Case

From: Financial analyst

To: Cando Communications

Re: Financial reporting issues

Issue#1: Prepare the financial statement of Australia TV

Analysis:

* Per IFRS, an investor controls another if it has the power to direct the activities of the other entity to generate returns, either positive or negative for the investors. In this case, since CC owns 15% of the shares and all of the convertible and subordinated debentures which represent 50% of the company’s total issued shares at the time of conversion. It means that the total distributed investments are beyond 50%. Therefore, CC has the control over Australia TV.

Alternative:

* Per IFRS, an investor with subsidiaries is required to present consolidated financial statements for the group of companies under its control. Therefore, CC should consolidate the financial statement for Australia TV.

* Since IFRS 9 is early adopted, investments in shares are required to measured and reported at FV-NI.

* Since the net income went down from $50 million to $8 million, the financial statement will be influenced by consolidation, which may not look well.

Issue#2: Significant influence over Ulster TV

Analysis:

* When an investor has an interest of more than 20%, it is assumed that the investor has influence over the investee. In this case, it is met since it has 29.9% interest in Ulster TV. Even though CC has not been successful to influence the decisions made by Ulster TV management, CC has significant influence over Ulster TV as long as it has the ability to exercise the power.

Alternative:

* Per IFRS, the investor is required to use the equity method for investments in associates.

* The unrealized gain or loss will not be recognized under equity method. Therefore, even if the net income of investments decreased, the investment value is not considered impaired.