Tivago Travels Inc. (TTI) is in the business of selling things online. The company is currently owned by two founding partners, East and West. Due to the recovery in the travel industry, East and West are thinking about taking the company public. Revenues have severely affected by the pandemic over the past three years and demand for this type of service appears to be growing. TTI sells airline tickets and hotel rooms. Sometimes it will buy a block of rooms or airline flights from a company and sell them online to interested individuals. Other times airline and hotel companies advise TTI when they have excess capacity and TTI passes this information on to its customers, anticipating that they will buy. All transactions are booked as revenues when the customer pays for them. The amount of revenues is generally equal to the fair value of the flight or hotel room (which is equal to what the customer pays). In response to increased competition, TTI has spent a significant amount of money revamping its website over the past year. It unveiled the new look just before year end and customers appear to really like the new features built into the website. In this business, it is important that the website have a fresh, current look to keep customers engaged. TTI has a large team of dedicated information technology and service staff who deal with this. Like East and West, the senior management team do not currently draw salaries from the company but are paid with stock options. It is difficult to determine the value of these options because the company is not public. In the past year , the companys website and customer database were attacked by computer hackers. This was embarrassing for TTI and many customers were angry and frustrated. East and West made a public announcement that the company would spend whatever was necessary to increase security so this would never happen again. Several customers are suing the company in a class action lawsuit. The case goes to trial early next year. TTIs lawyers are a bit worried since similar lawsuits for other companies have ended up with the company paying out a large settlement. Part of the problem in this case was that TTI relies on an outside company (Solutions Solutions Inc. [SSI]) to house all its data. While the breach occurred at SSI, East and West also know that part of the problem was their own computer systems even though a significant amount of time and money was spent on developing them. TTI has since terminated its

relationship with SSI and is building a new company-owned technology facility that will be operational next year. The new facility is state of the art and very expensive. East and West have been heavily involved in the design of the new facility. They are considering suing SSI for the problems caused and are currently in talks with their lawyer to explore this option. To finance the new facility, TTI issued financial instruments to a large institutional investor. The terms of the financial instruments are below: The face value is $100 million. The instruments are repayable when revenues exceed two times the historical revenue levels. Each year, the financial instruments pay out a dividend of 3%. An annual audit must be performed. Required: Adopt the role of the auditor and discuss the financial reporting issues. Note: This case presents 6 financial reporting issues. Your group are expected to identify these issues and rank them accordingly.