Wal-Mart Auditors are extremely reluctant to publish any projections of future financial performance for the companies they

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Wal-Mart Auditors are extremely reluctant to publish any projections of future financial performance for the companies they are auditing. Ernst & Young LLP obviously has made no such predictions in its audit of Wal-Mart’s 2006 financial performance (see the “Report of Independent Registered Public Accounting Firm” in Appendix A). However, the Management’s Discussion and Analysis of Results of Operations and Financial Condition, in the section titled “Forward-Looking Statements,” provides some important guidance about statements made by management regarding expectations about future financial performance at Wal-Mart. Elsewhere in the management discussion are insights useful in predicting future operating expenses, interest income, and income taxes. These discussions can be extremely important to investors who are trying to understand what Wal-Mart plans to do in in its 2007 fiscal year. Essentially, these investors need to put together their own pro-forma financial statements on Wal-Mart for use in planning, controlling, and evaluating their investment decisions in this company.

Consider the 2006 income statement below and use the information provided in Wal-Mart’s Management Discussion of “Forward-Looking Statements,” as well as any other comments in the management’s discussion that you might find useful, to prepare your own pro-forma 2007 income statement for Wal-Mart. Be sure to read and consider each item in the management discussion relating to Wal-Mart’s income statement provided in the annual report in Appendix A. You may also want to consider the 2004 and 2005 revenue and cost trends from the income statement published in this same annual report. For each line item

(i.e., for each revenue and cost category), briefly defend the budget number you chose to use.

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Accounting Concepts And Applications

ISBN: 9780324376159

10th Edition

Authors: W. Steve Albrecht, James D. Stice, Earl K. Stice, Monte R. Swain

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