Key Relationships Between Bank of America and Wells Fargo free essay sample

While both banks use organizational control techniques, their financial statements clearly indicate that each bank wishes to discuss a specific type of organizational control used by their company. To better understand the similarities and differences in how Bank of America and Wells Fargo choose to operate; an in-depth look at three specific topics is necessary. A four part review of the inter-relationships of the data provided in the statements from both banks will provide a better understanding of how they compare. The first inter-relationship of data that can be viewed from these two banks is their statement of cash flows. While Bank of America and Wells Fargo’s statements of cash flows are not identical, the statements have three similarities. The similarities are operating activities, investing activities, and financing activities (Bank of America, 2007) (Wells Fargo Company, 2007). These three activities have similar subdivisions, however; the amounts that correlate with those subdivisions differ greatly between the banks. We will write a custom essay sample on Key Relationships Between Bank of America and Wells Fargo or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The second inter-relationship of data that can be viewed from these two banks is their statement of income. While Bank of America and Wells Fargos statements of income are not identical, they are similar. These similarities are interest income, interest expense, net interest income, non-interest income, and non-interest expense (Bank of America, 2007) (Wells Fargo Company, 2007). Once again these activities have similar subdivisions with strong variations in the amounts that correlate within the subdivisions. The third inter-relationship of data that can be viewed from these two banks is the statement of changes and shareholders equity. A common factor among both statements is the release of the balance as of December 31 year after year (Bank of America, 2007) (Wells Fargo Company, 2007). The fourth inter-relationship of data that can be viewed from these two banks also has strong ties to the basic accounting equation. The key components of the basic accounting equation that are illustrated in Bank of America’s and Wells Fargos financial statements are found in the balance sheet. The balance sheets are broken into the three main sections of assets, liabilities, and stockholders equity. The subdivisions under each of these sections are as similar as they are different. Some of the similarities are such things as cash, goodwill and other assets, while the dissimilarities can range depending on the type of business that the bank chooses to do (Bank of America, 2007) (Wells Fargo Company, 2007). In keeping with the basic accounting equation, the total shareholder equity plus total liabilities equals total assets. The next key financial relationships between Bank of America and Wells Fargo are each companys control techniques described in their financial statements. To understand what is described in their financial statements one must first understand what organizational control techniques are. Control techniques empower managers with the amount and type of information needed to monitor and measure performance (Albrecht, S. , Stice, J. , Stice, E. , and Swain, M. , 2005). Bank of America’s financial statements discuss that after their organization has strategies in place to reach its goals, funding is allocated to support the necessary resources and labor. As money is spent statements are updated to reflect the accounts affected by the spending. Managers use these financial statements, such as an income statement or balance sheet, to check the progress of plans and programs. Management uses the information provided by financial statements to monitor financial resources and activities. The income statement shows the results of the organizations operations over a specific period, such as revenues, expenses, and profit or loss. The balance sheet shows what the organization is worth (assets) at a particular point and the extent to which those assets were financed through debt (liabilities) or owners investment (equity) (Bank of America, 2007). Wells Fargos financial statements discusses financial audits, or formal investigations, that are regularly performed to ensure that the organization’s financial management procedures follow generally accepted procedures, policies, laws, and ethical guidelines. Audits may be conducted internally or externally. Wells Fargo goes into even more detail and discusses their financial ratio analysis that examines the relationship between specific figures on the financial statements and helps explain the significance of those figures. Liquidity ratios measure an organizations ability to generate cash. Profitability ratios measure an organizations ability to generate profits. Debt ratios measure an organizations ability to pay its debts. Activity ratios measure an organizations efficiency in operations and use of assets. In addition to this, financial responsibility centers require managers to account for a units progress toward financial goals within the scope of their influences. A managers goals and responsibilities may focus on unit profits, costs, revenues, or investments (Wells Fargo Company, 2007). In conclusion, Bank of America and Wells Fargo are separate banks, however; both of these institutions share many similarities when reporting their financial statements. The inter-relationships of the data provided in the statements seem to exemplify the correlation of accounting practices between these two banks.