3. Change in Accounting Policy

Walgreens historically accounted for its investment and proportionate share of earnings in Alliance Boots utilizing a three-month reporting lag. Concurrent with the completion of the Second Step Transaction, the Company eliminated the three-month reporting lag. The Company determined that the elimination of the three-month reporting lag was preferable because having Alliance Boots and its subsidiaries have the same period-end reporting date improves overall financial reporting as business performance is reflected in the Company’s consolidated financial statements on a more timely basis.

In accordance with ASC Topic 810, Consolidation, a change to eliminate a previously existing reporting lag is considered a change in accounting principle in accordance with ASC Topic 250, Accounting Changes and Error Corrections. Changes in accounting principles are to be reported through retrospective application of the new principle to all prior financial statement periods presented. Accordingly, the consolidated financial statements have been recast to reflect the period specific effects of eliminating the three-month reporting lag. The acquisition of the initial 45% interest was reflected in the Company’s August 31, 2012 balance sheet. The Company’s equity earnings and income statement for the year ended August 31, 2012 were not recasted as the impact was not material.

The elimination of the three-month reporting lag for the equity investment in Alliance Boots resulted in the adjustments as of and for the periods indicated below (in millions, except per share amounts). The impact of the change in accounting policy on the fiscal 2015 financial statements is not material.

	Year Ended August 31, 2014									Year Ended August 31, 2013
	As Reported			Adjustments			After Change in Accounting Principle			As Reported			Adjustments			After Change in Accounting Principle

Consolidated Statements of Earnings
Equity earnings in Alliance Boots	$	617		$	-		$	617		$	344		$	152		$	496
Operating Income		4,194			-			4,194			3,940			152			4,092
Earnings Before Income Tax Provision		3,557			-			3,557			3,895			152			4,047
Income tax provision		1,526			-			1,526			1,445			54			1,499
Net Earnings		2,031			-			2,031			2,450			98			2,548
Net Earnings Attributable to Walgreens Boots Alliance, Inc.		1,932			-			1,932			2,450			98			2,548
Net earnings per common share attributable to Walgreens Boots Alliance, Inc. – basic		2.03			-			2.03			2.59			0.10			2.69
Net earnings per common share attributable to Walgreens Boots Alliance, Inc. – diluted		2.00			-			2.00			2.56			0.11			2.67

Consolidated Statements of Comprehensive Income
Net Earnings	$	2,031		$	-		$	2,031		$	2,450		$	98		$	2,548
Share of other comprehensive income (loss) of Alliance Boots		(41	)		23			(18	)		(59	)		(36	)		(95	)
Cumulative translation adjustments		286			(71	)		215			(103	)		42			(61	)
Total Other Comprehensive Income		276			(48	)		228			(166	)		6			(160	)
Total Comprehensive Income		2,307			(48	)		2,259			2,284			104			2,388
Comprehensive Income Attributable to Walgreens Boots Alliance, Inc.	$	2,208		$	(48	)	$	2,160		$	2,284		$	104		$	2,388

	As of August 31, 2014
	As Reported⁽¹⁾			Adjustments			After Change in Accounting Principle
Consolidated Balance Sheet
Non-Current Assets:
Equity investment in Alliance Boots	$	7,248		$	88		$	7,336
Total Non-Current Assets		24,920			88			25,008
Total Assets		37,162			88			37,250
Non-Current Liabilities:
Deferred income taxes		1,048			32			1,080
Total Non-Current Liabilities		7,706			32			7,738
Equity:
Retained earnings		22,229			98			22,327
Accumulated other comprehensive income		178			(42	)		136
Total Walgreens Boots Alliance, Inc. Shareholders’ Equity		20,457			56			20,513
Total Equity		20,561			56			20,617
Total Liabilities and Equity	$	37,162		$	88		$	37,250

	Year Ended August 31, 2013
	As Reported			Adjustments			After Change in Accounting Principle
Consolidated Statement of Cash Flows
Cash Flows from Operating Activities:
Net earnings	$	2,450		$	98		$	2,548
Deferred income taxes		148			54			202
Equity earnings in Alliance Boots		(344	)		(152	)		(496	)

⁽¹⁾

Due to the adoption of Accounting Standards Update 2015-03, Interest – Imputation of Interest, all reported periods include debt issuance costs as a contra-liability. This impacted the August 31, 2014 Consolidated Balance Sheet by reducing non-current assets and non-current liabilities by $20 million.

The cumulative effect of eliminating the three-month reporting lag was recorded as an after-tax increase to retained earnings of $98 million as of September 1, 2013, the first day of the Company’s 2014 fiscal year.