Disney’s Internal Controls
The internal controls over the Financial Reporting was prepared by Disney accountants and audited by PricewaterhouseCoopers LLP, which is an independent public accounting firm. Disney states that “Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f)” (Disney, 2016). As such, Disney takes full responsibility for the integrity and objectivity of the financial statements and for establishing and maintaining adequate internal controls over reporting.
Disney’s policy is that all SEC filings must be signed by senior management members, such as the President, CEO, Vice Presidents, and Internal Counsel to ensure that the filings are accurate, and comply with reporting requirements (Disney, 2016). These must also be communicated to the other stakeholders in the management team of Disney investors (Disney, 2016).
Internal Controls over Financial Reporting
Disney management, in the annual report, acknowledges their accountability for the ability “to create accurate, reliable, sufficiently detailed, and timely external financial reports” (Disney, 2016). Disney accomplishes this task using what it calls an, “internal control framework the Internal Control – Integrated Framework which was issued by the Committee of Sponsoring Organizations of the Treadway Commission” (Disney, 2016). Using this internal control framework, management states, “internal control over financial reporting was effective as of February 18, 2015” (Disney, 2016). By taking these precautions the company ensures that all the financial reporting is accurate and up to date to meet SEC compliance.
Independent Accounting Auditors
Disney makes use of PricewaterhouseCoopers as an independent auditing firm to provide a third-party analysis of their internal controls over financial reporting. Management reports that PWC confirms that their internal controls appear to be functioning at a level that allows management to make the claim that their internal controls are effective as of 2015 In addition, PricewaterhouseCoopers’ report, to the board of directors and shareholders of the Walt Disney Company, is included in the” Annual Report and discusses the process by which Disney’s internal controls over financial reporting are tested and audited to provide a reasonable level of assurance that the controls are working and that external financial reports are being reported (Disney, 2016). (The Walt Disney Company, 2011). The utilization of an independent audit takes the assumption of any corruption attempted by the company, since there is a independent audit firm with no vested interest in the company performing the work. PricewaterhouseCooper based this conclusion on the auditing of the balance, income, shareholder equity, and cash flow statements (Disney, 2016).
PricewaterhouseCooper reports that it is responsible for the disclosure of the financial performance of Disney in so far as the internal controls provide a fair and credible representation of the company. The auditors used numerous standards that conformed with GAAP and auditing compliance laws such as SOX:
…company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements (Disney, 2016).
The Disney Corporation is held to the same standards as all publically traded companies. The Security and Exchange Commission has rules put in place to ensure that companies are complying with the rules and regulations set forth by the government to ensure all companies follow the rules. At risk of violating SOX and being sanctioned by the SEC the following standards needed to be followed:
- The Statement of Responsibility by Company Management (the CEO and CFO) which establishes responsibility for an adequate internal control structure and the procedures for financial reporting.
- The report must include a statement identifying the framework and effectiveness of the internal control over financial reporting.
- The management must include an assessment of the effectiveness of Internal Controls over financial reporting.
- Attestation by the company’s external auditor on Management’s assessment of the effectiveness of the company’s internal controls and procedures for financial reporting (Kimmel, Kieso, & Weygandt, 2012).
PriceWaterhouse provided an audit of Disney’s internal control financial reporting and is reported in the 10K report in which the financial statement audits verified the validity but also discloses to the investor that miss-statements and errors can occur (Disney, 2016). The audit also provided an unqualified report which provided that the financial statements are presented fairly and have been prepared in compliance with generally accepted accounting principles and statutory requirements (Disney, 2016). The report also provides that the accounting policies and practices of Disney had been disclosed. Most importantly this report is provided as an unbiased opinion of the financial statements that is not negative or positive and does not reflect the desires of any party (Disney, 2016). Ultimately this the purpose of the annual report and auditing process such that it provides an unbiased factual perspective of a company. The PricewaterhouseCooper report provides a view of Disney that shows a company that is financially strong but this view is based on the ratios and credibility of the internal controls.
Disney. (2016). 2015 Annuall Report. Retrieved from https://www.sec.gov/Archives/edgar/data/1001039/000100103915000255/fy2015_q4x10k.htm
Kimmel, P. D., Kieso, D. E., & Weygandt, J. J. (2011). Financial accounting: Tools for business decision making. Hoboken, NJ: John Wiley & Sons.