How effectively BACC001 accounting for business company applies the selected guiding principle in its most recent annual report
The chosen company is Walmart chain stores. The company, like other companies in the US, uses IFRS. According to Walmart, accounting standards that the firm uses are critical in understanding the company’s financial information and getting results that are accurate and reliable. GAAPs are commonly used across the world but, most recently, has started getting acceptance US. That said, Walmart, like many other firms that operate in the US, uses GAAPs with room for adjustments available as may be recorded by Financial Accounting Standards Board (FASB) (Bracker, Lin, & Pursley, 2018). Although there is an ongoing work to converge GAAP and IFRS, the process has been slow and hence the reason why most firms within the country use International Financial Reporting Standards. Despite IFRS gaining popularity, Walmart still applies GAAP guiding principles in recording assets and liabilities.
As outline by International Accounting Standards, Walmart is not immune to changes but uses GAAP principles in the preparation of its annual financial statements. GAAP measures take an authoritative approach to accounting and ensure there is minimal to no inconsistency in the financial statements that the firm submits to the US Securities and Exchange Commission (SEC) (Lu, 2019). Therefore, GAAPs are highly preferred because the principles used allow the investors to understand the underlying principles and cross-check the given figure with other firms that operate in the same market. GAAP, as accounting principles, are prescribed using highly specific rules and regulations and gives little room for interpretation.
The accounting principles that Walmart Uses Include:
Revenue Recognition
In recording revenues, GAAP is more specific as compared to IFRS. As a result, Walmart records revenue when goods or services are completed and not when they exchange or cross hands. Once the goods or services offered exchange hands, the transactions are recorded in the book of accounts (Lu, 2019). Unlike companies that look at revenues based on the value obtained from the goods and services, GAAP is more specific on when to recognize revenues. This is done to ensure there is consistency in the accounting standards used by different firms that operate in the same industry and make it easier to conduct company analysis of firms that operate within the same industry.
In the classification of liabilities, the company classified its liabilities into two major categories (current and non-current assets) depending on the duration the company has agreed to pay its debts. This is contrary to what some firms use to record their assets under one category without looking at the duration it takes before the assets and liabilities are repaid.
Accrual Principle
According to Walmart’s most recent financial records, the accrual principle that the firm uses puts a lot of emphasis on recording transactions in their time that they occur, regardless of the time period when the cash flows of the transaction are received. Based on the financial statements published last year, the firm recognizes the need to match revenues with expenses when the transactions take place in the firm rather than when actual payment of transaction is received (Mazouni, 2018). Again, I realized that the firm’s accountants are keen to use the prudent principle to ensure the firm does not overestimate expenses and underestimate earning of the firm. These steps are taken to ensure the firm record figures that are consistent and adhere to the GAAP guidelines on the treatment of receivable and expenses.
References
Bracker, K., Lin, F., & Pursley, J. (2018). Financial Statement Analysis Guided Tutorial (CH 2). Business Finance Essentials.
Lu, M. (2019). Evaluation of Financial Situation of Walmart Company.
Mazouni, M. (2018). The Effect of Global Investment Decisions and Financial Risk on Multinational Corporations: Walmart Corporation Case Study. Available at SSRN 3257136.