Part 13: Case-writing videos

1. Part 13: Case-writing videos Interpreting the required tasks: Evaluate financial info in the context of an agreement

2. Financial information in the context of an agreement financial information is almost always presented in the context of an agreement, whether it is the purchase/sale of a business, royalty arrangement, minority investment, labour negotiation, formation of a new business, loan agreement, etc. (i.e. there are always users of the financial information other than the preparers) generally, there are two types of financial information you are presented with: Forward-looking financial information – assumptions (finance or management decision-making) Historical financial information – accounting policies (performance measurement) - required task can be performed by an assurer or an advisor!

3. Financial information in the context of an agreement (part 1) (i) identify material issues with the information issue (ii) explain why the issue is material - what effect does the issue have users and use of the financial information? (iii) identify alternative treatments OR ALTERNATIVE INTERPRETATIONS for the issue - what are the acceptable accounting treatments or interpretations? - for an assumption, what is considered reasonable and fair? - link to case facts to support your argument (iv) recommend an alternative - assurer - which alternative achieves the fairest presentation? - advisor – which alternative best meets the needs of your client (while still being reasonable or within GAAP) (v) revise the financial information based on the recommendations - prepare an exhibit to demonstrate the quantitative impact of your recommendations

4. Financial information in the context of an agreement (part 2) (vi) If assurer - conclude as to whether the financial information is materially misstated - is the financial information suitable for its purpose? (vi) If advisor - conclude as to the impact of the financial information on the client's interest - what is the appropriate business decision? - how can the agreement be altered to benefit your client’s interests?

5. What does the UFE really test? the UFE tests whether you understand that Canadian GAAP (and especially IFRS) are principle-based accounting systems! therefore, for a given accounting issue, Canadian GAAP/IFRS present a guideline or principle for how it should be handled – however, it is up to the practitioner to interpret that guideline and apply their professional judgment to the situation to come up with the appropriate treatment!

6. Example – right of return suppose a company sells a product with the right of return – is there reasonable assurance re: consideration? Canadian GAAP states that revenue can be recognized when there is reasonable assurance regarding the measurement of consideration there are no accounting alternatives, but there are alternative interpretations! argue those interpretations by linking to case facts! - e.g. new customer, no history of sales, new product line, etc.

7. Example – sales growth suppose you are provided with three-year forward looking financial information, which assumes a sales growth rate of 30% in this case, you must argue the interpretation – is that a reasonable & fair assumption? argue the interpretation by referring to case facts e.g. store is in an isolated geographic location with a fixed population, mature product, etc.