You have recently completed your accounting studies at the University of Limpopo. A friend of yours, Mr. Chance, approached you regarding an investment opportunity that he has identified. Mr. Chance knows that you are always interested in a potentially profitable investment, and therefore discussed the possibility of purchasing some shares in Goodopp Limited (hereafter “Goodopp”). Goodopp manufactures and sells office furniture and décor items. You told Mr. Chance that, unless you can take a look at Goodopp’s financial statements, you would not feel comfortable about buying some of their shares. In order to comply with your request ,Mr. Chance has obtained a copy of Goodopp’s most recent, unaudited financial statements, which are over a year old. The financial statements were prepared by Mrs. Good (the wife of Mr. Good, Goodopp’s owner) who has no formal accounting qualification. You had a look at the statements and the results as reflected are quite impressive. The statement of financial position indicated that the entity has more assets than liabilities and Goodopp made a net profit of R 3.6 million during that reporting period. The financial statements are not shown in comparison with amounts from other years. No significant note disclosures about inventory valuation, depreciation methods, loan agreements and other significant judgments and estimates are available. In addition, Mr. Chance mentioned that Goodopp sells their products from a warehouse in Limpopo, but there are no buildings or lease payments towards any buildings recognized in the financial statements. Additional information: You may ignore all VAT and taxation implications. The question must be answered in compliance with International Financial Reporting Standards (IFRS). 

REQUIRED: 

a) Write a memorandum to Mr. Chance that explains why it would be unwise to base an investment decision on the financial statements that he has provided to you. The memorandum should identify and address the qualitative characteristics of useful information that may not be present in the set of financial statements as described above. Communication skills: Memo format.