Case Studies: Introduction of consolidation processes for a natural resources group

Our client, a natural resources group quoted on the London AIM market, were having difficulties with interpretation and adoption of International Financial Reporting Standards (IFRS).

In April 2007, Paul Pascan was appointed by the client to thoroughly review the group’s financial procedures and to ensure correct implementation of reporting requirements using IFRS within the group’s consolidated and subsidiary financial statements.

Paul identified gaps in processes and documentation which caused the problems and put forward a plan to bring all accounting valuations and procedures to the required standards of completeness and quality. The principal problems arose from valuation issues (assets/liabilities and contractual arrangements) rather than major problems with the source information and ledgers which were generally sound.

A formal template was designed to capture information required for producing individual and consolidated financial statements. An Excel consolidation model was introduced to control and record historical information relating to past acquisitions, investments and debt valuations. This also acted as a checklist for the valuation and contractual issues previously omitted.

Financial statements for 2006 were rebuilt and appropriate adjustments made to the prior year information shown in the 2007 accounts. The consolidation model supported the consolidated financial statements which were prepared by us in Word prior to submission to the printer.

Accounting treatment of the Group’s acquisitions and minority holdings was re-examined as were relevant contractual documentation. The formal consolidation process was also used to ensure full compliance with IFRS reporting requirements for 2007.

Paul liaised with the board, the auditor and the group’s tax advisors to ensure that all parties were comfortable with the results and disclosures to be made.

Paul was also asked to assist with the preparation of the interim and final 2008 financial statements to ensure that correct processes were followed. This exercise also included training the Group’s new finance team in the use of the consolidation model and the interpretation and treatment of several complex IFRS valuation and disclosure requirements.

A training day was organised for the full board so that Paul could provide them with an insight into the valuation and disclosure issues required by reporting under IFRSs going forward.