Complex Transactions, Clear Conclusions
Anonymised examples of complex accounting matters where technical analysis helped management reach clear and supportable accounting conclusions.
Control assessment in an acquisition
IFRS 10 · Consolidation- Situation
A client was considering an acquisition that gave it significant economic exposure and participation in key decisions, but the contractual rights did not automatically result in control for accounting purposes.
- Accounting issue
The key question was whether the arrangement met the control requirements under IFRS 10 and whether consolidation was required.
- Our role
We reviewed the ownership structure, shareholder agreements, and relevant contractual arrangements to assess whether the investor had control as per IFRS 10.
- Outcome
The analysis supported the conclusion that investor did not control the investee although it owned more than 50% shares and consolidation was therefore not required. The accounting position was documented for management and was successfully defended with auditors.
Timing of revenue recognition
IFRS 15 · Revenue- Situation
A client was entering into a commercial arrangement where the timing of revenue recognition was a significant financial reporting consideration.
- Accounting issue
The question was whether the contractual terms and transfer of risk and rewards supported recognition of revenue at an earlier time instead of being recognized over a longer duration of time under IFRS 15.
- Our role
We analysed the contractual terms, performance obligations and transfer of risk and reward, and considered how different transaction structures would affect the accounting outcome.
- Outcome
The final structure and supporting accounting analysis resulted in a supportable conclusion that revenue should be recognised and was successfully reviewed with auditors.
Remediation of an audit qualification
IFRS 9 · Expected credit losses- Situation
A client had an audit qualification arising from concerns over the recognition and measurement of expected credit losses on financial assets.
- Accounting issue
The key challenge was to develop an accounting approach that satisfies IFRS 9 and truly and fairly reflected the credit risk and the characteristics of the underlying exposures.
- Our role
We reviewed the existing methodology, identified areas triggering audit concerns, developed a revised accounting approach and supported management in documenting the assumptions, methodology and resulting in an accounting treatment acceptable for auditors.
- Outcome
The revised approach addressed the underlying accounting issue and supported resolution of the audit qualification, resulting in an unqualified audit opinion.
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