Issue 1. James Hardie, the CEO of PAS Software, is having a tough time. The company that he has built over the past 10 years has suffered badly in the global financial crisis. In order to show

“acceptable” financial statements to the creditors and investors, James undertook the following:

■ Losses from the online advertising division were shown as “extraordinary loss” below net profit, and he explained it away by saying the loss is a one-time occurrence and prospects for a strong rebound are good next year.

■ He aggregated many large expenses into a category called “Other operating expenses” and did not provide limited information on the breakdown of this expense.

■ A large bank loan is due next year, but in order to show increased liquidity, he has insisted on classifying it as a non-current liability because he believed the bank would be willing to extend the term of the loan.
■ He doubled the useful life estimates of almost all his property, plant and equipment items, arguing that the original useful lives were not representative of the assets’ usage patterns.
He did not provide any information on how much reduction in depreciation expense resulted from this action.
Requirements Examine James’ actions in relation to the presentation requirements for financial statements.
How do you think readers of the financial statements would react if they came to know of James’ actions?