Question

Could you please explain the one accounting issue faced by the Facebook company, and how the company resolved the issue and evaluate the company’s financial statements using financial analysis techniques (such as trend, ratio, horizontal and/or vertical analysis).

Answer 1

ANS : Several techniques are commonly used as part of financial statement analysis. Three of the most important techniques include horizontal analysis, vertical analysis, and ratio analysis. Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years

Vertical Analysis

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.

This week, amid leaked documents and criticism from both politicians and billionaires, Facebook has faced new challenges across three familiar issue areas — anti-competitive acquisitions, content moderation, and privacy violations

Facebook's operations have also received coverage. The company's electricity usage,^[tax avoidance real-name user requirement policies, censorship policies, handling of user data, and its involvement in the United States PRISM surveillance program have been highlighted by the media and by critics. Facebook has come under scrutiny for 'ignoring' or shirking its responsibility for the content posted on its platform, including copyright and intellectual property infringement, hate speech, incitement of rape and terrorism, fake news, Facebook murder, crimes, and violent incidents live-streamed through its Facebook Live functionality.

The company and its employees have also been subject to litigation cases over the years, with its most prominent case concerning allegations that CEO Mark Zuckerberg broke an oral contract with Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra to build the then-named "HarvardConnection" social network in 2004, instead allegedly opting to steal the idea and code to launch Facebook months before HarvardConnection began.  The original lawsuit was eventually settled in 2009, with Facebook paying approximately $20 million in cash and 1.25 million shares. A new lawsuit in 2011 was dismissed. Some critics make predictions of Facebook's end based on the problems which they identify..

Regulatory Headaches

Facebook’s Libra project was supposed to represent its next big innovation in financial services. Instead, it became a flash point for long-simmering ire towards the company for privacy-related infractions, political advertising, content moderation issues, and even its spotty record on civil rights. In two separate hearings, one with Facebook executive David Marcus and the other with CEO Mark Zuckberberg, lawmakers vented their frustrations with the social media firm’s impact on society.

It’s uncertain what form Libra will take when, or if, it launches as initially planned in 2020. If it does launch, it’ll likely be a drastically scaled-down version of Facebook’s original vision of a global digital currency with a large network of partners; after being told by lawmakers they could bear liability for problems with Libra, several major partners, such as PayPal  (PYPL) - Get Report and Mastercard  (MA) - Get Report, withdrew their participation.

Beyond just Libra, however, regulators in the U.S. and elsewhere are keeping their eyes on Facebook. Facebook is one of several big tech companies facing an antitrust review by the DOJ, FTC and nearly all state attorneys general, likely focusing on its data practices, acquisitions, and product development. In Europe, it faces potentially even greater pressures, including scrutiny into hate speech, stiff potential penalties for GDPR violations, and a new antitrust probe by the European Commission. Next year, it will have to reassure investors that regulatory pressures won’t negatively impact its long-term prospects.

Regulatory Headaches

Facebook’s Libra project was supposed to represent its next big innovation in financial services. Instead, it became a flash point for long-simmering ire towards the company for privacy-related infractions, political advertising, content moderation issues, and even its spotty record on civil rights. In two separate hearings, one with Facebook executive David Marcus and the other with CEO Mark Zuckberberg, lawmakers vented their frustrations with the social media firm’s impact on society.

It’s uncertain what form Libra will take when, or if, it launches as initially planned in 2020. If it does launch, it’ll likely be a drastically scaled-down version of Facebook’s original vision of a global digital currency with a large network of partners; after being told by lawmakers they could bear liability for problems with Libra, several major partners, such as PayPal  (PYPL) - Get Report and Mastercard  (MA) - Get Report, withdrew their participation.

Beyond just Libra, however, regulators in the U.S. and elsewhere are keeping their eyes on Facebook. Facebook is one of several big tech companies facing an antitrust review by the DOJ, FTC and nearly all state attorneys general, likely focusing on its data practices, acquisitions, and product development. In Europe, it faces potentially even greater pressures, including scrutiny into hate speech, stiff potential penalties for GDPR violations, and a new antitrust probe by the European Commission. Next year, it will have to reassure investors that regulatory pressures won’t negatively impact its long-term prospects.