Essay

Running Head: WEEK 1 DISUSSION 1

NETFLIX INC. 4

Netflix Inc.

Antonia Davis

UMGC

An accountant is responsible for financial auditing and must perform their duties in line with the laid down ethical procedures. Accountants in Netflix are expected to be liable to the federal authorities even though most of accountants tend to believe that the practice of accounting does not involve securities which is mere lie. The Netflix Inc. has a professional liability cover insurance that cover several areas such as network and information security, investment advisement cover and crisis event coverage among others.

Netflix has seen a downwards trend in terms profit from the year 2013 to 2017. The year 2013 the profit recorded was $148. 29 million and in 2017 it went down to $79.95. In terms of costs, the costs has been on the increased with the low income being generated hence the reason why the company has been having a down trend in terms of profits. The total costs in 2013 in terms of thousands of dollars was $4, 374, 562 while in 2017 it went up to $11, 692, 713 (Bell, R. M., & Koren, 2017)

	2017	2013
Profits (in million dollars)	79.95	148.29
Costs ( in thousand dollars)	11,692,713	4,374,562
Percentages (in terms of dollar value)	7.44%	75.25%

The net income is on the lower since it has been calculated from net revenues and net expenses. With expenses being on the increase for Netflix, the company will eventually continue facing a downward trend in terms of profits it realizes. The company has reached the global market, with most of its products being easily accessible via the internet. The company has been using the dollar which very compatible with other currencies across the globe

Inventory issues

Netflix is in California in the US and it is the leading internet television network reaching over 170 countries. It is estimated that its videos and movies are watched in more than 140 million hours daily. The common materials that the company supplies for watching are original series, documentaries, and films, among others. The company serves a very large geographical location with most of its products internet services such as streaming. The customer base for the company cannot be easily established since it has grown to a global scale, with every country across the globe enjoying its services. The market base can be understood better by looking at the three re portable segments of the company that also enhance its internal control. These are the domestic streaming, international streaming, and the domestic DVD. This clearly shows the customer base is very diverse as it covers over 170 countries.

The selling of the products is through these three segments, with the domestic streaming dealing with the distribution and selling of videos in the United Sates. The domestic streaming gets its revenue from membership fees for video streaming only for the USA customers. The international streaming on the hand earns its income from membership fees of outside members, with domestic streaming earning its income from the sale of DVD via the mail. Fraud issues cybercrimes are common with the company mitigating this by employing highly qualified IT personnel.  (Bell, R. M., & Koren, 2017) One of the main challenges that the company faces are competition. The entertainment market is very competitive, and uniqueness and variety could be expensive for the firm. Another challenge is the seasonality of the member participation. The growth in terms of purchases from clients vary in the different quarters of the year making the planning for the company very difficult. One of the opportunities the company has is behind its brand equity, meaning that expansion of the company could be very possible.

Auditing Reports

The report provided in the MD & A section on management of risks and uncertainty with its relation to interests, has shown that Netflix is a great distributor of its products and services. However, to achieve this, risks have been taken by the company. In strife to increase the interests, the risks taken include producing original content, funding for the production and even going into debt to be in a position to fund fully. The primary goal of the risks is to increase demand internationally, but they come at an expense- of millions of dollars. On the negative side, the risks managed may lead to low cash flows and cancellation of projects hence lowering interests yet again on the brighter side, as demand increases it injects big interests (intensity of growth yields increased interests and dominion). Basically, risks aim at expansion. If they be a success massive interests are recorded but if they fail there is tumbling of shares and minimal or no interests made (Duangjan,2019).

    The auditing may be interfered by planning, timing of events and management of risks procedures. For example, as Netflix tries to maintain growth of subscribers, its investors continually charge international markets to acquire the products through the various lines. Also, as a growing company its competitors are on the watch toughening the process. Recalling that Netflix produces original content, the company needs funds to make more of those hence increasing costs of their services and charging for all subscriptions. The internal control issues may include challenges in unauthorized access to the Netflix sites and non-transmission of payment before receiving the products and services. To manage these, Netflix has separated duties of contract negotiation and has approved invoices for these contracts. (Dash., Mukherjee and Ghosh, 2019)

     Analysis on management display comments that may be profitable to the company. For instance the internal control-duties have been separated, for risks- an audit team sets a desired level of risk and calculates the probability of it occurring that way and possible errors hence company uses appropriate techniques to create and understand its account balances, on auditing strategies- the team determines the business processes based on customers’ demand and expectations to be met from year to year( this is achieved by retrieving copies of contracts from vendors and from the library). In summary, through the comments the company is in a position to view its financial statements and investors are able to see the management(Amin,2019).This helps the company (Netflix) to predict future profits and growth as it analyses all financial operations.

