Managing International Standards
Final Project
Wal-Mart Corporation
I.
Company Introduction
Wal-Mart Stores, Inc. was founded in 1945 and operates retail stores in various formats
worldwide. It operates retail stores, discount stores, supermarkets, supercenters,
warehouse clubs, apparel stores, Sam’s Clubs, and neighborhood markets, as well as
walmart.com and samsclub.com.
The company’s stores offer electronics and office; music, movies, and books; home,
furniture, and patio; apparel, shoes, and jewelry; baby and kids items; toys and video
games; sports, fitness and outdoors; auto and home improvement; photo; gift, crafts, and
party supplies; pharmacy, health, and beauty; and groceries and pets. They offer many
more detailed items within these categories that can be found on walmart.com.
Wal-Mart Stores, Inc. has one of the largest private distribution networks in the world. The
first thing people notice about their Regional Distribution Centers (DCs) is the size. Each of
the 42 Regional U.S. Distribution Centers is over 1 million square feet. The next thing people
notice is the constant movement. Many of their centers feature a Transportation Office,
some of which operate 24/7 to keep fleet of 6,500 tractors and 55,000 trailers rolling
around the clock and across the country. Inside each center, more than 12 miles of
conveyor belts move over 5.5 billion cases of merchandise ("Walmart.com: Save Money.
Live Better.")
II.
Balance Sheet
On the balance sheet under U.S. GAAP, we usually list current assets first, and then go down
the asset side in the order of liquidity. Unlike GAAP, IFRS' current assets are usually listed in
the reverse order of liquidity. For instance, under IFRS, cash is listed last.
Receivables are reported fairly similarly under U.S. GAAP compared to IFRS. However, there
are no standards under IFRS for pledging, assigning, or factoring receivables. This gives the
financial statement issuer a great deal of leeway in how this information is presented.
For inventory purposes, the average method and FIFO method are both allowed for U.S.
GAAP. Both methods are required under IFRS. However, LIFO, which is used extensively in
the United States, is not allowed under IFRS. This is a significant difference between the two
methods. The lower of cost or market rules differ between U.S. GAAP and IFRS. Inventory
can be written down under U.S. GAAP to market value, but not revalued upward. Under
IFRS, inventory can be written down, but also written up (but only to cost).
For purposes of property, plant, and equipment, interest expense is capitalized under both
methods. Nonmonetary asset exchanges are accounted for in a similar fashion as well. The
same methods of depreciation are allowed for both. Impairment rules are different.
Property, plant, and equipment can be written up under the "Revaluation" to fair value
method under IFRS. The U.S. uses historical cost, which does not allow write-ups.
For IFRS, noncurrent assets are typically listed first, and often at fair value. The term net
assets which are total assets - total liabilities, may be placed on the financials as well.
Under both methods, the treatment for intangibles and goodwill on a purchase between
two parties are similar in nature. Intangibles assets are separated from goodwill. In
addition, in-process research and development are recorded as a separate asset.
For liabilities, both U.S. GAAP and IFRS require that they be classified as current and
noncurrent. The definitions of liabilities and debts are closely related as well under both
methods.
IFRS requires a detailed disclosure of the nature of each accrued expense and the nature of
the changes to those accrued expenses. Under GAAP, accrued expenses are not required to
be individually disclosed in the financial statements – increasing the transparency of
financial statements.
Contingencies under IFRS require a "midpoint" for recognizing a loss, where under U.S.
GAAP, the minimum amount of the possible range of outcomes is used.
Stockholder’s Equity differs because convertible debt is different. Under U.S. GAAP, all
proceeds of convertible debt are recorded as a long-term debt. Under IFRS, convertible debt
is classified as partially debt and equity. The conversion option is recorded as an equity
amount.
Under IFRS the non-controlling interest is reported in the Equity section of the consolidated
balance sheet. Under US GAAP, non-controlling interest can be reported in the liabilities
section, the equity section, or the mezzanine section of the balance sheet. The Mezzanine
section is located between liabilities and equity. (Weil, Roman L., Katherine Schipper, and
Jennifer Francis.)
