Dubois Limited is a Vancouver- based private company established 30 years ago. Until very recently, all 16 of the shareholders have been relatives of the founder, Blanche Dubois. The company has been profitable in most years. In more recent years, however, it has become obvious that the company needed a capital infusion to remain competitive in the face of increased international competition; Dubois required substantial investment in more modern facilities and processes.

To obtain the needed funds, the Dubois Board of Directors sought private investment from nonfamily sources. After negotiating with several potential investors, the Board approved an investment by The Mangle Group, a private equity investment cooperative. After issuing the new shares to Mangle, the Dubois family members hold 65% of the out-standing common shares, with Mangle holding the remaining 35%.

The company holds a substantial line of credit with the Canadian subsidiary of a Lon-don- based international bank. The credit line is secured by a lien on all of the Dubois assets, based on 75% of accounts receivable, 60% of inventory, and 50% of buildings and equipment. The bank has been willing to maintain the credit line as long as the collateral is adequate and as long as Dubois is able to liquidate (i. e., fully pay off) the credit line at least once each calendar year. In past years, the external auditor has given Dubois a qualified audit opinion because Dubois did not use a systematic depreciation method for its buildings. Instead, the company’s policy was to obtain an independent assessment of its buildings. If the assessment was less than the buildings’ book value, Dubois would record an “impairment” charge. The company’s chief financial officer, Colleen Bissau, argues that the value of the building is much more relevant to the bank than an arbitrary “depreciated book value,” and thus Dubois’ method is more appropriate under the circumstances. As a condition of its investment, The Mangle Group insists that Dubois obtain a “clean” (unqualified) audit opinion in the future so that Dubois’ financial statements are more comparable with those of other companies in which Mangle has invested. Following the Mangle investment, Dubois continues to be a private company. Dubois Limited reports on the basis of ASPE. You have been approached by Ms. Bissau to advise the company’s Board of Directors as to how Dubois Limited’s financial reporting objectives and criteria for measurement methods may have changed from past years, following the new equity investment, and how they may change in the future if the company issues shares to the public.

Required:

Prepare the report for Ms. Bissau.