Part (A)

Group 3
Ankur Agarwal Shivam Garg Rajeev Jain Saumil Kakkad Rahul Khosla Priyank Vora E001 E018 E025 E026 E030 E059

 Publicly traded multinational based outside US Provides high-technology products and services Uses IFRS for reporting purposes Historically a Growth Stock and company is looking to

maintain that position Prior years first quarter EPS reported at 52 cents per share Analysts projection for EPS of current year first quarter 58 cents per share while Managements Estimated EPS comes at 51 cents per share If EPS comes out to be less than analyst's projection the price earnings ratio will fall which can lead to the collapse of their acquisition plans

IFRS Entities are recorded via Discreteperiod-method Inventory write-down can be reversed in future periods

US GAAP Entities are recorded via Integralperiod-method Any reversal in inventory write-off is prohibited

Deferred taxes are shown as separate line items on the balance sheet
Intangible assets are recognized if the asset has a future economic benefit

Deferred taxes are included with assets and liabilitiesIntangible assets

Intangible assets are considered at fair value

Uneven cost incurred in interim periods Uneven Cost should be charged at an should be deferred only if deferral is appropriate amount in all the interim also done at the end of financial periods in which it is expensed. period Advertising cost must be taken into the provisional period. Advertising cost can be deferred to multiple periods.

Current Status

All data in cents per share

Present Status (6 cents per share)

Cost due to operations in Q1 4 Cost Deferred from last year to Q1 2 Cost in Remaining quarters 2

Savings by IFRS
(3 cents per share) Savings from U.S GAAP ( 3 cents per share)

Savings from spreading out Q1 cost 1.5 Savings from spreading out deferred cost 1.5 Cost incurred unevenly during FY can be deferred for interim reporting purposes

Deferred maintenance are equally proportioned in quarters. Maintenance cost over the year (6+2+2+2) = 12 Savings for Q1 = 12/4 = 3

All data in cents per share

Present Status (2 cents per share)

Q1 -Peak export period Projected annual tax savings 8 Tax savings in Q1 3 Tax savings deferred 1

Savings by IFRS
(1 cents per share) Savings from U.S GAAP ( 1 cents per share)

Last year Q4 tax savings credited as income Amount of revenue should be realized as and when earned Consistency should be maintained Tax savings should not be spread out (Savings 1)
May be accrued or deferred at the annual reporting date and at interim periods to provide an appropriate cost in each period Savings from deferred tax - 1

All data in cents per share

Present Status (3 cents per share)

Last years Relocation cost deferred to Q1 - 3 Motive To boost up the earnings of last year

Savings by IFRS (No saving) Savings from U.S GAAP (2.25 cents per share)

Relocation costs are expensed as incurred IAS 38 does not permit recognition of moving and relocation expenditure as an intangible asset Relocation cost should be expensed in Q1 Costs like relocation are proportionately divided in quarters Total yearly cost to be expensed in current year 3 Cost to be allocated to Q1 0.75 Savings 2.25

All data in cents per share

Present Status (4 cents per share)

Expenditure on TV, Radio & Paper advertising whose benefits will be realized in second quarter - 2 This cost is expensed as and when incurred Summer fall campaign Expenditure has been spread out in the 1st three Qs whereas the benefits of the campaign will be realized only in 3rd Q - 2

Savings by IFRS
(2 cents per share) Savings from U.S GAAP ( 4 cents per share)

Advertising costs are charged in the incurred quarter and so can not be deferred No saving Special Fall Campaign : According to IFRS any kind of prepayment for advertisement costs is recognized as an asset until the entity receives the related goods or services. [IAS 38.70] Savings from the campaign 2

Advertising cost may be deferred or accrued and assigned to interim periods 2 Provision for fall special campaign are not to be charged in Q1 - 2

All data in cents per share

Present Status
(4 cents per share) Savings by IFRS

Dividend from Brazilian investment (18% holding) 4 The investment in Brazil is accounted on cost basis The investment itself is facing legal problems in Brazil Budgeted amount of dividends for the year 10

(No savings)
Savings from U.S GAAP

Cost method is usually used for acquisition of less than 20% of the unit According to cost method accounting, the dividend received should be recognized as revenue and thus not affecting the balance of investment

Cost method will be similarly applicable and hence the dividends will be recognized as Income.

