Financial Reporting Issues - Roman Systems Inc

School: Toronto Metropolitan University - Course: AFA 716 - Subject: Accounting

Case 1-4 Memo To: Partner From: Jaskaranjit Gill, CPA Subject: Financial Reporting Issues - Roman Systems Inc. Roman Systems Inc. (RSI) is a private company that has been using IFRS for the past few years with plans to take the company public within the next few years. The sole common shareholder, Marge Roman, looks to focus on the revenue growth of the company in the annual press release to show a display of a strong increase in revenue to attract new shareholders. The financial issues that are displayed include: -Costs associated with the new software -Revenue Recognition -ABM Business -Debentures -Accounts Receivables - Mountain Bank Costs associated with the new software In January, Year 12, RSI implemented a new general ledger software. This software was installed to assist with generating RSI's financial results since April 1, Year 2. The old system which was originally installed in Year 6 will no longer be used in parallel starting July 1, Year 12. For the new software, RSI has been invoiced $720,000.00 by BBC to date. The costs have all been capitalized at the end of April, Year 12. At the same time, RSI had also capitalized $70,000.00 in relation to the salaries of four employees who had worked on the accounting software project since January 1, Year 12. Under IAS 38, the following changes should be made: -The initial review and recommendations should be expensed for $110,000. This would be because they are not in direct relation to the implementation of the new system. -The cost of the new software should be capitalized for $150,000. This is because the new software is aligned with improving the accounting system. -The cost of implementation work should also be capitalized for $120,000. The implementation work is tied into the new software and is needed to be able to extend the life of the general ledger software.

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