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PART B [7 Marks] You are the CFO for a multinational company that operates in the "buy now pay later industry. The company provides a "buy now pay later" platform that facilitates the purchase of goods immediately, with the requirement that the goods must be paid for in four equal fortnightly instalments. The company does not charge interest to customers, however, warns customers that a late fee of twenty- five per cent will be incurred if the customer misses a payment. You have been notified that a class action has been filed against the company on 1 June 2021 alleging a lack of disclosure and misrepresentation in the Company's marketing material. Specifically, it is alleged that the company does not warn potential customers of the significant fees that may be incurred if the customer has insufficient funds in their bank account resulting in the account going into an overdraft position after an instalment is withdrawn from customer's bank account. The class action is seeking damages of $5 million. The company believes the claim is frivolous and disputes the claim in its entirety on the basis it is not the company's responsibility to warn customers of issues that may arise if they have insufficient funds in their bank account to meet the payments. The company's lawyers have suggested the company should be successful in defending the claim. The matter has been leaked to the press resulting in several newspaper articles being written accusing the company of behaving inappropriately. Consequently, the company's share price has dropped. The company has an accounting policy to create a provision for legal matters at the commencement of the legal action reflecting potential legal costs and the amount expected to settle the matter. After the class action claim was discussed by the Board of Directors, the Finance Director recommended a provision for $1.5 million be recognised in the financial statements as a conservative estimate to cover potential settlement of the claim should the company choose to settle the claim to mitigate any further reputational damage. Required: In reference to the company's 30 June 2021 financial statements, discuss: (a) The appropriateness of the accounting policy; and (2 Marks) (b) Whether you agree with the recognition of the provision proposed by the Finance Director. (5 Marks) PART B [7 Marks] You are the CFO for a multinational company that operates in the "buy now pay later industry. The company provides a "buy now pay later" platform that facilitates the purchase of goods immediately, with the requirement that the goods must be paid for in four equal fortnightly instalments. The company does not charge interest to customers, however, warns customers that a late fee of twenty- five per cent will be incurred if the customer misses a payment. You have been notified that a class action has been filed against the company on 1 June 2021 alleging a lack of disclosure and misrepresentation in the Company's marketing material. Specifically, it is alleged that the company does not warn potential customers of the significant fees that may be incurred if the customer has insufficient funds in their bank account resulting in the account going into an overdraft position after an instalment is withdrawn from customer's bank account. The class action is seeking damages of $5 million. The company believes the claim is frivolous and disputes the claim in its entirety on the basis it is not the company's responsibility to warn customers of issues that may arise if they have insufficient funds in their bank account to meet the payments. The company's lawyers have suggested the company should be successful in defending the claim. The matter has been leaked to the press resulting in several newspaper articles being written accusing the company of behaving inappropriately. Consequently, the company's share price has dropped. The company has an accounting policy to create a provision for legal matters at the commencement of the legal action reflecting potential legal costs and the amount expected to settle the matter. After the class action claim was discussed by the Board of Directors, the Finance Director recommended a provision for $1.5 million be recognised in the financial statements as a conservative estimate to cover potential settlement of the claim should the company choose to settle the claim to mitigate any further reputational damage. Required: In reference to the company's 30 June 2021 financial statements, discuss: (a) The appropriateness of the accounting policy; and (2 Marks) (b) Whether you agree with the recognition of the provision proposed by the Finance Director