This paper gives an overview of the financial accounting of the DHL Express Company. The German based logistics multinational within the division of the Deutsche Post DHL provides international mail services being the world leader in air and sea mail. The company was founded in 1969 and by 1970’s it had expanded its services across the world.
The DHL Express becomes the publically held multinational company of interest for this research paper. This is due to its vast information in its filings to the Securities Exchange Commission (SEC) with respect to 10-Qs and the 10-K as shown in the study of the Musiolik (2012), besides its rich financial accounting information as obtained through its online annual report as depicted in the context of this paper.
The Assumptions of the Financial Reporting Model
The financial reporting model used by the DHL Company is based upon several assumptions as highlighted in this research paper:
Business entity assumption; the notion of discrete entity assumed shows that the company entity for which the fiscal statements were generated was discrete and separate from the entity owners.
Time period- The Company relied on the use of calendar year and therefore concluded the accounting period on 31st December. Certain companies as usual would prefer a natural business year even though the period being accounted for may have appeared shorter than a year. Numerous inaccuracies together with incomplete transactions may have been made at some particular stages in the reporting (Rutherford, 2000).
Monetary Unit, Inflation and Exchange Rates– being a holding company that have got branches world over, a decision had to be made on what rates of exchange were to be deployed to convert local currency from foreign currencies. According to Wahlen (2010), this must have been based on the fact that financial statements are built from local currencies as monetary units. Most multinational companies have been known not to disclose additional information regarding the influence of prices changes (inflation) in their annual reports.
Going Concern assumption-which assumes that the company will continue in business over an indefinite period. It going-concern assumption means that the entity will remain in business for an indefinite period. It assumes the probability that the company will run bankrupt or become liquidated.
Realization of revenue– revenue should have been recognized at the point in time when the revenue was objectively and realistically determined using cost recovery, during production, end of production, sales and receipt of cash approaches. Revenue recognized at the point of sale would mean that if a client did not pay the bill, no cash inflow will be registered. Paid taxes and court outcomes that influences supplementary cost also weakens liquidity (Musiolik, 2012).
Accrual basis of accounting– recognizes expenses when incurred (matching concept) and returns when realized (recognition concept). From this assumption, numerous modifications that include invoice adjustments must be done for the accountant to determine the most appropriate amount to the present period.
The principles of Financial Reporting Model
The major objective upon which the standards of financial reporting model lean is to give a prescription of the minimum content of a financial report and to outline the principles for the recognition and measurement in a condensed and complete financial statements for a particular period. The benchmark on which this relates to is that reliable and timely financial reporting improves the capability of the creditors, investors, among other stakeholders to have an understanding on the business capacity to generate cash flows and earnings, its financial condition and liquidity.
This paper outlines the principles of financial reporting as:
The financial report should be consistently released within the stipulated time without any failure. The consistent reporting enables comparison from period to period, for instance, year to year. Again the consistency in financial reporting allows for the comparisons carried towards the evaluation of the performance standards of the different companies.
The purpose of the financial reporting should be outlined explicitly. That is, there should be a clearly stated objective which is relative to the purpose of the report making it meaningful to every stakeholder (Gibson, 2011).
Full disclosure of meaningful information
The financial report should give a full disclosure of every meaningful information about the organization or the aspect of the organization it was set to present. There should be no concealing of any form of information relevant to the scope of the intended report to any party whatsoever.
The financial report should exhibit the ability for all users to easily understand it. This would create an effective interpretation of the reports and elimination of the financial report for the most appropriate decision formulation (Wahlen et al., 2010).
The financial report should have the ability to give assistance to the users to make, correct or confirm predictions about the present, past or the future events. Additionally, this relevance brings about the usefulness of the financial information for the present decision making.
This principle stipulates that, the financial report information should be free from material error (completeness) and bias and thus can be depended upon by the various users to faithfully represent economic reality.
The financial report must be able to offer a comparable basis from a number of aspect for the user. These would include making comparison of the financial reports over time, across countries, firms, and institutions (Rutherford, 2000). This enables creation of improvement action plan for the underperforming entities when gauged against organization within the same industry.
Information within an entity’s financial statements gets to be more useful if it can be compared against similar information of the entity for a past period or point in time to ensure identification of the trends in financial position and financial performance.
Who oversees the accounting profession?
The Public Oversight Board (POB) is the foundation of the self-regulatory system that oversees the accounting profession in the United States.
Role of Congress with respect to Accounting Firms and Clients
The settling of concerns within the operational scope of the accounting firms and their clients basically becomes the role of the Congress through ensuring of that appropriate quality is provided in the market for accountancy services. These would include the Congress ensures compliance with the technical, ethics, and professional standards and the significance to represent the non-contracting users of the accounting services, for instances creditors and investors (United States, 2005).
Furthermore the Congress promptly proposes and enact bills and laws that provide for the regulation of auditors, and the specific accounting services that clients are furnished with. They pass measures that serves to restore investor confidence and credibility.
