Question

​Discuss why adoption of IFRS 1 was met with controversy and how Luxottica Group, a 2010 first-time adopter, presented its statement of financial position and what alternatives were available.

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008) Amounts in thousands of Euro except share data) Net sales Cost of sales Note 2010 2009 2008 45,798,035 5,094,318 5,201,611 3,452,983 (576,355) 731,639 (1,990,205) 1,762,591) (1,748,628) 3,331,727 (2,367,979) (2,104,362) 2,144,989) Gross profit 3,807,831 Selling and Advertising General and administrative (727,693) (656,280) Total operating expenses Income from operations (3,095,672) (2,760,642) (2,721,344) 571,085 Other incomel(expense) Interest income Interest expense Other-net 13,265 25 (106,987) (109,132) (123,002) (33,531) 712,159 8,494 (8,130) 6,887 (4,056) Income before provision for 605,535 (218,219) 588,371 (159,888) 190,499) 464,784 income taxes Provision for income taxes Net income from continuing 387,315 19,944 407,258 304,896 397,872 operations Discontinued operations Net Income Of which attributable to 304,896 397,872 402,187 5,072 407,258 299,122 5,774 304,896 390,167 7,705 397,872 Luxottica Group stockholders -Non-controlling interests NET INCOME Weighted average number of shares outstanding: Basic Diluted 458,711,441 457,270,491 456,563,502 460,535,397 457,937,802 457,844,280 EPS Basic-from continuing operations Basio from discontinued operations Basic 0.83 0.04 0.88 0.85 0.00 0.85 0.00 0.83 0.04 0.87 0.65 0.65 0.00 0.65 Diluted from continuing operations Diluted-from discontinued 0.85 0.00 0.85 Diluted In accordance with IFRS. See notes to the consolidated financial statements.

Answer 1

Controvertial adoption of IFRS 1 :

Conversion from U.S. GAAP to IFRS is a profoundly debated topic in the corporate world. Probable benefits of adoption comprise reporting consistency, heightened global competition and upgraded financial reporting transparency. While many countries worldwide have already accepted IFRS, many other countries are thoroughly investigative its effects before adoption, not only from an economic perspective but also from a reporting quality position.

The researchers studied the difference in reporting among the two and found that the calculated difference between shareholders’ equity under U.S. GAAP and under IFRS declined over a period of time. In addition, the difference between U.S. GAAP and IFRS reported net income during the period under consideration also declined but remained significantly different. Pensions and goodwill appeared to be the dominant reconciliation items.

Comments on the presentation made by Luxottica Group :

• Luxottica Group has presented its Statement of Profit and Loss and Statement of Affairs for three reporting year i.e. the opening balances on the transition date, the closing balance on the transition date and the closing balances for the reporting period.
• Luxottica Group has not included Other Comprehensive income as part of the Statement of Profit and Loss, which is a must as per the provision of IFRS.
• Luxottica Group has presented a statement of changes in Equity, which is correct as per the provisions of IFRS
• Luxottica Group has not incorporated the concept of Financial Assets and Financial Liabilities in the Statement of Financial Position. While these are a must to incorporate under both heads i.e. Current and Non Current, which depicts the figures of close to liquid assets and liabilities as per the defiinition prescribed under IFRS 9.
• Cash flow statement looks decent as per the requirements of IAS 7.

That was all about the major presentation requirements to be followed by Luxottica Group. Hope you find it useful. ;-)