Briggs and Stratton Corporation

Paper Summary:

This paper explains that, as with most firms, Briggs and Stratton has instituted accounting policies, which enhance its financial standing; these accounting policies affect virtually every item on the company's financial statements, including revenues, expenses, and inventory. The author points out that Briggs and Stratton does a good job of revealing its accounting policies and exceeds GAAP standards for disclosure; however, it appears that Briggs and Stratton may be underestimating certain expenses, including warranty and depreciation expenses and costs of goods sold, which appear to be temporarily depressed due to LIFO liquidation and adjustments in the use of inventory cash flow models. This paper relates that one of the most important keys to success for a company is being able to make a profit; therefore, many of Briggs and Stratton's accounting policies, such as inventory policies, including cash flow models that affect the cost of goods sold and depreciation expenses, affect its reported profit.

From the Paper:

"Briggs and Stratton does have significant flexibility in its assets and liabilities accounting policies. For instance, instead of a combination of FIFO and LIFO it could use FIFO or weighted averages. Using FIFO would result in higher reported net income. In addition, FIFO inventory accounts are the closest to replacement costs, which may make it easier for management to forecast raw material costs. Instead of using straight-line depreciation, the company could use accelerated depreciation to reduce tax costs. In addition, there is a lot of flexibility in estimating life expectancy of fixed assets. Increasing the estimated life span would decrease depreciation expense. However, if the company over estimates the life expectancy of an asset, it may have to take a large write off when the asset is decommissioned."

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