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.
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