Management Accounting

In: Business and Management

Submitted By dianedy020
Words 253
Pages 2
Executive Summary

The report will discuss financial reporting, tax and risk management issues associated with acquisition of Sunny Sky. The issues are raised mainly due to consolidated financial statement preparation, inter-company transactions, and asset valuation after acquisition.

According to CGA Code of Ethical Principles and Rules of Conduct (CEPROC) R304, we have to let you know that international tax issues are out of out scope. If ABC wants consulting service for such issues, we can hire an experienced accountant for the engagement, or ABC and seek the service from another firm.

Financial reporting issues

Financial reporting standards
Since ABC Retainer Inc. (ABC) is a Canadian publicly traded retailer, it must adopt International Financial Reporting Standards (IFRS) starting Jan 1, 2011. If Sunny Sky (SS) uses reporting standards other than IFRS, its financial statements must be restated in accordance with IFRS before consolidation, because IFRS requires all reporting entities must use the uniform reporting standards (IAS 27.28).

Purchase discrepancy
IFRS requires intangible assets, including customer list and the trade name, acquired in business combination being recognized separate from goodwill and book the assets at their FMV. The rest of the purchase discrepancies are allocated to goodwill. Intangible assets with finite life, like customer list, should be amortized over its useful life. Those with indefinite useful life, like goodwill and trade name, are not amortized but must be tested for impairment at least annually and whenever there is an indication of impairment (IAS 38). Therefore, ABC needs to adjust its books accordingly.…...

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