Ernst & Young Case Competition

1. Ernst & Young Case Competition Casey Gattshall, Will Huskinson, David Ayala, Mike Floeck, and Kevin Vo

2. Facts • Farrlandia Accounting Regulatory Board (FARB) has required the adoption of IFRS from GAAP • Marshall Industries has little experience with IFRS • Voluntary adoption - Jan 1, 2014 • Mandatory adoption - Jan 1, 2016

3. Problem • Early adoption vs. mandatory adoption • Identify the implications • Two or three key ongoing differences between GAAP and IFRS • Two key exemptions and exceptions under IFRS-1

4. Unknowns • How much is Marshall willing to spend to be ready by the grace period? • How much will Marshall need to spent on training employees, implementing IT systems, etc.? • How easy can staff adapt to IFRS?

5. Assumptions • Competency of staff • Client is willing to adopt IFRS early if it is the best option

6. Solution • Wait until mandatory adoption on January 1, 2016.

7. Reasons • Time to prepare employees and implement IT support • Communication of conversion to shareholders and potential shareholders • Help reduce long term costs

8. Implications • System- significant overhaul of IT systems • People- majority of employees unaffected; accountants and IT department will have lots of work to prepare for switch • Business- operations relatively unchanged

9. Key Differences • GAAP = rules based standard • IFRS = principlesbased standard • Many differences PP&E depreciation and inventories most important • PP&E significant component depreciation • Inventories

10. IFRS-1 Key Exemptions and Exceptions • PP&E: choice of valuation method • AROs: measurement at date of transition rather than recalculation