A company must analyze its financial performance according to specific accounting guidelines and principles used in the United States of America. These principles involve estimating adjustments and factors that affect incomes, assets, and obligations, and the disclosure of these factors in the financial statements. For instance, Nike accountants provide an objective view of the company’s financial health by utilizing several accounting policies.
The company uses Value-at-Risk (VaR) to evaluate the foreign exchange risk of foreign exchange reserves and associated derivative financial instruments. This methodology limits the maximum potential for financial instruments depreciation (Tallon 34). Moreover, to shift the inherent risk found in financial derivatives, they are canceled out by the underlying transactions. However, the company also notes that VaR is a risk analysis technique and may not report the exact losses in fair value that occur. Therefore, the actual gains and losses may deviate due to updates to market rates and interrelationships, timing, hedging instruments, leverage, among other factors.
Nike also has control procedures in place to ensure that information in the Financial Statement conforms to the Exchange Act disclosure provisions and the SEC’s rules. The control procedures guide the recording, processing, and summary within the Security and Exchange Commission’s forms and guidelines. Moreover, they facilitate timely delivery of the company’s financial information to the Chief Executive Officer and the Chief Financial Officer allowing them to make informed decisions.
The company also adopted the SFAS standards related to accounting disclosures about derivative instruments. SFAS No. 161 mandates publicly listed companies to include their derivative trading and hedging activities. Moreover, FAS 161 provides specific guidelines on reporting why the company uses derivative instruments, their business in these instruments, and hedging items including how they affect the company’s financial health, performance, and long-term cash flow (Warren et al. 10). Moreover, the adoption of FAS 165 gives the general accounting standards and disclosure for transactions occurring after the preparation of a balance sheet but before the issuance of financial statements to stockholders. FAS 107-1 affects the Interim Disclosures about the market value of financial instruments as an update to SFAS No. 107.
As NIKE is an international company with interests and stakeholders in multiple countries, they adopted the SFAS No. 141 “Business Combinations” and SFAS No. 160 “Non-controlling interests in Consolidated Financial Statements.” The mentioned documents simplify financial reporting for international businesses by converging the accounting standards of different regions in reporting non-controlling interests (Warren et al. 10). Application of these standards from their predecessors does not have a physical impact on the corporate operating or consolidated financial statements.
Regarding depreciation, the company follows the FAS 142-3 “Determination of the Useful Life of Intangible Assets” that updates the elements to consider when determining the usefulness and life of intangible assets such as goodwill (Sinclair et al. 289). The standard improves the consistency between the expected duration of useful life and the accompanying cash flows to assess the market value of an asset.
In conclusion, NIKE follows the Generally Accepted Accounting Principles (GAAP) in preparing their financial statements. Moreover, the inclusion of specific accounting provisions helps in assessing the value of intangible items and their useful life thus facilitating improved decision making by management. Additionally, the particular control procedures work to make sure that the financial statements are prepared according to SEC guidelines.
Sinclair, Roger Neville, and Kevin Lane Keller. “A case for brands as assets: Acquired and internally developed.” Journal of Brand Management 21.4 (2014): 286-302.
Tallon, Paul P. “Corporate governance of big data: Perspectives on value, risk, and cost.” Computer 46.6 (2013): 32-38.
Warren, Carl S, James M. Reeve, and Jonathan E. Duchac. Principles of Managerial Accounting. Mason, Ohio: South-Western, 2009. Print.