CASE STUDY

You are a graduate accountant with a firm of consultants, Business Consult Australia (BCA).   The partners of a rapidly growing and ambitious mid-tier accounting firm Anderson, Rickard and Associates (ARA) have engaged your firm of consultants to provide them with the information necessary to determine whether they should set up a specialist team to help clients with the transition to the proposed new leasing arrangements.

The firm has a large number of clients who prepare general purpose financial statements; in turn all of these clients have a significant number of leasing contracts which are accounted for within their financial statements. Some of the concerns raised by the partners during the initial meeting with them are given below.

AASB 117 Leases (equivalent to IAS 17) is in the process of a major revision by the IASB and many clients are concerned about the potential impact of this new leasing accounting standard, once it is finalised.

One of the partners of ARA, Marae Rickard, thinks the firm should set up a specialist team to help clients with the transition to the new standard.  Marae also commented “We were so busy growing the business; we did not have any input during the consultation process into the presently proposed leasing arrangements.

As a rapidly growing firm, clients increasingly expect us to take positions on these matters. If we had a specialist team it will enable us to lobby for change more effectively”. However other partners believe that the issue should be dealt with as part of ‘business as usual’ and are happy to leave lobbying to the ‘big 4’ and the accounting bodies.

The senior partner, Peter Anderson said “we are just one firm and our opinion is really not going to make much of a difference. In any case the Australian accounting standards appear to just follow the International accounting standards, so a specialist team may be a waste of resources”.

The partners have requested your firm to compile a wide ranging report into current developments in lease accounting and how they should respond to the challenges raised.

REQUIRED

David McCarthy, a director of your firm (which offers consultancy services to medium and large accountancy practices around the world), with a reputation as someone who has expertise in accounting and auditing standards, innovation and latest trends requested you to draft a response to the above scenario providing this information in a report format but in two stages (PART 1 and PART 2) as outlined below.

PART 1 (750 words – 3 pages)

1) After reading the case study answer the following questions

a).What is the purpose of your report?
b) What is the audience for your report?
c) What are the (key) decisions to be made?
d) What information would help you to make these decisions?
e) Which information sources are most likely hold this information?
f) When you search for relevant information (in a database for example) what keywords will /are you using?

2) Identify 10 sources relevant to the CASE STUDY.

3) Out of the 10 sources above complete a sources analysis on ONLY 3 of the sources with full bibliographic references.

4)  Provide a full plan of main and sub headings of the report (include appropriate numbering).

PART 2 (3 000 words – 12 page) 

This Part is the full report.

Using the remaining sources (SAME SOURCES FROM Part 1) identified in Part 1

(4000 words).

 Specifically your report should contain (but is not restricted to) advice or responses regarding the following points: 

The background to and reasoning for the proposed changes to the standard

The current methodology for lease accounting

The proposed new methodology for lease accounting

The potential impact on clients of the changes, including which types of business and financial structure will be most ‘at risk’

How the accounting practice can allay client fears about the changes and outline how clients may be able to minimise any negative impacts from these changes

Making recommendations on how the changes should be communicated to clients (i.e. which methods of communication should be used)

Arguments for and against having a specialist team to deal with the issue, concluding with a recommendation

Recommending how staff should be trained on the technical aspects of the leasing proposals, and on ways to deal with client queries

Arguments for and against the proposed leasing methodology, concluding with a clear view as to the validity of the proposal

Whilst it is widely considered ‘too late’ to influence the initial new leasing standard to be issued your paper will help the partners form future lobbying positions on any further changes to lease  accounting – Recommend whether the firm should be actively involved in lobbying in respect of future accounting standard developments and changes (in leasing and other areas).

Make sure that your final report includes any information that you think will assist the partners to make this important decision. The Partners want recommendations that they can discuss at their next Board meeting.

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