Assessment Task Part A

In the excel file "Find Your Company" you will find the listed company you have been given for this course. This file will be made available on Friday of Week 4. Complete this assignment for the company you have been given. Please be careful to use the listed company you have been given. Your assignment will not be marked if you use a different company to the one you have been given; and you will be asked to resubmit your assignment using the right company.

Go to the website of your company, by clicking on the URL next to your company in the list  of companies in the file "Your Company". Then go to the Investor Relations section of the website. This section may be called. "Investors". "Shareholder Information" or similar name.

In this section, go to your firm's annual reports and save to your computer your firm's latest annual report. For example. these may be dated 30 June 2015 or 31 March 2016. Do not use your firm's interim financial statements or their concise financial statements. You are need to do the following tasks:

Please read the relevant footnotes of your firm's financial statements carefully and include information from these footnotes in your answer.

Within your firm's latest annual report

(i) From your firm's annual report find out the assells that your firm has tested for impairment.

(ii) How did your firm conduct the impairment testing?

(iii) Has your firm recorded any impairment expenditures during the period?

(iv) Identify the key estimates and assumptions used by your firm in conducting the impairment testing.

(v) Do you find any sort of subjectivity involved in the impairment testing process? How can this subjectivity influence the outcome of the impairment testing?

(vi) What do you find interesting, confusing, surprising or difficult to understand about the impairment testing?

(vii) What new insights, if any, have you gained about how companies conduct
impairment testing?

(viii) Based on your assignment. comment on the "fair value measurement".

For your understanding of the impairment testing process, you may read the following articles using ProQuest:

1. Md Khokan Bertari, Sheikh F. Rahman, Abu Taher Mollik. (2014) "Firms compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics". Journal of Accounting & Organizational Change.

2. Carlin, T.M. and Finch. N. (2010), "Resisting compliance with IFRS goodwill accounting and reporting disclosures evidence from Australia", Journal of Accounting & Organizational Change, Vol. 6 No. 2, pp. 260-280. [Google Scholar]

3. Carlin. T.M. and Finch, N. (2011), "Goodwill impairment testing under IFRS: a false impossible shore?", Pacific Accounting Review, Vol. 23 No. 3, pp. 368-392. [Google Scholar]

4. Carlin, T.M., Finch. N. and Lodi, N.H. (2009), "Goodwill accounting in Malaysia and the transition to IFRS - a compliance assessment of large first year adopters". Journal of Financial Reporting & Accounting. Vol. 7 No. I, pp. 75.104.

Assessment Task Part B

In an address entitled Introductory comment to the European parliament (made in Brussels, Belgium) on II January 2016, the Chairperson of the IASB. Hans Hoogervorst, made the following comments in relation to the new accounting for leases.

I would like to make some comments about our upcoming Leases Standard, which we will publish the day after tomorrow. Currently. listed companies around the world have around 3 trillion euros' worth of leases, especially in sectors such as the airline industry, retail and shipping. Under current accounting requirements, over 85 per cent of these leases are labelled as operating leases and are not recorded on the balance sheet. Clearly, the accounting today does not reflect economic reality. Despite operating leases being off balance sheet, there can be no doubt that they create real liabilities. During the financial crisis, some major retail chains went bankrupt because they were unable to adjust quickly to the new economic reality. They had significant long-tens operating lease commitments on their stores, and yet had deceptively lean balance sheets.

In fact, their oft balance sheet lease liabilities were up to 66 times greater than the debt reported on their balance sheet. Moreover, the current accounting for leases leads to a lack of comparability. An airline that leases most of its aircraft fleet looks very different from its competitor that bought most of its fleet, even when in reality their financing obligations may be very similar. There is no level playing field between these companies. These problems will be resolved in the upcoming Leases Standard. All leases will be recognised as assets and liabilities by lessees. The accounting will better reflect the underlying economics. This change is expected to affect roughly half of all listed companies and will not be popular with everyone. Accounting changes are often controversial and can be met with warnings of adverse economic effects and costs of system changes. The IASB has looked at all these possible risks very carefully and we will publish a detailed effect analysis on the Standard. Our conclusion is that the risks and costs of the new Leases Standard are manageable. First of all, IFRS 16 will not put the leasing industry out of business.

Leases will remain attractive as a flexible source of finance. It will remain appealing to companies to lease assets so that they do not bear the risks of owning them. While the cosmetic accounting benefits of leasing will disappear, the real business benefits of leasing will not change as a result of the new Standard. We do not deny there will be costs involved in updating systems to implement the new Leases Standard, but we have done our best to keep these costs to a minimum. For example, we are not requiring companies to recognise assets and liabilities for short term and small ticket leases. This should be especially beneficial for smaller companies. In sum, we expect the benefits of the new Leases Standard to greatly outweigh its costs. The new visibility of all leases will lead to better informed investment decisions by investors, and to more balanced lease-versus-buy decisions by management. IFRS 16 will lead to improved capital allocation, which should be beneficial for economic growth.

(i) Explain why the chairperson of the IASB believes that the former accounting standard for leases did 'not reflect economic reality'?

(ii) Explain the reason why, under the former accounting standard, reporting entities' off balance sheet lease liabilities were up to 66 times greater than the debt reported on their balance sheet'.

(iii) Why does the Chairperson of the IASB argue that under the former accounting standard for leases there was `no level playing field' between some airlines companies?

(iv) Why do you think the Chairperson of the IASB said that the new accounting standard for leases 'will not be popular with everyone'? What would cause this unpopularity?

(v) What are some of the possible reasons why the chairperson of the IASB would say "the new visibility of all leases will lead to better informed investment decisions by investors, and to more balanced lease versus buy decisions by management?