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Accounting Standards Essay

Financial accounting and statements are affected by the environment and accounting standards. The issues related to different forms of accounting statements and records are especially important for international companies, which need to synchronize their financial results and spend a lot of resources on this. Financial reporting for such companies depends on the practices adopted by the company, headquarters’ country, currency used in the financial statements etc (Schroeder & Clark & Cathey, 2010).

The purpose of this essay is to consider one of such companies with conflicting or changing accounting standards, to discuss the departments of the company, consider the effects of the discussed issue and offer recommendations for solving the problem. I have chosen the Coca-Cola Company as an interesting case with regard to accounting, since the company has a diverse network of franchisees and naturally has to face a large number of accounting issues.

Analysis of company structure

The Coca-Cola company is a leader in marketing, manufacturing and distribution of nonalcoholic beverage drinks and syrups all over the world. The company was founded in 1886, and its headquarter is located in US (Georgia). It sells bottled products to a chain of distributors, and also offers concentrates, syrups and other beverage ingredients to wholesalers, distributors, canning and bottling operators and to retailers. Therefore, in addition to own production lines, the company has a great number of bottling partners and franchisees, altogether regarded as variable interest entities from the accounting perspective (Porter & Norton, 2010). Accounting for variable interest entities for the Coca-Cola company is prepared according to different standards (FASB, IRFS, local systems) (Schroeder & Clark & Cathey, 2010). Therefore, aligning the financial results of the company represents a complex problem.

Accounting conflicts

The Coca-Cola Company has two operating groups: Corporate and Bottled Investments (Porter & Norton, 2010). The groups are also divided by regions. In general, the company managed to combine matrix and vertical structure, since most decisions are made at the top level, but their implementation might significantly differ at the local level. As a result, financial and accounting issues arise at the top level, when all financial data should be aggregated, and especially during preparation of consolidated financial statements. Until 2010, the company primarily used consolidated system for the majority of VIEs, which resulted in detailed financial reporting for these entities. Since 2010, The Coca-Cola Company can only account for VIEs on consolidated basis if these entities if the main company can direct important activities of the entity, and if it is obliged to deal with significant losses or benefits related to this entity (Porter & Norton, 2010). As a result, a lot of entities were deconsolidated, and accounting for these entities is currently performed on equity basis.


Investors and shareholders base their decisions on the actual financial state of the company, and therefore the financial statements of the Coca-Cola Company should reflect actual state of affairs for the companies that are directly related to the corporate well-being. Including entities operating on the basis of franchising agreements which in fact make their own financial decisions is not correct with regard to long-term strategic perspectives. Also, these accounting practices might reflect not the financial results of the company and the effectiveness of its strategies, but rather the popularity of their production worldwide. The new practice of deconsolidated accounting is more accurate, and therefore it is possible to recommend to account for all entities that are independent with regard to the Coca-Cola Company on equity basis (Porter & Norton, 2010).

The changes in the financial statements of the company due to consolidation did not affect net income results, but have changed the proportionate share of income or loss associated with the deconsolidated entities (Appendix 1) (e.g. the changes of total other income/expenses from $289,000,000 in 2009 to $5,502,000,000 in 2010). As a result, accounting practices of the company have become more accurate, understandable and reflect the factual financial situation. The new regulation is more consistent with accounting practices of the Coca-Cola Company, and therefore should be applied in all similar situations.


Schroeder, R.G. & Clark, M.W. & Cathey, J.M. (2010). Financial Accounting Theory and Analysis: Text and Cases. John Wiley and Sons.
Porter, G.A. & Norton, C.L. (2010). Financial Accounting: The Impact on Decision Makers. Cengage Learning.
The Coca-Cola Company Financials. (2011). Available from http://finance.yahoo.com/q?s=KO

Appendix 1. The Coca-Cola Company Financial Statements

The Coca-Cola Company income statement 2008-2010 (data in thousands of USD)
(The Coca-Cola Company Financials, 2011)

The Coca-Cola Company balance sheet 2008-2010 (data in thousands of USD)
(The Coca-Cola Company Financials, 2011)

The Coca-Cola Company balance sheet 2008-2010 (data in thousands of USD)
(The Coca-Cola Company Financials, 2011)