveals that all the stock prices of shares of Enron were found to go down. All the investors who invested in Enron up to 2000 invested because they saw that the stock prices of Enron went up gradually year after year.. Though when investigation were properly made then it was been found that the accounting figures in the annual financial report of Enron were mere numbers only (Camilleri and Camilleri, 2017). They made a deal regarding bandwidths and internet with Blockbuster videos which as per contract would have lasted for 20 years. However, the contract was ended as the technology didn’t worked and hence the generation of revenue as anticipated by Enron was not found to meet. The revenue generation that Enron reflected in their financial statement where based on the expectations that if the business deal with Blockbuster have been worked then their revenue generation would have achieved the target level as reflected in the financial statements (Eckhaus and Sheaffer, 2018). They kept the true scenario of the company secret and reflected that part in an improvised manner which will maintain the rise in expectation of the investors regarding Enron and thus they will be able to continue to invest in the company. Like PWC, Deloitte, KPMG, Ernst & Young there was another auditing firm known as Arthur Anderson which use to audit the financial details of the firm and use to keep the actual secret of the firm underground in exchange of some financial and non-financial benefits. Lots of managerial people were involved in the case apart from the Ken Lay and the CEO of the company Jeff Skilling (Conrad, 2018). The people who got benefitted from Enron’s action circumscribes the audit firm Arthur Anderson,  senior authorities of the business firm of Enron who invested in the company’s shares and sold their stocks right before the massive drop in the stock prices. The people who suffered due to Enron’s actions encompasses those people who were the common employees of the firm and got victimized due to the sudden closure of the firm and apart from that the people who invested in the stocks of the company based on the adaptive analysis of the numerical figures regarding the past trends of the company as it has been reflected in the annual reports of the company and didn’t able to understand the true past trends of the company and didn’t able to sold their stock before the fall of the stock prices were the major deprived people due to the actions of Enron.

References

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