Nanjing DIY Comes to America
In 2004, William Wang established Nanjing DIY as a chain of retail home improvement stores with its first outlet in Nanjing, China. The company added stores in Shanghai and Beijing during its first year in business, but now faces the threat of competition with the arrival of Home Depot in China 2005. Wang wants to expand rapidly to other Chinese cities but lacks the required capital to build additional stores. Wang, Chief Executive Officer and sole shareholder of Nanjing DIY, has decided to raise the additional capital by filing for an initial public offering in the U.S. But to complete the SEC filing, Nanjing DIY's financial statements must be restated to U.S. GAAP.
The purpose of the case is to evaluate the impact of restating the company's financial statements to U.S. GAAP using information about the accounting methods that have been used by the private Chinese company. The student is required to adjust the balance sheet and income statement and then compare the financial performance of the company under the reported accounting methods with those used for the purposes of the U.S. GAAP-based financial statements. The case has been used in credit training programs for a large U.S. financial institution to make students aware of the impact of accounting methods on a company's financial statements.