Disclosure Analysis – Anheuser Busch
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The full disclosure principle states that any financial information that is significant enough to influence the judgment of an informed reader should be reported (Kieso, Warfield, Weygandt, 2007, p. 1282). If the financial information can not be reported in the financial reports such as the balance sheet, income statement, and the statement of cash flows, then it should be included in the notes to the financial statements or a supplementary information section. The notes to the financial statements are meant to be utilized as a way to explain, clarify, and expand upon the figures presented in the financial statements (Hagen, 2005, p. 1). By having all relevant financial information, management, customers, and investors can make more informed business decisions. This paper will discuss the notes to the financial statements for the Anheuser-Busch Companies, Incorporated regarding the sections of cash and cash equivalents, accounts receivables, and inventory.
The section of the notes to the financial statements titled вЂњCash and Cash EquivalentsвЂќ is generally used to provide a definition to the reader as to what constitutes a cash equivalent (Hagen, 2005, p. 4). According to the notes in the financial statements for Anheuser-Busch Companies, Incorporated (2006, p. 48), вЂњcash includes cash in banks, demanded deposits, and investments in short-term marketable securities with original maturities of 90 days or less.вЂќ Cash equivalents are normally the short-term but highly liquid investments that are considered to be both easily convertible to specified amounts of cash and so close to their maturity date that any risk related to changes in the interest rates are insignificant (Kieso, Warfield, Weygandt, 2007, p. 317). The explanation in the notes for Anheuser-Busch Companies appears to meet the definition and should provide adequate information to the reader regarding what type of financial information is included in the cash section of any financial statement in which it appears.
Receivables are the claims that companies hold against their customers and other individuals for money, goods, or services (Kieso, Warfield, Weygandt, 2007, p. 318). Since the value of receivables can be reported in the financial statements using various calculations, it is in the notes to the financial statements that a company will explain how the value is calculated. This section of the notes to the financial statements will normally include a more in-depth explanation than the cash and cash equivalents notes section. Anheuser-Busch Companies report their trade accounts receivables at the net realizable value (2006, p. 47). According to the notes in their financial statements (2006, p. 47),
вЂњThis value includes an allowance for estimated uncollectible receivables, which is charged to the provision for doubtful accounts. Estimated uncollectible receivables are based on the amount and status of past-due accounts, contractual terms of the receivables and the companyвЂ™s history of uncollectible accounts.вЂќ
Since most companies are unable to record their uncollectible valuation without using estimates, Anheuser-Busch Companies uses the notes section to educate the reader regarding their valuation process.
Two items are used by companies when valuing inventory, the basis of which inventory amounts are stated and the method used in determining the cost of the inventory. Since there is no sensible place in the financial statements to inform the reader of these valuation methods, an explanation should be included in the notes section. According to the Generally Accepted Accounting Principles (GAAP), both the basis and method used to value inventory should remain consistent year after year and if any changes to the methods occur an explanation should be included in the notes section. According to the notes to the financial statements for Anheuser-Busch Companies (2006, p. 48),
вЂњInventories are valued at the lower of cost or market. The company uses the last-in, first-out method (LIFO) valuation approach to determine cost primarily for domestic production inventories, and uses average cost valuation primarily for international production and retail merchandise inventories. LIFO was used for 68% and 72% of total inventories at December 31, 2006 and 2005, respectively. Had the average cost method been used for all inventories as of December 31, 2006 and 2005, the value