Lowe's Companies Inc.: Restatement of Financial Statements

Essay by buster507College, UndergraduateA, October 2007

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Lowe’s Companies Inc. is a home improvement retailer offering home improvement products and services. With over 1,200 stores in 49 states, Lowe’s is the second largest home improvement retailer followed by Home Depot. Lowe’s was founded in 1946 in North Carolina. In its early years, Lowe’s was just a small hardware store offering a wide variety of building materials, appliances and hardware. Through the years, sales grew and Lowes began to expand. Currently, Lowe's offers thousands of products to customers to build and enhance their home.

In 2006, Lowe’s had to issue a restatement of their 2005 annual report. In February of 2006, the management of Lowe’s decided to change their method of accounting for recognizing discounts on merchandise payments received early. Prior to this change, Lowe’s recognized these early payment discounts by reducing the cost of sales when the product was purchased. Now, management has decided to recognize the discounts as a reduction in inventory, then as a reduction of cost of sales when the inventory is sold.

By switching to this accounting method, Lowe’s has realized a reduction in their total assets, retained earnings, shareholder’s equity, cost of goods sold, gross margin, along with other accounts. Since realizing these differences, Lowe’s decided to go back to their prior year’s financial statements and restate them while modifying them in respect to their new accounting method. Another reason that Lowe’s has issued this restatement is to adjust the common stock amounts. In May of 2006, the board of directors approved a 2 for 1 stock split. To account for this split, Lowe’s had gone back to prior years statements and made adjustments to in their common share amounts.

Recently, the Emerging Issues Task Force of FASB has released Issue number 02-16, Accounting by a Customer for Certain Cash Consideration...