ADM 1301 Lecture Notes - Lecture 9: Global Reporting Initiative, Corporate Social Responsibility

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12 Apr 2018

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Chapter 9 measuring, reporting, and communicating csr. Corporate social responsibility (csr) reporting: is a management function that documents the (cid:272)orporatio(cid:374)"s e(cid:272)o(cid:374)o(cid:373)i(cid:272), ethi(cid:272)al/so(cid:272)ial, a(cid:374)d e(cid:374)(cid:448)iro(cid:374)(cid:373)e(cid:374)tal respo(cid:374)si(cid:271)ilities a(cid:374)d i(cid:374)itiati(cid:448)es, a(cid:374)d communicates this information to relevant stakeholders. Also known as sustainability reporting: three reasons why reporting is necessary are to maintai(cid:374) the (cid:272)orporatio(cid:374)"s reputatio(cid:374), to meet the demands of stakeholders, and to sustain corporate profitability. Corporate reputation: is (cid:862)a per(cid:272)eptual represe(cid:374)tatio(cid:374) of a (cid:272)orporatio(cid:374)"s past a(cid:272)tio(cid:374)s a(cid:374)d future prospe(cid:272)ts that des(cid:272)ri(cid:271)es the (cid:272)orporatio(cid:374)"s o(cid:448)erall appeal to all of its key stakeholders, (cid:449)e(cid:374) (cid:272)o(cid:373)pared (cid:449)ith other leadi(cid:374)g ri(cid:448)als. (cid:863)

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Case 14-6 Making Connections Social Konnections Inc. (SKI or the âCompanyâ) is a global Internet company that runs Social Konnections, a large social media networking Web site. SKI has experienced steep growth since its launch in 2005, and the Company went public in 2010. SKI currently has over 500 million active users who visit the site to connect with others, express themselves, and play games. Last year, substantially all of SKIâs revenue came from advertisers who market their products and services to SKIâs active users through advertisements placed on the Web site or its various mobile platforms. The Companyâs remaining immaterial revenue was received from fees associated with the sale of virtual goods and services by third-party application developers using SKIâs various platforms. In Q1 of the current fiscal year, SKI acquired Corporate Collaborations (CC), an entity that manages private and public social media networks for corporations. CCâs customers are primarily national and global companies whose employees connect over its platform. In addition to hosting private social media networks for corporations, CC provides services to develop the networks it manages. CCâs revenues are earned through the performance of multiyear revenue contracts with its customers. In the current year, CC is expected to produce approximately 20 percent of SKIâs consolidated revenue. SKIâs investors are focused on the growth prospects of the Companyâs legacy open social media platform operations and its new corporate revenue unit. The Companyâs MD&A disclosures include (1) various user and revenue metrics to help financial statement users assess its traditional operations and (2) backlog information to help users assess CCâs operations. Audit Because of SKIâs continued growth, the audit committee has requested that the Company choose a new audit firm with experience in auditing public technology companies. A new firm was selected and has performed each of the interim reviews in the current year. Kristine Drew, a senior auditor, is the in-charge accountant on the SKI audit. In addition to her supervisory and administrative responsibilities, Ms. Drew is responsible for auditing revenue. Ms. Drew has read the Companyâs disclosed accounting policies and is interviewing the revenue controller, Bill Cook, and various sales personnel to develop in- depth process flow documentation that will serve as the basis for the teamâs risk assessment. SKI creates advertising space on its Web site and mobile applications and sells the space to advertisers either directly or through advertising agencies. According to Mr. Cook, the amount an advertiser pays is dependent on the number of views the ad receives or on the number of user clicks (depending on the type of advertisement defined in the underlying contract) and the revenue is recorded in the period in which the views or clicks are made. Ms. Drew has learned that simple advertising can be purchased directly from SKI through SKIâs advertising Web site at standard rates, with the advertisements and terms input directly into the Companyâs ad delivery platform. However, most advertising revenue is generated directly through the advertising sales team, which has the ability to help advertisers develop more sophisticated advertising campaigns. Management has established minimum pricing and volume thresholds for these advertisements; however, the sales staff is given significant latitude in securing contracts with customers. Extra commissions are paid to sales individuals who sign longer-term contracts that meet minimum revenue targets. Once a contract is signed, the ad development department creates the ad content and obtains the customerâs approval. The approved ad and the contract are electronically sent to the ad scheduling department, and the advertisement is uploaded into the Companyâs ad delivery platform. The ad delivery platform is a robust system and is designed to capture all the nuances associated with the contract. For example, an advertiser may wish to have its ads displayed only to users whose IP addresses are from a specific geographic location, or the contract may be structured to provide the advertiser with variable pricing or incentives (such as a set of free advertisements) once a certain level has been paid for. In summary, the delivery platform captures all the relevant pricing information associated with the contract to allow for real-time revenue recognition according to the terms of the contract. After the contract is entered into the system, a summary of the contract setup is provided to the sales manager that worked with the customer. The sales manager then reviews the contract setup for accuracy. The Companyâs ad delivery platform automatically tracks the advertising activity each day and reports the activity to its customers, who are then billed weekly for the aggregate ad activity. As part of its new corporate services program from the acquisition of CC, the Company earns revenues by providing corporate social network development and hosting services. For new customers, a contract will typically require an up-front fee to SKI for the development of the customerâs specific social media network; the contract will also include a separate multiyear hosting agreement. The customized social media networks only operate on the Companyâs hosting platform, and customers do not have the option to take possession of the software used to run the networks. Revenues for the up-front fee associated with the development are recognized as the development is completed and the system is available to the customer. Hosting revenues are automatically recognized by the system based on the invoicing cycle outlined within the customerâs contract. According to Mr. Cook, this invoicing cycle is fairly uniform throughout the hosting period; therefore, from a materiality perspective, the Company will disclose that hosting fees are recognized ratably throughout the hosting contract period. , Ms. Drew was told that the corporate sales director had established a goal of increasing the length of the average hosting contract. Before SKI acquired CC, most of the multiyear hosting agreements were for three-year terms. In Q4, the corporate sales director implemented a strategy shift that would increase the contracted hosting period to five years. To accomplish this goal, the sales team was able to offer its customers three months of free service, to be added at the end of any new five-year agreement signed. In addition, the sales director offered an additional commission for converting existing contracts to five-year agreements. To accelerate the implementation of this plan, the sales commission is doubled if the contract modification occurs before the end of the fiscal year. Ms. Drewâs Concern Ms. Drew is concerned about several things she has learned regarding the appropriateness of managementâs revenue recognition policies. Question: 1) Identify the potential revenue recognition issues related to each of the Companyâs sources of revenue. 2)On the basis of the information Ms. Drew has learned, what fraud risk factors should she consider discussing with her team at the next fraud brainstorming meeting? 3)What potential audit procedures could the team consider to evaluate managementâs revenue recognition policies and determine whether those policies are appropriately applied?

