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SIX Exchange Regulation has reached an agreement with Myriad GroupLtd. in relation to the breach of International Financial Reporting Standards (IFRS) in the 2010 annual financial statements. The error identified relates to the incorrect presentation of expenses in the income statement. Under the agreement, the company pays CHF 25,000 to the IFRS Foundation.
Myriad Group Ltd. presents its expenses in the income statement using a classification based on their function within the entity (e.g. cost of sales or administrative expenses). However, in its annual financial statements 2010 the company failed to allocate 38% of its expenses to the different functions within the entity and thereby violated the requirements of IAS 1 "Presentation of Financial Statements".
As a result the expenses for amortizing intangible assets as well as for restructuring and integration were excluded from their respective functions. Even though the error had no impact on revenue and loss from operations, it lead toan understatement of cost of sales by USD 23 million (70%) and an understatement of general and administrative expenses by USD 7 million (40%) for the financial year 2010.
SIX Exchange Regulation does not have reason to belief that the error was made intentionally. In addition to making a payment of CHF 25,000 to the IFRS Foundation, Myriad Group Ltd. will correct and disclose the error in its 2011 annual financial statements as well as in its 2012 interim financial statements.
The investigation of Myriad Group Ltd. is concluded with the agreement being reached as this course of action results in a more timely public disclosure than would have been the case with a duly completed sanction procedure.Agreements have to be published in accordance with the Rules of Procedure.
Agreements to date in connection with financial reporting can be found at: http://www.six-exchange- regulation.com/enforcement/media_releases/agreements/financial_reporting_en. html
Appendix to the accounting standards
Periodic financial reporting is part of the information required under the Stock Exchange Act and the Listing Rules to ensure a functioning market. As part of this process, issuers must comply with the applicable accounting standards.
Information on financial reporting can be found at: http://www.six-exchange-regulation.com/obligations/financial_reporting_en.html
The following accounting standards were of relevance in assessing the case in question
IAS 1p99 requires the presentation of an analysis of expenses recognized in profit or loss using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant.
The presentation by function is used to illustrate, in which function within the entity expenses have been incurred. Examples of functions within an entity are research and development, provision of goods and services ("cost of sales") or administrative activities.
If a material portion of expenses cannot or not reliably be allocated to the functions within the entity, a classification of expenses according to their nature is deemed to be more reliable and more relevant, because no such allocation is necessary (IAS 1p102).
Additional disclosure is required in accordance with IAS 1p105, if a classification of expense by function is used but the nature of a specific transaction, event orcircumstance is considered useful in predicting future cash flows.
