October 14, 2015
Intermediate Accounting- Case #1 Chico’s FAS, Inc. is a retail company that encompasses four brands: Chico’s, White House Black Market, Boston Proper, and Soma Intimates. The company earns revenue through the sale of women’s clothing and accessories in stores and online. Chico’s defines the critical accounting policies that they use to explain any discrepancies between the dollar amounts on the financial statements and the actual cash amount to its Audit Committee and Board of Directors (Chico’s FAS, Inc. 10-K). Chico’s defines six estimates used in their financial statements: inventory valuation and shrinkage, revenue recognition, evaluation of long-lived assets and goodwill, operating leases, income taxes, and stock-based compensation expense.
According to Chico’s FAS, Inc.’s 10-K, it is essential to outline the estimates used for inventory valuation and shrinkage. This estimate is important because it allows the company to change …show more content…
The 10-K has long-lived assets in a different explanation than goodwill. The company reviews long-lived assets periodically to ensure that the amount remains recoverable. It is determined that a long-lived asset is impaired if “future undiscounted cash flows expected to generated by the asset are less than its carrying amount” (Chico’s FAS, Inc. 10-K). If the test determines that the asset is impaired, it is reported as a loss for the amount that the carrying value exceeds the fair value. The fair value of an asset is determined by the estimated future cash flows discounted by a rate that includes risk and incorporating market assumptions. Estimating the future cash flows of an asset helps management make educated decisions about future sales and how useful the asset will be. This allows assets that will be more useful to be more prevalent in use and hopefully drive sales and operations (Chico’s FAS, Inc.