Changing accounting methods could cause issues in the area or inventory reporting for Walmart
Rebecca Cline
Walmart’s financial statements would be significantly different if they chose to use International Financial Reporting Standards (IFRS) rather than Generally Accepted Accounting Principles (GAAP). One way that the financial statements would be different is with inventory. GAAP requires all inventory be accounted for and expensed in the same period. IFRS has two standards, international accounting standards (IAS). These standards state that inventory should be reported at the lower of cost and net realizable value. IAF states that acceptable practices for measuring inventory are First-in, First-out (FIFO) and weighted average. Due to the fact that Walmart currently reports with GAAP, they “values inventories at the lower of cost or market as determined primarily by the retail inventory method of accounting, using the last-in, first-out (LIFO) method for substantially all of the Walmart U.S. segment’s inventories” (Walmart 2016 Annual Report, 2016, pg. 40-41).
Changing accounting methods could cause issues in the area or inventory reporting for Walmart. Due to the fact that Walmart is currently valuing inventory at the lower cost, they would have to change their method of recording inventory. This would cause at least one month where inventory numbers are skewed, but going forward, the inventory would even out, but would not be comparable to the historic numbers. If Walmart were to change to IFRS reporting, they would be able to expand internationally easier and would be able to attract international investors (Gavin, 2019).
There are also significantly less regulations when dealing with IFRS in comparison to GAAP. The reporting is significantly less and less detailed (Porter & Norton, 2018). GAAP is known to be rules-based while IFRS is knows to be principle based (Porter & Norton, 2018).
Peru, the country I selected for the Walmart Case Study, currently requires sure of IFRS. “Both the Peruvian securities regulator (Superintendencia del Mercado de Valores, SMV) and the Peruvian Congress have made public commitments in support of IFRS as the global accounting standards” (Peru, 2012). Due to the fact that Peru already requires IFRS, I do not think there would be any legal or ethical challenges.
Resources:
Gavin, M. (2019, August 30). GAAP vs. IFRS: WHAT ARE THE KEY DIFFERENCES AND WHICH SHOULD YOU USE? Business Insights. https://online.hbs.edu/blog/post/gaap-vs-ifrs.Peru. IAS plus. (2012, January 9). https://www.iasplus.com/en/jurisdictions/americas/peru.Pologeorgis, N. A. (2019, June 27). Gauging the Impact of Combining GAAP and IFRS. Investopedia. https://www.investopedia.com/articles/economics/12/impact-gaap-ifrs-convergence.asp.Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comWalmart 2016 Annual Report. Rep. N.p., 30 Mar. 2016. Web. 23 Jun. 2021. <http://s2.q4cdn.com/056532643/files/doc_financials/2016/annual/2016-Annual-Report-PDF.pdf
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