Alpine Perceptions Ltd.

Alpine Perceptions Ltd. (APL) provides technology solutions to manufacturing companies. APL is a wholly owned subsidiary of Elevation Technologies Inc. (Elevation), a privately owned conglomerate. In 2016 APL was performing poorly and Elevation considered selling the company for the best offer. As a last resort Elevation hired turnaround specialist Kendal Wilson to more effectively manage and salvage APL. Ms. Wilsons employment contract specifies that in addition to an annual salary she would receive a $1 million cash bonus after the end of the 2019 fiscal year if APL meets a number of performance goals over the 2017 to 2019 period. For 2017 and 2018 APL achieved the goals. To meet the performance goals for 2019 APL must report net income in excess of $20 million.

Its now January 25, 2020. APLs financial statements for the year ended December 31, 2019 have been received at Elevations corporate offices. APLs net income for 2019 is $20,550,000. Elevations CFO has examined the financial statements and is satisfied with most aspects of them but is concerned with the reporting of some transactions and economic events. The issues of concern are described below:

1. On May 30, 2019 the company made a payment of $250,000 to a computer hacker who obtained access to the computer code to APLs proprietary software that is used to produce some of APLs products. The hacker had given the company ten days to pay or she would sell the information to a competitor. Management believed that if the information was obtained by a competitor it would have significant negative consequences for the company. APL has capitalized the amount of the payment and is amortizing it over the remaining life of the related assets, which is about four years.
2. APL has always shut down for one week in late December for routine maintenance of the companys equipment. The annual maintenance is essential to ensure that the equipment can meet the precise specifications of customers. For the past three years, maintenance has been completed by the end of December. The annual maintenance originally scheduled for December 2019 was delayed until the first week of January 2020 because of scheduling problems with the company that does the maintenance and because APL had a number of contracts it wanted to complete by the end of December. The last maintenance was done in December 2018. APL paid $425,000 for the January 2020 maintenance work. The amount was paid in mid-January.
3. In October 2019 APL settled a lawsuit by an employee from an incident that occurred in 2015. APL agreed to pay the employee $350,000 and the payment was made on November 12, 2019. APL accounted for the settlement and payment by crediting cash and debiting retained earnings for $350,000. It was explained that since payment pertained to an incident in 2015, income in 2019 shouldnt be affected.

The CFO has asked you, an accountant in the finance department, to prepare a report evaluating the issues. Ms. Wilson has already called the CFO to arrange a meeting to discuss the financial statements and the payment of the bonus. The CFO wants your report to explain the problem in each issue, identify reasonable alternatives, and provide full support for your recommendations.

Required:

Prepare the report requested by the CFO.

You should prepare a written report. Your report should consider responses to the following questions:

1. What is your role? Who are you reporting to and what are their objectives? (Think carefully about the objectives. Dont necessarily rush to a conclusion.) How is that persons objectives affected by accounting information?

2. Who prepared the financial statements? What are the objectives of the preparer? How do the financial statements affect the objectives of the preparer? How do you think the person preparing the financial statements will approach preparation of the statements (given the opportunity to make accounting choices, what kind of choices will he make)? What are the terms of the arrangement that make accounting information important in this situation? What conflicts, if any, are there between the parties? Explain the conflicts.

3. Are there any constraints you must adhere to? Explain why. (ASPE or IFRS)