III.
Income Statement
Revenue recognition under both U.S. GAAP and IFRS is tied to the completion of the
earnings process and the realization of assets from such completion. Under both GAAP and
IFRS, revenue is not recognized until it is both realized (or realizable) and earned.
Ultimately, both IFRS and GAAP base revenue recognition on the transfer of risks and both
attempt to determine when the earnings process is complete.
Under GAAP, users are required to present expenses based on function (ex: cost of sales,
administrative). Entities using IFRS may present expenses based on either function or
nature (ex: salaries, depreciation). However, if function is selected, certain disclosures
about the nature of expenses must be included in the notes.
There is a broader definition of discontinued operations under GAAP than under IFRS that
can be either a reportable business or geographical segment, or reporting unit, subsidy, or
asset group; while under IFRS discontinued operations can be a reportable business or
geographical segment or major component. (Weil, Roman L., Katherine Schipper, and
Jennifer Francis.)
IV.
The future of IFRS
When asked about a transition from GAAP to IFRS, Wal-Mart’s response was as follows,
“For a global company like ours, [the benefits of IFRS adoption] include standardized
reporting systems, efficiency in accounting training, and efficiency of financial statement
review. However, these benefits are limited to the extent that various government and
regulatory bodies in countries we operate in adopt IFRS as issued by the IASB for all of their
reporting requirements. Failure to achieve this consistency in reporting standards minimizes
or eliminates any benefits. At the present time, we do not see any other significant benefits
to offset the expected costs in adopting IFRS ("The Accounting Onion.")
V.
CFO Preparations
What the CFO needs to understand is that Wal-Mart will 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 help the investors to make quick decisions. Wal-Mart should
adopt IFRS, as it is a clear and productive financial standard adopted by many nations.
Adopting IFRS enables the US based company to compete adequately with other players in
the market.
Wal-Mart faces the challenge of reporting using multiple standards. What the CFO needs to
realize is that they will save on time and cost required to prepare financial statements if
they make the switch. IFRS gives accurate information thus Wal-Mart management can
make correct decisions. The titles of the financial statements allow investors who lack
training in the field of accounting to understand the purpose of the statement making the
company more profitable by attracting more investors.
The CFO should look at their own financial and accounting department and determine what
level of knowledge and skill they have internally – and what level of training they need to
effectively position their company in regard to convergence. After they get through the
training needs analysis, another consideration management really needs to look at is their
management information systems (Dohrer, Bob). Current systems may not be set up to
deliver the data that will be necessary to support adopting IFRS. At a minimum, systems
might have to be modified to deliver the right data. In some cases, systems may need to be
upgraded or replaced.
After they get through the training, the analysis and determine the impact on management
information systems, the last piece is determining what the impact on the business is going
to be. Financial statement outputs serve as performance metrics used by stock analysts and
lenders, and those metrics also can affect things like incentive compensation, employee
benefit plans, and loan agreements. For example, if they have key performers with
incentives tied to operating income numbers, they won’t want them to suffer simply due to
an accounting change (Dohrer, Bob). Businesses need to understand what financial
statement output changes are likely, and then work with all affected parties to minimize the
impact of those changes.