( No Savings)

All data in cents per share

Present Status

(2 cents per share)

Restructuring reserve left from last year - 2 CFO looking to keep these reserves for a rainy day Company operations facing imminent problems like stretching of accounts receivables period by three days over last year

Savings by IFRS (0.5 cents per share) Savings from U.S GAAP ( 0.5 cents per share)

Reserves should be turned into income on conservative basis. The reserves left should be spread out over the year Total reserves left for current year from prior year 2 Reserves to be allocated to Q1 (2/4) = 0.5

Similar to IFRS standards theReserves should be turned into income on conservative basis Reserves to be allocated to Q1 (2/4) = 0.5

Items

Present status

Savings by IFRS(Cents Per share) 3 cents per share

Savings by US GAAP(Cents per share) 3 cents per share

Maintenance cost

6 cents per share

EIC Tax Savings Cost of relocation Advertising cost Advertising cost (Summer)

2 cents per share 3 cents per share 2 cents per share 2 cents per share

1 cent per share No savings No savings 2 cents per share No savings 0.5 cents per share

1 cent per share 2.25 cents per share 2 cents per share 2 cents per share No savings 0.5 cents per share

Dividend from Brazil 4 cents per share Corporate restructuring (Reserves) Total EPS None

51 cents per share

57.50 cents per share

61.75 cents per share

Batson International, S.A. (B)

Differences in accounts payable that were pointed out by auditor in prior year are yet to be reconciled
Reconcile accounts payable, find reasons and take prompt corrective action. Take action against the person responsible for the issue to avoid such incidents in future

Cost related to a cancelled building project is still classified as an asset

The asset should be write off as loss in the P&L account immediately

Quarterly Incentive Compensation below calculated amount and divisions budgeted annual results
Its an irregularity in the system which is increasing the income. So, it should be promptly dealt with

Division controller changed the Expense as received policy for initial capitalization and further expensing for small tools and parts
This can be done under US GAAP but not under IFRS. The matter should be looked into thoroughly and a committee should be set up to investigate Division controllers actions.

Errors and Omissions reserves were reversed without any documentation

Acquire the documents for proper internal controls to ensure proper documentation is available to comply with the regulations

Excess purchase price liability related to an acquisition in the prior year reversed as first quarter income instead of credit to goodwill
Credit to Goodwill has been misused to boost the earnings. Reversal of the account should have been subtracted from Goodwill account.

Probable Tax refund of divisions overseas operating companies recognized as profits

Another technique to boost earnings. According to US GAAP Probable cash flows can be recognized as revenue but it is a violation of IFRS Norms

The write off of Excessive Inventory of a Technologically obsolete product carried over from the Previous Year was spread over the 1st and 2nd quarters of the Current Year
Violation of accounting principles of Periodicity and Recognition. The excess inventory should be written off immediately in the financial year it pertains to.

Small Customer billed late in the Qtr for a Bill and Hold Transaction in excess of usual order level. Extended payment terms+ Discounted price given
To meet the sale target a improper practice has been employed and it should be discouraged

Restructuring Reserve established for 2nd Qtr of Current Year was reversed in the 1st Qtr even before the beginning of Restructuring.
It is not much of a concern but the modification should be noted in the statements.

Batson International, S.A. (C)

 Accounting scandals of Enron, WorldCom, & Tyco in

2000s disturbed the corporate world Investors demanded for stringent rules for accounting standards & financial disclosures SOX Act was passed by US congress in 2002 Two key provisions of the Act are:
Section 302: Requires senior management to certify

the accuracy of the reported financial statement Section 404: Requires that management establish internal controls and approve its adequacy

 Under Section 302 -Corporate Responsibility for

Financial Reports, the signing officers should:

Maintain internal controls Ensure that material information related to the

issuer is available in internal control Evaluate effectiveness of the issuer's internal controls within 90 days prior to the report; and Comment on the effectiveness of the internal controls

 A process, effected by the senior management which is

designed to provide "reasonable assurance" regarding the achievement of objectives in the following categories:

Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations. Safeguarding of Assets

Plays a vital role in detecting fraud and protecting

organisations resources both tangible and intangible. Mandatory for all Listed Companies under local companies Act Self inspection by the company management

 COSO has established a common internal control model against

which companies and organizations may assess their control systems. The five components of COSO framework are: Control Environment Risk Assessment Control Activities Information and communication Monitoring Limitations Lot of human action leading to errors in processing and judgement Complex Model

 Batson

International, S.A. management is responsible for establishing and maintaining adequate internal control over financial reporting under Rule 14-15(f ) of the Securities Exchange Act,2004.
Act and required for all listed companies.

This certification is required under local Companies Batson International used COSO framework criteria to

evaluate the effectiveness of its internal control over financial reporting.

 Management concluded that reporting was effective

based on the criteria issued by COSO If company repots any deficiency in their report they will not be delisted If company finds deficiency and corrects it in the same fiscal year, it does not have to report it The Companies Act also requires independent auditor to express an opinion

 It is the duty of CFO to sign the management

report on internal control over financial reporting certification. If company fails to report a material defect or there is false representation CFO will be held responsible. In such cases CFO will be liable to five years or less imprisonment and fine of $5 million.