Respond to two of your fellow students’ or instructor posts in a substantive manner. 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 in your writing when responding.
Minimum of 200 words each
Jonathan’s Post: Hello classmates!
GAAP and IFRS Comparison
In the event that Walmart used the International Financial reporting Standards (IFRS), there would be a few key differences observed in their financial reporting, as well as some similarities. Initially, it would be observed that the same key financial statements are provided for both sets of accounting standards – a balance sheet, an income statement, a statement of cash flows, and a statement of stockholders’ equity (Porter & Norton, 2018). It would be noted that there would be a significant increase in disclosures in the statements provided by Walmart should they use IFRS due to the reduction in detailed guidance. There would also be a sequencing difference on some reports depending on the standard used.
Another key similarity in the statements would be the measurement of income, due to the joint revenue recognition standard issues in 2014 by both the IASB and the FASB. However, there would be a measurable difference in the inventory line item – the U.S. GAAP keeps a standard on the value of inventory, whereas under IFRS inventory being valued higher or lower can be adjusted in later periods and offered as a disclosure, allowing for more volatility in inventory value than under the U.S. GAAP (Porter & Norton, 2018). This same concept is also applicable to assets under IFRS, allowing revaluing of assets if supporting evidence can be provided.
Pros and Cons
Outside of the benefits of being able to utilize information to adjust values of assets up or down for future periods, additional pros for Walmart in adopting IFRS for financial reporting would be the ability to list on foreign stock exchanges, gain more interest and press in foreign countries, navigate partnerships in foreign countries more easily, and fall in line more with the rest of the global economy. On the other hand, Walmart would not be able to list on the NYSE as a domestic company, which would be an extreme con, and for a company the size of Walmart, it would require a significant amount of retraining and standard re-setting, as well as a significant amount of effort with the U.S. government to understand a path forward (Walton, 2011).
Legal & Ethical Challenges
One of the points that has been brought up in past courses with references to Walmart possibly expanding into Egypt has been the lack of success in the region by itself and other similar companies. While using the IFRS would more easily allow Walmart to compete on foreign exchanges, it would create difficulty as a U.S. based company. It may create ethical issues due to having mostly operated in a stricter environment using U.S. GAAP. Walmart would potentially have the ability to re-evaluate assets, inventory, etc. for its international segments of its financial statements and opt for more disclosures
versus hard data on their documents. Legally, I do not believe this would create any issues in the expansion country, however there would be legal challenges at home in the U.S. due to being a domestic company using IFRS.
One final thought – switching from not having the ability to revalue assets such as inventory and then all of a sudden being able to do so would create a potential for ethical dilemma should Walmart believe they took a financial hit for assets that they should not have, or that they find new evidence supporting a raising of inventory or asset value that was previously lowered (Malinovskaya, 2013).
N V Malinovskaya. (2013). Regulatory issues of the accounting reporting in the transition to IFRS. RUDN Journal of Economics, 3, 111–124. Retrieved from https://library.uagc.edu/index.aspxLinks to an external site. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site. Walton, P. J. (2011). An executive guide to IFRS. [electronic resource] : content, costs and benefits to business. Wiley. Retrieved from https://library.uagc.edu/index.aspxLinks to an external site.
In comparing the differences if, Walmart were to use the International Financial Reporting (IFRS) rather than the Generally Accepted Accounting Principle, you can formulate a convincing argument for the use of IFRS. Walmart has a substantial presence in the United States and a growing presence globally. If Walmart were to use IFRS across all their location it would be easier maintaining financial statement and presenting, clear financial performance due to using one standard. As the two most common financial statements companies use being, IFRS and GAAP, provide different benefits or disadvantages.
As a company using GAAP, it is ruling base and include more detailed standards with less disclosure. On the other side of a company using IFRS it is principle based and fewer less detailed standard with more requirement of disclosures. Benefits of Walmart using IFRS would be the ability to be flexible with their statement of cash flow; having cash receipts classified as either operating or investing activities, as where GAAP they are always classified as operating activities. A disadvantage of Walmart using IFRS would be that the company would have to present balance sheets with classifications for current and long-term liabilities. This would force Walmart to be more transparent in the reporting of financial standing.
In New Zealand, Walmart using IFRS, convergence could present zero legal challenges as New Zealand already requires IFRS accounting for companies. If Walmart were to keep the use of GAAP standards, it could face many legal and ethical challenges due to the requirements and standards IFRS puts on its company. Walmart would have to be more transparent and would face more accountability throughout operations in the new location.
Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site.
Walmart 2022 Annual Statement. Retrieved from https://stock.walmart.com/financials/annual-reports/default.aspxLinks to an external site.
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