Running head: WELLS FARGO & COMPANY1
Current Company Research Project: Wells Fargo & Company
WELLS FARGO & COMPANY 2
Introduction
Businesses obtain guidance on moral and ethical issues through the business ethics of the
organization. A company’s successful organization ethics and social responsibilities are essential
to its success. Unfortunately, for a variety of purposes, some companies perform unethical or
even illegal behaviors. This paper analyzes the case of Wells Fargo & Company (Wells) and
compares to its competitor, JP Morgan Chase (Chase). Both Wells and Chase are financial
holding companies. They are comparable in size because they are both American multinational
institutions. Cross comparing the two companies in the same industry helps the audience to
make a better judgment. This paper will address the probability that Wells Fargo & Company
commits fraud. We analyze nonfinancial measures, compensation to stock ownership, Board of
Direct information, 10-K understandable information, compensation to executives, stock price,
and comparing to the information to Chase. The paper also provides conclusion and
recommendations.
Analytical Review
To conduct the analytical review of Wells Fargo & Company’s financial statements we
conducted:
Horizontal analysis (Refer to Exhibits 1.1 – 1.4)
1. A horizontal analysis of its balance sheet and income statement for the fiscal year
2012, 2013 and 2014. A close look at the change over these years show a consistent
increase or decreasing trend percentages in most cases except in the case of:
a. Net Loans – there was a decrease in net loans from 2012 to 2013 (-0.19%) but an
increase from 2013 to 2014 (5.11%).
WELLS FARGO & COMPANY 3
b. Receivables – there was a decrease in net receivables from 2012 to 2013 (-14.25%)
but an increase from 2013 to 2014 (21.11%).
c. Similar opposite direction changes were seen in the case of other intangible assets,
other assets, short-term borrowings, and other liabilities.
Such opposite direction change is not in stable companies hence our recommendation
would be to take a closer look at why there are these kinds of variances.
1. It would be due diligence on the part of the auditor to see why there has been a drastic
change in the income statement line item “Securities Gains (Losses).” There was a
reduction in securities losses from 2012-2013 but during 2014 securities gains were
2144%. There should be proper documentation to back such change.
2. Allowances for loan losses are showing a falling trend -14.99% versus -15.05% in 2013
versus 2014. However, it remains higher than its competitor Chase’s that was 12.78% in
2014.
3. The increase in accumulated other comprehensive income is significantly higher than
Chase’s, 153% versus 85.82%, hence a close look should be taken at Wells revenue
recognition policies.
Vertical Analysis (Refer to Exhibit 2.1 – 2.4)
1. In the vertical analysis of JP Morgan Chase’s balance sheet and income statement for the
fiscal year 2013 and 2014, these ratios did not display any unusual trends. All changes
were stable over the years compared.
2. When comparing Wells balance sheet ratios to its competitor Chase we see that Wells’
loans are considerably higher than the competitor. Chase’s, 52.33% versus 29.43%,
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hence proper independent confirmations should be obtained to confirm the existence and
amount of loan balances.
3. Wells’ percentage of net loans is considerably higher than Chase’s, 51.60% versus
28.88%. Receivables are one area to look at for the occurrence of fraud because
companies in an attempt to raise net income increase their revenues or sales without
collecting cash, which results in an increase in receivables. Also, this increase could be a
result of not writing off bad debts. It is also likely that the increase in receivables is a
result of better performance. However, the reasons for the increase should be
