Coca Cola Audit Risk

Topics: Balance sheet, Accounts receivable, Generally Accepted Accounting Principles Pages: 6 (1998 words) Published: November 1, 2010
The Coca- Cola Company
Planning Memorandum
Industry and Regulatory Risk Factors:
Obesity/Health Concerns: There is a growing concern among consumers and public health officials about the public health consequences of obesity. This includes a large movement towards health conscious eating and drinking, specifically avoiding sugar-sweetened beverages. This could affect demand for some beverages and in turn affect profitability. Water scarcity: Water is the main ingredient of all products. It is a limited resource and also facing unprecedented challenges from overexploitation, pollution, poor management and climate change in many parts of the world. As water scarcity and demand both increase, the system may incur increased production costs or face capacity constraints, which could adversely affect profitability. Governmental Regulation: The Company complies with applicable laws in numerous countries throughout the world. In the USA, this includes the Federal Food, Drug and Cosmetic Act; the Federal Trade Commission Act; the Lanham Act, etc. Competition: The Company may face some pressure to perform above their many competitors, namely PepsiCo, Inc.; Nestle; Dr Pepper Snapple Group, Inc.; Groupe Danone; Kraft Foods Inc. and Unilever. Competitive factors include pricing, advertising, sales promotion programs, product innovation, increased efficiency in production techniques, and introduction of new packaging. None of these external risk factors produce a going concern for Coca Cola Company at this point. They should be monitored and updated in the coming years to reassess for the potential of going concern. Nature of Business:

The Coca-Cola Company is the world’s leading owner and marketer of nonalcoholic beverage brands. Incorporated in September 1919 under the laws of the state of Delaware and succeeded to the business of a Georgia corporation with the same name that had been organized in 1892. As at February 22, 2010 there were approximately 268, 741 shareholder accounts of record. The purpose of the audit is to correctly reflect the net income and operations of the company for the shareholders and stakeholders. Measurement of Financial Performance:

The ratio analysis calculations are shown in table 1 in the appendices. The following analysis is taken from the calculations. The risk areas determined in the ratio analysis are the ratios with the highest percentage change from 2008 to 2009. These are: Current ratio, Days sales in receivables, Debt/Equity Ratio, and Working Capital/Total Assets. The high change in Current Ratio could conclude that current assets increased over the year in comparison to last year, or that current liabilities decreased in comparison to last year. When looking at the balance sheet, liabilities have not seen a major change from 2008 to 2009; but current assets have changed drastically (from 12,176,000,000 in 2008 to 17,551,000,000 in 2009; a five billion dollar change). This ratio brings attention to the current asset accounts as high risk and ones that will need attention in the audit. The change in Days sales in receivables is also quite significant, as it means that customers who pay on account will take longer to pay in cash. The normal terms of credit sales are net 30 days, so our customers are taking longer than normal to pay. This brings attention and concern to our terms of sale and invoicing, and also the allowance for doubtful accounts. The Debt to Equity Ratio has increased from 2008 to 2009. This means that either debt has increased or equity has decreased. In looking at the balance sheet, it appears that equity has increased and debt has also increased from 2008 to 2009. Debt has increased by a larger proportion than equity, which explains the change in ratio. In general, shareholders want to see a low debt/equity amount. The working capital/total assets ratio has also increased. This shows either an increase in working capital or a decrease in total assets. As previously...
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