Appendix
Consolidated Balance Sheets
As of January 31,
(Amounts in millions except per share data)
2012
2011
$ 6,550
$ 7,395
5,937
5,089
40,714
36,437
1,685
2,960
89
131
54,975
52,012
Property and equipment
155,002
148,584
Less accumulated depreciation
(45,399)
(43,486)
109,603
105,098
5,936
5,905
(3,215)
(3,125)
2,721
2,780
20,651
16,763
5,456
4,129
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other
Current assets of discontinued operations
Total current assets
Property and equipment:
Property and equipment, net
Property under capital lease:
Property under capital lease
Less accumulated amortization
Property under capital lease, net
Goodwill
Other assets and deferred charges
Total assets
$193,406
$180,782
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings
$ 4,047
$ 1,031
Accounts payable
36,608
33,676
Accrued liabilities
18,154
18,701
Accrued income taxes
1,164
157
Long-term debt due within one year
1,975
4,655
Obligations under capital leases due within one year
326
336
26
47
62,300
58,603
44,070
40,692
Long-term obligations under capital leases
3,009
3,150
Deferred income taxes and other
7,862
6,682
404
408
—
—
342
352
3,692
3,577
Retained earnings
68,691
63,967
Accumulated other comprehensive income (loss)
(1,410)
646
71,315
68,542
4,446
2,705
75,761
71,247
Current liabilities of discontinued operations
Total current liabilities
Long-term debt
Redeemable non-controlling interest
Commitments and contingencies
Equity:
Preferred stock ($0.10 par value; 100 shares authorized,
none issued)
Common stock ($0.10 par value; 11,000 shares authorized,
3,418 and 3,516 issued and outstanding at January 31, 2012
and 2011, respectively)
Capital in excess of par value
Total Walmart shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
$193,406
$180,782
Consolidated Statements of Income
Fiscal Years Ended January 31,
(Amounts in millions except per share data)
2012
2011
2010
Revenues:
Net sales
Membership and other income
$443,854 $418,952 $405,132
3,096
2,897
2,953
446,950
421,849
408,085
335,127
314,946
304,106
85,265
81,361
79,977
26,558
25,542
24,002
2,034
1,928
1,787
288
277
278
Interest income
(162)
(201)
(181)
Interest, net
2,160
2,004
1,884
24,398
23,538
22,118
Current
6,742
6,703
7,643
Deferred
1,202
876
(487)
7,944
7,579
7,156
16,454
15,959
14,962
(67)
1,034
(79)
16,387
16,993
14,883
(688)
(604)
(513)
Costs and expenses:
Cost of sales
Operating, selling, general & administrative expenses
Operating income
Interest:
Debt
Capital leases
Income from continuing operations before income taxes
Provision for income taxes:
Income from continuing operations
Income (loss) from discontinued operations, net of tax
Consolidated net income
Less consolidated net income attributable to
noncontrolling interest
Consolidated net income attributable to Wal-Mart $ 15,699 $ 16,389 $ 14,370
Basic net income per common share:
Basic income per common share from continuing
operations attributable to Walmart
$ 4.56
$ 4.20
$ 3.74
(0.02)
0.28
(0.02)
$ 4.54
$ 4.48
$ 3.72
$ 4.54
$ 4.18
$ 3.73
(0.02)
0.29
(0.02)
$ 4.52
$ 4.47
$ 3.71
Basic
3,460
3,656
3,866
Diluted
3,474
3,670
3,877
$ 1.46
$ 1.21
$ 1.09
Basic income (loss) per common share from discontinued
operations attributable to Walmart
Basic net income per common share
attributable to Walmart
Diluted net income per common share:
Diluted income per common share from continuing
operations attributable to Walmart
Diluted income (loss) per common share from discontinued
operations attributable to Walmart
Diluted net income per common share
attributable to Walmart
Weighted-average common shares outstanding:
Dividends declared per common share
References
Dohrer, Bob. "Preparing for IFRS." McGladrey & Pullen LLP, n.d. Web. 12 Feb. 2013.
<http://contractualcfo.com/documents/McGladrey.Pullen_Preparing.for.IFRS.whitepaper.
pdf>.
"The Accounting Onion." 'The Accounting Onion' N.p., n.d. Web. 12 Feb. 2013.
<http://accountingonion.typepad.com/theaccountingonion/2009/07/which-sec-roadmapcomments-matter-and-what-they-are-saying.html>.
"Walmart.com: Save Money. Live Better." Walmart.com: Save Money. Live Better. N.p., n.d.
Web. 12 Feb. 2013. <http://www.walmart.com/>.
Weil, Roman L., Katherine Schipper, and Jennifer Francis. Financial Accounting: An Introduction
to Concepts, Methods, and Uses. 14th ed. Mason, OH: South-Western Cengage Learning,
2014.