This paper evaluates Briggs and Stratton's accounting polices and examines how the company's accounting policies affect the firm's key success factors. It also assesses Briggs and Stratton's quality of disclosure and addresses potential red flags and unsustainable income and expenses. .
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A company has a variety of accounting options it can use when reporting earnings to the public. These options affect how a company accounts for virtual ever item on its financial statements. Differences in estimates and accounting policies can significantly affect how a company recognizes revenue, expenses, and inventory levels. Few firms actually engage in outright fraudulent accounting actives. However, most organizations select accounting policies, which enhance the company's perceived financial health. Many investors rely solely on a company's earnings and growth rates. In addition, many contracts including executive compensation and financing agreements are tied to the company's reported earnings and debt ratios. As a result, many firms have learned to use loopholes in the accounting standards to massage their earnings numbers. As an investor or an analyst evaluating a firm's financial performance, one must recognize that companies use different accounting policies, which can significantly affect the companies" finical statements. An investor or analyst must adjust for those differences and be aware of accounting discrepancies. .
As a manufacturing company, one of Briggs and Stratton's key success factors is its inventory management. Many of its accounting policies affect how inventory appears on the balance sheet and in turn how cost of goods sold appears on the income statement. Even some of the seemingly minor accounting policies greatly affect accounts on the financial statements. For instance, Briggs and Stratton utilize a fiscal year that runs from July to June (Briggs and Stratton, 2002).
