UNIVERSITY OF CANTERBURY DEPARTMENT OF ACCOUNTING & INFORMATION SYSTEMS

ACCT 312 2017

TUTORIAL QUESTIONS

Tutorial 1 (w/beg 24 July 2017): Revenue, leases, conceptual framework

Leases
1. Provide an overview of how accounting for leases was changed as a result of the
release of NZ IFRS 16. (You may use bullet-points).

2. Fox Forestry Ltd (FFL) decides to lease a bulldozer on the following terms:
Date of entering lease: 1 July 2016
Duration of lease: six months
Rights of renewal yes three rights of six months each
Lease payments: $10,000 for the six month term

Required:
a. FFL has early adopted NZ IFRS 16. How should FFL account for this lease?
b. Would your answer to 1b differ if FFL was still reporting in terms of NZ IAS 17?

Conceptual Framework
3. Discuss the proposed changes to the CF as discussed by Hans Hoogervorst and
Rachel Knubley (recording available on Learn).

Theory
4. How might an appreciation of theories of accounting assist you as an accounting
practitioner, or as a user of financial reports? In your answer, consider one of the
theories discussed in the lecture.

Revenue
5. Provide a bullet-point summary of the changes to the recognition of revenue
following the issuance of NZ IFRS 15.

6. Refer to the following article concerning Fuji Xerox. How might the application of
NZ IFRS 15 have prevented this issue?
BUSINESS
FujiXerox NZ operations had 'inappropriate' accounting: report
NZ Herald
13 Jun, 2017 7:21am 6/14/2017
A report into the New Zealand operations of Fuji Xerox has revealed 'improper accounting' costing
shareholder equity 18.5 billion yen.
Japan's Fijifilm Holdings released the report yesterday, detailing issues here.
"FXNZ conducted some inappropriate accounting from FY ended March 2011 to FY ended March
2016," the report said.
The impact of the operations at the New Zealand arm of the business on parent Fujifilm Holdings
shareholders' equity was $18.5b yen, the report said.
Winston Peters, NZ First leader, released a statement last night estimating the accounting practices
had resulted in a "blow out to almost $500m."
"There has to be something rotten in New Zealand when Fuji Xerox NZ's 'accounting irregularities' of
$472 million could be one of the largest corporate frauds in New Zealand history but the government,
the establishment and law enforcement deliberately bury their heads in the sand.
"The sum we are now talking about is far worse than the $285m that we exposed in April. We
understand that FujiFilm is updating the Tokyo and New York Stock Exchanges and it will put the
level of "inappropriate accounting" at a jaw dropping $472m.
"This will be big news internationally and drags our country's name through the mud," Peters said.
The Fujifilm report out yesterday from an independent committee described what happened in New
Zealand but said there were also inappropriate accounting practices at Fuji Xerox Co Ltd, an
Australian overseas sales subsidiary under Fuji Xerox.
"FXNZ [Fuji Xerox NZ] introduced MSAs [lease agreements] that bundled together equipment sales
and maintenance services, etc, whereby equipment fees, consumables fees, maintenance fees and
interest were recovered through a monthly copy service fee at the time of equipment sales," the report
said.
The report found FXNZ had been exaggerating its revenue for some years and it highlighted issues
with the sales, signing up customers for long-term contacts that looked cheap in the short-term but
were expensive to escape from.
It was in the financial interests of some New Zealand staff to continue the practices, the report
indicated.
"Inappropriate accounting of early sales recognition continued because there were incentives for the
MD and employees of FXNZ such as commissions and bonuses and that structure placed an
emphasis on sales," the report said.
The report blamed those at the top in New Zealand.
"At FXNZ, the board of directors did not function effectively, there was a concentration of authority
with the MD of FXNZ and the business management process lacked transparency," the report said.
It recommended strengthening systems and reviewing incentive schemes, better information
management and better supervisory functions of the board of directors and audit areas.
NZ Herald: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11875103