The Congress performs an oversight role to the Securities and Exchange Commission in relation to their independence in discharging their duties and addresses instances of conflict of interest for securities analyst. They also serve as independent intermediaries and ensure that the financial statements audited conform fairly to the U.S. accepted accounting principles.
They safeguard increase in accountability of corporate executives by ensuring they certify company disclosures and financial statements. In cases of fraudulent activities or misstatements they impose severe financial penalties with the probability of imprisonment.
In addition, the Congress addresses and provides for serious stiff criminal penalties to agencies, boards and individuals who violate the enacted laws.
Difference between the 10-k and annual report
There exist two ways in which multinational companies like the DHL Express relay conglomerate information with motives to entice investors to give support their business. The first is the annual report which is not that required but often used by companies to provide information to shareholders (Libman, 2013). Though some companies do not totally construct it. The annual report is prepared by the management and explains the happenings of the past year. The second one is the 10-K, which is a federally mandated document which every publicly traded company must file annually with the Securities and Exchange Commission. The 10-K is made available to the public for free and includes legal information, audited financial statements, disclosures of risk that the company faces, and the opportunities for the current and potential markets. The DHL Express’ Annual Report and 10-K filing for the 2013 shows the different verbal and visual communication strategies that each and every document possesses.
An annual report is normally presented in a much more user-friendly way than a 10-K document. The annual report is begun with a letter from the top executive, for instance, the CEO or member of the board of directors. The report contains color photos all through besides providing context for recent financial performance; market, economic or company specific headwinds which could significantly compromise earnings results (Vibert, 2000). A 10-K document is filled with financial tables and also year-over-year performance comparisons. Moreover, a 10-K is not all numbers but also contain content like risk factors that the business faces.
The documents are produced by the publicly traded companies and are thus in the public domain and anyone who is interested may access them, whether he is a shareholder or not. Though the two documents can be accessed differently. An annual report is usually accessible from the company’s website, or rather it can be ordered from the website online. Meanwhile, the 10-K is filed with the SEC, and can be locked up on the SEC’s EDGAR database. Though other companies make their 10-K filings available on their website, but it is not a requirement either.
The annual report is prepared to represent the company’s state to shareholders and let them have an insight of the companies in the past year. It’s unofficial, basically purposefully used for just communication-public relations function. On the other hand, 10-K report is official document which publicly trading companies must file with the Securities and Exchange Commission, thus filed to meet the regulatory requirement for transparency (Gibson, 2011).
The annual report vary from one company to the other depending on what the company deem most important to communicate to the shareholders. Basically the report includes at least a list of the company officers and a balance sheet. Any further information is at the discretion of the company. A Form 10-K, in contrary contains a comprehensive financial image of the company, as portrayed in set forms of information as mandated by the regulators. These mandated information contained in the 10-K include, property holdings, legal proceedings, subsidiaries, executive compensation and a business summary.
The difference of the 10-K and the 10-Q
The 10-K report is filed annually and therefore referred to as an annual report that gives comprehensively a summary of a financial performance of a given company. The 10-K report is audited before it’s annually submitted to the U.S. Securities and Exchange Commission (SEC) and the information contained includes organizational structure, company history, equity, subsidiaries, executive compensation, and audited financial statements, among other information. Form 10-K is used only for purposes of reporting annual results and a copy must always be provided to the shareholder if he/she makes request.
As argued by Gibson (2011), the 10-K contains in details business explanation and the same statement of finances as contained in the annual report in a more detailed manner. 10-K highlights in details the amount of stock options awarded to company executives, alongside a comprehensive discussion of the marketplace and business nature.
It is noted that it’s an obligation by most companies with equity class and assets greater than $10 million and with more than 500 owners to have annual and other periodic reports filed, irrespective of whether the securities are privately or publicly traded. The company must also disclose on Form 10-K its status with regards to the availability of its periodic and current reports
The 10-Q report is filed quarterly (done at the end of January, June, September, and December) and therefore gives quarterly top of containing its dividend policy. The financial report provided in the 10-Q are normally an audited and less detailed in content than the annual report (Libman & Feldman, 2013).
SEC filings portray the untainted material about performance of the company and by brokerage analysis flawless. All details of a company can be skimmed through the pages of their annual or quarterly reports and include but not limited to the company net worth, their European operations progress, the existing compensation package etc.
Disclosures in the 10-K
The two disclosures of this research paper’s interest are:
The company’s summary
This part of the content of the 10-K filing gives a summarized overview of the company. This area covers the basic information about the company and insight of the operations of the company.
The financial statements
The financial statements content of the 10-K filing gives the figurative aspects of the various company’s financial statements, which include the cash flows, balance sheet, and the income statement. The statements provide the company’s financial position thus its ability to uphold business continuity principle. These statements are very critical for the business as they form the basis through which the management discussion and analysis is pegged upon.