Response to Classmates Discussions

Week 5 - Discussion Forum 1

Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.

There two of my classmate’s discussion that need responded to. Marlon Fletcher and Lisa Schreiner

Marlon Fletcher

If Walmart financial statements were to use International Financial Reporting Standards (IFRS) rather than Generally Accepted Accounting Principles (GAAP). The IFRS are a set of international accounting standards which state how particular types of transactions and other events should be reported in financial statements. IFRS was established in order to have a common accounting language, so business and accounts can be understood from company to company and country to country. GAAP addresses such things as revenue recognition, balance sheet, item classification, and outstanding share measurements. GAAP regulations require that non-GAAP measures are identified in financial statements and other public disclosures, such as press releases. The primary difference between the two systems is that GAAP is rules-based and IFRS is principles-based. Most notable specific difference between GAAP and IFRS involves their treatment of inventory.

IFRS guidelines provide much less overall detail than GAAP. IFRS leaves more room for interpretation and may often require lengthy disclosures on financial statements. The consistent and intuitive principles of IFRS are more logically sound and may possibly better represent the economics of business transactions. IFRS rules ban the use of last-in, first-out (LIFO) inventory accounting methods. GAAP rules allow for LIFO. Both systems allow for the first-in, first-out method (FIFO) and the weighted average-cost method. GAAP does not allow for inventory reversals, while IFRS permits them under certain conditions. Walmart uses the last-in, first-out (LIFO) method for substantially all of the Walmart U.S. segment's inventories while the Walmart International segment is valued primarily by the retail inventory method of accounting, using the first-in, first-out (FIFO) method. The main problem overall is that there is no one set accounting method that has been universally adopted.

If Walmart was to venture into India by being more principles-based, IFRS is set for international accounting arguably, represents and captures the economics of a transaction better than GAAP. IFRS can give companies far too much freedom and do not prescribe transparency. Companies do not have to follow specific rules that have been set out, their reporting may provide an inaccurate picture of its financial health. GAAP complex rules can cause unnecessary complications in the preparation of financial statements. And having strict rules means that accountants may try to make their companies more profitable than they actually are because of the responsibility to their shareholders.

 

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com

Lisa Schreiner

Walmart values US segment inventories based on the LIFO method. LIFO is not permitted under IFRS (Harris et al., 2014). Revaluing the inventory to FIFO will increase the balance of inventory held for sale and decrease cost of goods sold. This will increase the profit for Walmart in the IFRS Income Statement, Retained Earnings, and the current asset value creating a higher current ratio. In turn, the quick ratio calculation will decrease since we remove inventory from current assets for this analysis.

IFRS allows for PPE revaluations to occur if the fair value can be measured reliably (Harris et al., 2014). GAAP requires PPE be recorded at cost less accumulated depreciation. Under the revaluation process with IFRS, PPE values can increase or decrease, reflecting fluctuations in long term assets values on the balance sheet. Additional depreciation expense due to the revaluation is booked to Other Comprehensive Income. If Walmart revalued its PPE, this would affect the asset turnover ratio, average age, or average life. Depending on the outcome of the revaluation, obtaining investors and financing would be easier with higher values or more difficult to secure with lower values.

GAAP allows for non-cash activities to be presented in the Financial Statements or the notes, whereas IFRS requires they only be presented in the notes (Porter & Norton, 2018). According to Walmart (2020), “For fiscal 2020, operating, selling, general and administrative ("operating") expenses as a percentage of net sales decreased 8 basis points, when compared to the previous fiscal year due to our focus on expense management combined with our growth in

comparable store sales. These improvements were partially offset by $0.9 billion in business restructuring charges consisting primarily of non-cash impairment charges for certain trade names, acquired developed technology, and other business restructuring charges due to strategic decisions that resulted in the write down of certain assets in the Walmart U.S. and Walmart International segments” (p. 32). Although this is a non-cash transaction, there is value associated with the transaction. If Walmart presented Financial Statements in the IFRS version, this expense would be disallowed increasing profit, retained earnings, and tax expense. The debt to equity ratio would increase but noting these impairments in the statements would influence questions of risk from investors and financing prospects.

New Zealand is open to new business expansion and rated number one as the easiest country to do business in (Worldbank, 2020). I do not see any legal or ethical challenges to opening a Walmart in New Zealand.

 

References

Harris , P., Jermakowicz, E. K., & Epstein, B. J. (2014, January). Converting financial statements from U.S. GAAP to IFRS: A comprehensive illustration. The CPA Journal, 20–29. https://www.cpajournal.com/ (Links to an external site.)

Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). https://www.cengage.com (Links to an external site.)

Walmart. (2020). Annual Report. https://www.corporatereport.com/walmart/2020/ar/ (Links to an external site.)

Worldbank. (2020). New Zealand Ease of Doing Business. https://data.worldbank.org/indicator/IC.BUS.EASE.XQ?locations=NZ&view=chart