Practice Problem $1$:

XLF Inc. is a publicly listed entity operating in Calgary, Alberta. XLF is a resource exploration company. Recently, the energy industry has experienced many disruptive changes, particularly in regard to the price of oil. XLF is preparing for the annual year$-$end audit, and the controller is analyzing her options regarding recording a provision related to a recently orphaned $($abandoned$)$ well.

The controller expects that materiality will be $$250,000,$ which is the materiality from last year$$s audit. The reports from the geologists estimate that the cost to remediate one orphan well could range from $$180,000$ to $$300,000.$

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XLF has struggled with profitability this year. The CFO stated at the last board meeting that all employees have a responsibility to control costs to help to restore XLF$$s profitability and, in turn, the share price. To do her part to help the company$$s profitability, the controller decides not to record the provision for the orphan well.

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Also, during the last board meeting, the board of directors stated its concern regarding the price of oil and the impact that this could have on revenues in the upcoming year

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Required:

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$($a$)$ Who are the users of the financial statements for XLF$?$ Consider both external and internal users.

b$)$ The Conceptual Framework for Financial Reporting discusses the need for relevance and faithful representation as fundamental qualitative characteristics of financial information.

i$.$ If the controller does not record the provision for the orphan well, is relevance of the financial information achieved? Why or why not? $($Consider materiality in your response.$)$

ii$.$ If the controller omits the provision from the financial statements, this will have an impact on which of the three attributes of faithful representation?

c$)$ The board of directors is required to complete a going$-$concern assessment. Which sources of information should the board review in performing their assessment of going concern?