Humphrey Enterprises is a public company located in Toronto that follows IFRS and has a December 31 year end. It is involved in the manufacturing of pet supplies that are distributed and sold all over North America. Humphrey has loans outstanding with the People’s Commerce Bank (PCB) and the PCB also holds preferred shares of Humphrey. As part of Humphrey’s bank loan agreement, it has been agreed that the loan would be repayable and the PCB’s preferred shares would be converted to common shares if ever there were two years of successive losses at Humphrey. These common shares would be surrendered by the Humphrey family; as such, they would be diluting their ownership interest and control. Humphrey Enterprises was founded by Daniel Humphrey in 1985 and has consistently expanded and shown financial growth. However, recently, Humphrey was not immune to the economic downfall and it had a loss this past financial year ended December 31. Humphrey is a public company, but is owned 52.1% by Daniel Humphrey and his immediate family.
The prior year, Humphrey had acquired a 15% interest in Sasha Ltd., which had been accounted for as fair value through profit or loss, as its intention was to sell the shares when the price increased. During the current year, the fair value of the shares of Sasha dropped significantly. Humphrey started to account for this investment as available for sale with the loss recognized in accumulated other comprehensive income, as it is no longer sure of when it will sell this investment due to the current year loss in its value.
Required
It is presently December, and you, the auditor, have been asked to prepare a report to the audit partner. Write a report that outlines and discusses any accounting issues arising during the current year and their impact to Humphrey.