MD&A; CSR; Contingencies; Liabilities

Netflix company gets a lot of money from their entertainment videos. Management of the company depends highly on the members who keep rising currently. Company’s highest risks comes with how the money is handled. As a company, social responsibilities and sustainability must be a priority when dealing with the products and members. They experience a lot of contingencies and liabilities that can and cannot be estimated due to varying financial importance.

  Cost and fluctuation is greatly experienced in Netflix company as the company’s ability to attract other members depends on the prices of other competitive companies. There is a great competition between Netflix and entertainment video companies. This negatively affects their members as keeping their members greatly depends on their videos and pricing. Cost determines the number of members in Netflix as they have to consider the member when allocating their prices. 

 Entertainment video market is very competitive and rapidly changes subject. Pricing decisions are made in considerate of the members. Pricing is determined by the cost of the company. Due to the greatest competition, pricing is made that if highly affordable and must be in range with other competitive companies to help Netflix retain its members. As other factors are considered during pricing, company must ensure not to undergo losses and therefore the prices must be profitable to the company. Leaders determine pricing in a company and must consider the members and company’s profit.

  Corporate Social Responsibility (CSR) and Sustainability relate to issues such as pollution and cost of remedial and hazardous wastes. The company has to ensure as minimal pollution and least possible cost on the hazardous waste’s management. Netflix ensures that there is no misunderstanding of the internet and that the videos are not virus accompanied as such may lead to reduced members and increased management costs. Contingencies cannot be estimated or predicted but they are probable to happen and can come in anytime during the company’s management. Liabilities can on the other hand be estimated and are probable to occur in company. Netflix has an interesting case of brand industry that can predict a blurred future due to rapid evolvement, rising competition and dependency form licensed streaming contents, representing main company’s assets.

  Netflix as a company is well organized when it comes to handling their members and managing the company, as a lot of financial activities goes on within the company and handling of the money greatly determines the success of the company. With a highly competitive field, the company manages to be very profitable and popular in providing the best entertainment videos and TV shows.

Netflix Specific Company issues

Companies are required by the law to perform audit periodically.  The reason why audit is necessary is to determine the accuracy with which a company presents its position in terms of materials and finances as a result of performing operations (Brigham, & Houston, 2013). It is also important to determine whether a company has followed the generally accepted accounting principles.  Netflix Inc. is one of the major companies in the US market that took advantage of the recently emerging technology in the 20th and 21st century. The first quarter ended on the march 31st and revenue increased by 28% to 5.77 B and the net come also increased from 344.1 M to 709.1M because the market became more favourable (more people had to subscribe because of the lockdown in almost every major city in the world). Though success was partially attributed to decrease in the marketing requirement.

The revenue for the last five years was $ 20 million, $ 15 million, $ 11 million and $ 8 million for the 201, 2018, 2017, 2016 and 2015 respectively. The net income increases as well as the years progressed and so was the amount of taxes being paid. This company does not sell products or services through other entities, the inventory and account receivables has always been zero (furthermore, one has to subscribe first before accessing the services online).

In the year 2015, the company ended up with 1.8 billion in cash and over the next few years, the cash at hand has balloon to now $ 5 billion which means that the company has chosen to hold unto cash instead of investing in short term investments (Warren, Reeve & Duchac, 2011). There has been a steady growth rate of the company`s equipment and assets at 30% growth rate.

 

 

 

 

 

Reference

Bell, R. M., & Koren, Y. (2017). Lessons from the Netflix prize challenge. Acm Sigkdd Explorations Newsletter, 9(2), 75-79.

Amin, A., Hasan, R., & Malik, M. (2019). Social media information and analyst forecasts. Managerial Finance.

Dash, A., Mukherjee, A., & Ghosh, S. (2019, April). A network-centric framework for auditing recommendation systems. In IEEE INFOCOM 2019-IEEE Conference on Computer Communications (pp. 1990-1998). IEEE

Duangjan, A. (2019). The Empirical Study of CAPM on Amazon, Facebook, Apple, Netflix, and Adobe. Facebook, Apple, Netflix, and Adobe (January 23, 2019).

https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm

Robinson, T. R. (2012). International financial statement analysis. Hoboken, N.J: John Wiley & Sons.

Brigham, E. F., & Houston, J. F. (2013). Fundamentals of financial management. Mason, Ohio: South-Western Cengage Learning.

Warren, C. S., Reeve, J. M., & Duchac, J. (2011). Financial and managerial accounting. Mason, Ohio: South-Western Cengage Learning.