Presentation on theme: "Group E Elizabeth Edward Geoff Smith Hasan Raza Rony Suthermaraj."— Presentation transcript:
Group E Elizabeth Edward Geoff Smith Hasan Raza Rony Suthermaraj
IPO Initial Public Offering 1. Initial Considerations 2. Pre-Transaction Preparation and Organization 3. Drafting and Filing of Preliminary Prospectus 4. The Regulatory Review and Marketing Phase 5. The Final Prospectus Phase 6. Closing
Globe and Mail, Feb 2nd http://www.theglobeandmail.com/news/technology/tech- news/5-issues-for-facebook-mark-zuckerberg-is- one/article2323697/page2/
1. Mobile Phone Market Problem: They currently do not have advertisements on mobile phone facebook apps More people are using Facebook on their phones presenting another market to enter Facebook generates money from 3 rd party ads Investors will encourage the use of ads on all Facebook pages
2. Chinese Market Restrictions Problem: Facebook faces restrictions on accessing the Chinese market 3 other well-established social networks in China create more barriers to enter the market Government restrictions create problems regarding the content and the security features of Facebook
3. Diversification Problem: Main source of revenue is games and ads In 2011 85% of revenues came from ads In 2011 Zynga Games represented 12% of facebook revenues
4. User Growth Problem: How will facebook attract new users 2 billion Internet users in the world 800 million Facebook users in the world They plan to expand into Brazil, Germany, Japan, Russia, South Korea, and India which will equal 45% expansion
5. Mark Zuckerberg Problem: As creator, CEO, and major shareholder controller he controls management’s decisions Even after the IPO he will maintain this control If this creates a problem to managing the company, how difficult will it be to unseat him?
Company Summary Brand name sports attire company Began in 1988 Currently has 15 retail outlets throughout western Canada Multiple Franchise agreements Expected to expand into eastern Canada Requires a debt to total assets ratio of 80%
Company Summary Steven Snipes, CA, works for Sloan & Travis Derek Jeffries owns SportsGoodStop and wants to go public Investment dealer for SportsGoodStop suggested creating an earnings forecast to obtain a better IPO
Issue Derek wants audit assurance of earnings forecast by Wednesday (3 days) Threatened to move to another larger accounting firm if S&T could not do this Is this audit feasible in the time constraint? Preliminary prospectus is scheduled to be sent to the Ontario Securities Commission by this time
CICA Section 4250 Future-Oriented Financial Information Guidance for future-oriented financial information Recent changes to securities laws emphasize the importance of exercising appropriate due diligence when disclosing forward-looking information
CICA Section 4250 Forward-looking information is defined in securities legislation as: “Disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action and includes future-oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection.”
CICA Section 4250 Criteria for presenting forward-looking information: The information must be based on assumptions that are reasonable in the circumstances; The information must be limited to a period for which it can be reasonably estimated; and The information must use accounting policies that are expected to be used to prepare the historical financial information for the period covered by the forward-looking information.
Audit of Earnings Forecast How would we go about auditing the earnings forecast?
General Audit Procedures (to gather evidence) TechniqueTypes of Evidence RecalculationAuditors calculations ObservationPhysical observation ConfirmationStatements by independent parties EnquiryStatements by client personnel InspectionDocuments prepared by independent parties Documents prepared by the client Physical inspection of tangible assets AnalysisData interrelationships
CICA 4250 What does section 4250 in the CICA handbook cover? What are some of the criteria mentioned in CICA 4250?
TechniqueTypes of Evidence A)Auditors calculations B)Physical observation C)Statements by independent parties D)Statements by client personnel E)Documents prepared by independent parties Documents prepared by the client Physical inspection of tangible assets F)Data interrelationships Word Bank 1) Recalculation4) Inspection 2) Enquiry5) Observation 3) Analysis6) Confirmation
Case Questions Do you think that an earnings forecast is necessary? Will the investors value reliable over relevant information?
Case Questions Do you think managements assumptions in the forecast are reasonable? Will there be any issues with the 80% debt to assets ratio after the audit? What would you recommend Steven Snipes to do?
Ethical Issues What are some of the ethical issues that present themselves in the case? What are some of the ethical issues that present themselves in the Facebook IPO article?