Befit Inc Case Analysis

Accounting and Financing Issues for BeFit Inc. of the year 2013

Manager of Financial Reporting

February 2014

Context

This report discusses some main accounting issues for the year of 2013, and aims to help the CFO to analyze 2013 financials which are in favor of supporting new investments in 2014. It also includes the discussion of financial options of potential investments. This report is prepared by the Manager of Financial Reporting.

Financial Reporting Objectives

From the perspective of the Manager of Financial Reporting and CPA, the financial report should be neutral and follow GAAP.The stakeholders involved in BeFIt includes Annie Douglas,CFO of BeFit who is aggressive due to the goal of pursuing  investments and reflecting a good shape of the company; Board of Directors, who are neutral because they represent the long term interest of shareholders and make investment decisions which are objective and depend on investment projects and the financial statements of the company; Banks, who are conservative because they are giving loans to the company and do not want too much risk,therefore, they desire a tighter treatment of accounting decisions and have requirements on the company’s financial ratios. And finally, the government is agressive because they want a higher tax revenue thus a higher net income.

The constraints are as follows. Currently, BeFit is a private company and should follow ASPE. However, it may change to IFRS in the near future after its IPO, so both GAAPs are used in the analysis for consistency.Revenue growth is one of the objectives to be considered. Debt covenants, like net income and debt to equity ratio are required by the bank and affect decision making on loans. Cash flow and working capital are also crucial to assist the investment decisions. Lastly, Accounts Receivable and its quality also matters because we are considering factoring the acounts receivable as a financing option.

As discussed above, the overall...