IFRS and GAAP Convergence
Briefly describe Walmart
The company establishment was in 1962 by Sam Walton. The company has grown through mergers and acquisitions to become the largest retail outlet in the globe. The main business of the company is corporate retail. The retailer offers a variety of products to its customers at a lower price compared to its competition. According to Fortune 500 ratings, the corporation ranks third among the largest corporations in the globe. The selling point of the company is by ensuring that the customer can find any product in the stores at a competitive price. The company sells its products at a lower price to attract and retain customer. The company helps producers to enable them produce quality products. The company assists through funding, technical advice and promise of a ready market. The producer in turn markets their goods to the company at a discount. The company also has a large employee base to ensure that the customer is satisfied with the products offered. The management trains the staff regularly to ensure professionalism in the workplace. Walmart has outlets in 15 nations using 55 different names. The difference in the currency and accounting standards used in the 15 nations poses a problem to the accounting department.
2. Given the SEC's current position on requiring U.S. publically traded companies to report using the IFRS method of accounting, discuss whether or not it would be beneficial or punitive to the company when adopting IFRS. Explain your rationale.
The home company is located in the United States, which adopts U.S. GAAP accounting standards. The other branches are located in foreign countries that adopt other accounting standards. Adapting IFRS will enable the company to enjoy more benefits than the current accounting standards. The investors need to know how the stock in home and foreign market is performing. Many companies in the foreign market use IFRS thus unification of the accounting standards will ease the burden on the finance department. Adapting a uniform accounting standard will provide comparability. Comparability enhances transparency within the organization, which attracts investors. Walmart will be able to attract and retain its investors through adaptation of IFRS.
Walmart will save on time and cost required to prepare financial statements. Currently Walmart has to convert all the financial statements prepared using other financial standards into U.S. GAAP. Some of the elements of the financial statement depend on the type of accounting standard used in a country. The use of IFRS ensures that the accounts of all the branches are uniform. The use of a uniform accounting standard ensures that the investor can peruse strategies such as global diversification. The funds saved from unification of accounting standards channeled into other activities will increase the revenue generated (Fosbre, Kraft & Fosbre, 2009).
Walmart faces the challenge of reporting using multiple standards. United States should adopt IFRS to ensure that the company reports using one standard. Using multiple reporting standards increases the auditing and accounting expenses for the organization. Multiple reporting standards increase the probability of errors occurring in the financial reports, which affects investor confidence. Adapting to IFRS standards will also enable the company to expand its operations into other emerging markets. The growth of the company affects the accounting standards used in its branches. Using a uniform method of reporting its finances will ensure that the company has adequate resources to sustain expansion into new markets.
Walmart will also benefit from adapting IFRS due to the simplicity of financial records reported using the standard. A simple report is understandable and enables the investors to make informed decisions when investing in the company. The company needs to attract investors to fund its expansion process. The use of simple financial reports will make the investors to make quick decisions. Walmart should adopt IFRS, as it is a clear and productive financial standard adopted by many nations. Adopting IFRS enables the U.S. based company to compete adequately with other players in the market.
3. Determine the differences that would occur (or have occurred) by using IFRS for the income statement, balance sheet, and statement of cash flows, and how these differences may attract investors to the company.
If Walmart adopted IFRS, some significant differences with U.S. GAAP will emerge. According to IFRS, comparative information on all the financial reports should be reported for all transactions. This differs from U.S. GAAP where although comparative information provided, a single balance sheet can be represented depending on the circumstances. There will be a change in the balance sheet layout as required in the regulations....
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