Case Study: Chapmans Limited's Accounting Issues and ASIC Intervention

This case study delves into the accounting practices of Chapmans Limited, an Australian investment company, focusing on its compliance with AASB 128 concerning investments in associates. Initially, Chapmans Limited treated itself as an investment entity, recognizing subsidiaries as associates at fair value, a practice inconsistent with AASB 128. The Australian Securities and Investments Commission (ASIC) raised concerns regarding the non-consolidation of subsidiaries and the fair value accounting of associates in the 2016 financial report. Consequently, Chapmans Limited had to restate its financial statements for the year ended December 31, 2016, consolidating and equity accounting for its investments, resulting in a $3.2 million reduction in net assets. The case highlights the importance of adhering to accounting standards and the implications of non-compliance, emphasizing the need for accurate financial reporting and investment valuation.

Running head: CHAPMANS LIMITED 0
Chapmans Limited
Manita
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Contents
Overview................................................................................................................................2
An examination of the basis of accounting treatment earlier adopted by the Chapmans is
outlined below........................................................................................................................2
Basis of the concerns raised by the ASIC..............................................................................3
References..............................................................................................................................4

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Overview
Chapmans Limited is an Australian investment Company which caters the needs of the
customers in the area of the growth capital and advisory services to private and public
companies across the diverse range of the industries. The resources that are included are
engineering and technical services along with the mobile technology.
In the lieu of the AASB 128 Investments in Associates the major objective of this standard is
to deliver the fact that the investor needs to use the equity method of accounting for the
investments at the cost. Post recognition any transactions between the investee and the
investor. For the other investments, AASB 139 which will apply, whereby the unlisted
investments will be accounted for the price available of in the case where the fair value can
be not measured reliably. As per the AASB 128 the entities are exempted from consolidating
underlying investees it controls in accordance with the AASB 10 Consolidated financial
statements (AASB, 2018).
An examination of the basis of accounting treatment earlier adopted by the
Chapmans is outlined below.
In the earlier scenario the Chapmans Limited treated itself as an entity of the investment for
the purpose of the accounting and the subsidiaries were recognised as an associate as
investments on the fair value. The treatment followed by the company is that investments
were recognised at the fair value which is not in accordance with the AASB 128 Investments
in associates and Joint Ventures. According to the Accounting standard 128 the assets are
recognised on the initial recognition under the equity method for the purpose of the
investment in an associate or joint venture and the same has been recognised at cost and
whatever amount left is the carrying amount which is increased or decreased to recognise the
investor share of the profit and the loss of the investee once the date of the acquisition has

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arrived. The value of the carrying amount may also be deduced from the distributions
received from an investee (Chapmans Limited, 2017).
Basis of the concerns raised by the ASIC
ASIC notes the decision taken by the ASX listed Chapmans Limited to restate the results for
the year ending 31st March 2016. After that there were certain issues which were raised by the
ASIC such as the ASIC raised the concern of not consolidating the subsidiaries and
accounting associates in the financial report for the financial year 2016. The biggest concern
was that the Chapman considered the transactions of the investment at the fair value. Due to
this The Chapmans had to restate the financial statement and reissue the financial analysis
report for the year ended 31st December 2016 to consolidate and equity account the
investments. This step will also reduce the net assets as at 31st December 2016 by $3.2
million. Under the note 4 in the financial statement released by the Chapmans the summary
of the adjustments is included (ASIC, 2017).

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References
AASB, (2018) Investments in Associates and Joint Ventures [Online] Available from
https://www.aasb.gov.au/admin/file/content105/c9/AASB128_08-15_COMPdec15_01-
18.pdf [Accessed on 28th September 2018]
ASIC, (2017) Chapmans restates results to 31 December 2016 [Online] Available from
https://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-306mr-
chapmans-restates-results-to-31-december-2016/ [Accessed on 28th September 2018]
Chapmans Limited, (2017) CHP company review [Online] Available from
https://www.investsmart.com.au/shares/asx-chp/chapmans-limited [Accessed on 28th
September 2018]