Question 1

Identify the item below that is not one of the four different types of data processing activities.

		deleting
		reading
		creating
		using

Question 2

All of the following are advantages of an ERP system except

		ERPs permit manufacturing plants to receive new orders in real time.
		in an ERP, data input is captured or keyed once.
		it takes considerable experience and training to use an ERP system effectively.
		ERPs permit management to gain greater visibility into every area of the enterprise.

Question 3

Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?

		relevant
		reliable
		complete
		timely
		understandable
		verifiable
		accessible

Question 4

An ERP system might facilitate the purchase of direct materials by all of the following except

		preparing a purchase order when inventory falls to reorder point.
		routing a purchase order to a purchasing agent for approval.
		communicating a purchase order to a supplier.
		selecting the best supplier by comparing bids.

Question 5

Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

		entity.
		attribute.
		field.
		record.

Question 6

Which of the following is not considered a source document?

		A copy of the company's shipping document.
		A copy of the company's ledger.
		A copy of the company's sales journal.
		A copy of the company's financial statements.

Question 7

In an ERP system, the module used to record data about transactions in the disbursement cycle is called

		financial.
		order to cash.
		customer relationship management.
		purchase to pay.

Question 8

Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in

		goal conflict.
		information overload.
		decreased value of information.
		goal congruence.

Question 9

________ are examples of activities that constitute inbound logistics.

		Activities that transform inputs into final products or services
		Activities that provide post-sale support to customers
		Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells
		Activities that help customers to buy the organization's products or services

Question 10

In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?

		the revenue cycle
		the expenditure cycle
		the human resources / payroll cycle
		the financing cycle

Question 11

The collection of customer payment is part of which transaction cycle?

		the human resources cycle
		the production cycle
		the revenue cycle
		the expenditure cycle

Question 12

Which of the following is an example of source data automation?

		POS (point-of-sale) scanners in retail stores
		a bill of lading
		a subsidiary ledger
		a utility bill

Question 13

All of the following are guidelines for developing a good coding system except

		be as sophisticated as possible to promote usage.
		be consistent with its intended use.
		be flexible to allow for growth.
		be consistent with the company's organization structure.

Question 14

What is a key decision that needs to be made with regards to borrowing money from lenders?

		the location
		pro forma income statement
		how much capital to acquire
		job descriptions

Question 15

Identify the false statement below.

		A service company does not have an inventory system.
		Retail stores do not have a production cycle.
		Financial institutions have installment-loan cycles.
		Every organization should implement every transaction cycle module.

Question 16

The chart of accounts of a fast-food restaurant would probably include

		a list of customers.
		a list of financial statement accounts.
		a list of vendors.
		a list of employees.

Question 17

Which statement below regarding the AIS is false?

		Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
		The AIS must be able to provide managers with detailed and operational information about the organization's performance.
		Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
		The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

Question 18

In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

		well-designed paper forms
		turnaround documents
		source data automation
		sequentially numbered bills

Question 19

Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of

		verifiability.
		truthful.
		relevance.
		reliability.

Question 20

		entity.
		attribute.
		field.
		record.

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ADM 1301 Lecture Notes - Lecture 9: Global Reporting Initiative, Corporate Social Responsibility

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