Accounting Observer > Public Blog - Starbucks Meets FIN 47

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.

Subscriptions to full posts available for $500 annually.

Starbucks Meets FIN 47

Location: Blogs AAO Weblog (Public)
Posted by: Jack Ciesielski	11/17/2006 7:50 AM
Starbucks released its earnings yesterday, and it contained one surprise: the company had a FIN 47 adoption charge. In the front half of this year, FIN 47 adoption charges were plentiful, as noted in this space. That's because the standard required firms to adopt it by the end of the fiscal years ending after December 15, 2005; Starbucks has one of those awkward floating year ends which happened to be late in the calendar year anyway. Their year ended on October 1, 2006, making that date the last possible day they could comply with FIN 47. What's unusual about this? Only that it might reflect some of the biases we let creep into our thinking as investors and observers of the business scene. When you think FIN 47, many of us automatically associate it with heavy industries like mining, energy and utilities - industries where major cleanup will be needed after an asset has been consumed and the firm has a legal obligation to return a property to a "restored" state. That's what FIN 47 was supposed to do - it was effectively a jump start for firms that hadn't complied yet with their Statement 143 reporting duties. (Statement 143 is the REAL accounting standard for recording asset retirement obligations, not FIN 47. FIN 47 is merely an interpretation.) Being in the business of serving over-rated coffee out of retail "boxes" that it leases from others, Starbucks is party to agreements that call for it to return leased property to an agreed-upon condition at the end of a lease. That obligation occurs over the life of a lease, not on its last day - and that's the obligation for which Starbucks is now accruing. Nothing startling about the size, but it just catches your attention if you're used to thinking too narrowly about accounting standards being industry-specific.

Permalink \| Trackback