Reference no: EM13487414

1. You are the financial controller of DD which currently prepares financial statements in accordance with local GAAP. Your finance director has been in discussions with your corporate reporting advisors about whether to move to reporting under IFRS and has forwarded to you the following note received from them:

"There are a number of differences between the local GAAP and the IFRS recognition and measurement rules. Using information on our files, we have conducted a preliminary review of how your most recent financial statements might change if you had reported under IFRS. Below we show our estimates of the effect on equity at the end of the last year, together with brief notes on the different rules.

                                                                                                                                      $'000                     $'000

Equity as reported under local GAAP                                                                                      6,688

Adjustments:

Amortisation of goodwill acquired in business combination                                                         250

Valuation of property measured under revaluation model                                                      1,200

Depreciation thereof                                                                                       (350)

                                                                                                                                                                    850

Development expenditure                                                                              180

Amortisation thereof                                                                                         (40)

                                                                                                                                                                    140

Equity as reported under IFRS                                                                                                    7,928

 

Recognition and                      Local GAAP                                                                  IFRS       measurement rules

Goodwill                                  You, like most local companies,             Goodwill amortisation is

                                                 Amortise goodwill over 20 years              prohibited

Property - revaluation        Existing use value, that is taking           Fair value, that is the open

model -basis of                    into account what you use it for            market value taking into

valuation                                                                                                             account all possible uses.

Development                       You, like most local companies,              Recognition as an asset is

Expenditure                          choose to write off development          compulsory when certain

                                               Expenditure as incurred                 conditions are met.

Your finance director is aware that those making economic decisions use financial information for various purposes, including for the assessment of financial performance. He is pleased that the introduction of IFRS increases equity, remarking: íf equity increases, then profit must increase both in the year of change and in future years. This will improve our performance. Shouldn't we move to IFRS as soon as possible?

Requirement:

In advance of a meeting with your finance director to discuss his remark, prepare an essay about the likely effect on performance if DD adopts IFRS.