Ethics Case-Granting Contracts Leslie Haley holds a senior human resources position in a large business. Leslie's responsibilities include health insurance contracts with insurance providers. For five years, the health insurance has been provided by United Assurance. Leslie has had very good relations with Jamie Connors of United Assurance. Jamie often takes Leslie out to lunch in very nice restaurants. Leslie is an avid golfer and several times a year Jamie takes Leslie to one of the best golf clubs in the area. Leslie is of the opinion that Jamie's company, United Assurance, provides very good insurance coverage and that the relationship between the two companies is positive. Leslie sees no need to get competing bids for the insurance contract from other companies and has decided to renew the contract with United Questions 1 What do you think is the basis for Leslie's decision? 2. What alternatives might Leslie have considered? 3. What guidelines might Leslie's company develop to guide this type of decision making? Accounting Standards-Asset Valuation Canadian REIT is a large real estate investment trust with total invested funds of approximately $10 billion. It owns and manages shopping centres that contain stores such as Wal-Mart, Lowes, Winners, large grocery stores, and many types of retail stores. Canadian REIT shares trade on the Toronto Stock Exchange. Prior to 2011, the company reported its financial results using the Canadian Cenerally accepted Accounting Principles (GAAP). As a publicly traded corpora- tion, the company is now required to use the International Financial Reporting Standards to report its results. In past years, the company recorded the land and property it owned on its Jualance sheet according to GAAP. The amount reported, $5 billion, was based He the cost principle, that is, the amount paid when the land and property was Murchased. This followed the former GAAP rules for reporting assets. With the adoption of the IFRSs, the company had the option to use the fair value principle as its method of reporting the value of its property. The company ined the services of accountants, appraisers, and real estate experts to determine the fair value of its property. A fair value of $6 billion was determined for the property. This amount was $1 billion more than the previous cost principle figure and resulted in an increase in the value of the assets carried on the balance sheet ly $1 billion. The company has decided to adopt the fair value concept option afforded by the IFRS. Questions 1. Does the company have the right to choose which standards it will follow, GAAP or the IFRS? Why? 2. What effect will the switch to "fair value' have on the company's balance sheet? 3. Suggest other positive effects of the change to fair value. Valuation of Assets David Henhawk owns a small bicycle courier service. He is the sole owner and has chosen to follow the Accounting Standards for Private Enterprise for financial reporting. David will be approaching the bank for a loan to support business operations. He asks you, his accountant, to prepare a current balance sheet for him to show the bank regarding his loan application. A friend of David's, who works in the real estate business, has indicated that a building owned by the business would be worth $400 000 if offered for sale on the current market. The building is listed as an asset on the company's books at $250 000, its original cost price. David feels the higher amount should be used on the balance sheet because it better reflects the value of his business and would impress the bank. Questions 1. Under the Accounting Standards for Private Enterprise cost principle, what amount should be shown on the balance sheet for the building? 2. Under the International Financial Reporting Standards fair value principle, what amount should be shown on the balance sheet? 3. Should you follow David's instructions when you prepare the balance sheet? Give reasons for your answer. 4. Would the bank be interested in the current value of the building? Why? 5. What advice would you give David? Ethics Case-Granting Contracts Leslie Haley holds a senior human resources position in a large business. Leslie's responsibilities include health insurance contracts with insurance providers. For five years, the health insurance has been provided by United Assurance. Leslie has had very good relations with Jamie Connors of United Assurance. Jamie often takes Leslie out to lunch in very nice restaurants. Leslie is an avid golfer and several times a year Jamie takes Leslie to one of the best golf clubs in the area. Leslie is of the opinion that Jamie's company, United Assurance, provides very good insurance coverage and that the relationship between the two companies is positive. Leslie sees no need to get competing bids for the insurance contract from other companies and has decided to renew the contract with United. Questions 1 What do you think is the basis for Leslie's decision? 2. What alternatives might Leslie have considered? 3. What guidelines might Leslie's company develop to guide this type of decision making? Accounting Standards-Asset Valuation Canadian REIT is a large real estate investment trust with total invested funds of Approximately $10 billion. It owns and manages shopping centres that contain stores such as Wal-Mart Lowes, Winners, large grocery stores, and many types of retail stores. Canadian REIT shares trade on the Toronto Stock Exchange. Prior to 2011, the company reported its financial results using the Canadian Generally accepted Accounting Principles (GAAP). As a publicly traded corpora tion, the company is now required to use the International Financial Reporting Standards to report its results. In past years, the company recorded the land and property it owned on its balance sheet according to GAAP. The amount reported, $5 billion, was based in the cost principle, that is, the amount paid when the land and property was purchased. This followed the former GAAP rules for reporting assets. With the adoption of the IFRSs, the company had the option to use the fair value principle as its method of reporting the value of its property. The company ined the services of accountants, appraisers, and real estate experts to determine the fair value of its property. A fair value of $6 billion was determined for the property. This amount was $1 billion more than the previous cost principle figure and resulted in an increase in the value of the assets carried on the balance sheet lwy $1 billion. The company has decided to adopt the fair value concept option Afforded by the IFRS. Quostlons 1. Does the company have the right to choose which standards it will follow, GAAP or the IFRS? Why? 2. What effect will the switch to "fair value have on the company's balance sheet? 3. Suggest other positive effects of the change to fair value
