Depreciation of an asset."
Section 8 of Regulation 15 echoes this requirement.
- With regard to the identification of an asset whose value may be reduced, Section 7 of Regulation 15 states that:
"If there is no indication of a potential loss from impairment, this standard does not require a corporation to formally estimate the recoverable amount."
For the purpose of examining whether any sign exists, Sections 9-11 of Standard 15 propose to consider, inter alia, external sources of information such as the market value of the asset, significant changes that have a negative impact on the corporation, an increase in interest rates in the market and the ratio between the book value of the net assets compared to the market value of the corporation; and internal sources of information such as evidence of obsolescence or physical damage to the property, Significant changes that have a negative impact on the corporation and evidence from the internal reporting system indicates that the financial performance of the property is worse than expected (mainly based on the cash flows deriving from the property).
- However, there are also exceptions to this in Standard 15, and in certain cases there is no need to calculate the amount of restitution (in sections 12-13 of the standard). This is the case if it has been proven that the property is not sensitive to the specific sign of depreciation. For example, in a case where every time the interest rate in the economy changes, the entity raises the price of the product and the cash flow is not affected.
- So, was there a sign of a decline in the value of the assets? According to the defendant's own position, the accounting policy determined that recognition of surplus payments to growers as an "asset" is contingent on the expectation of future economic benefits. This is what emerges from Kost Forer's letter of reference to the investigator's report (in paragraph 34):
"The firm examined the refundable amount every year.The refundable amount is determined first and foremost in accordance with the questions of whether the growers have signed the marketing contracts for the next season and whether the company's budget is profitable or expects a profit.At the time of the approval of the company's financial statements, most of the growers had signed marketing contracts for the next season, and the company's budgets expected profits."
- Therefore, both according to the defendant's policy and according to the rules set forth in paragraphs 9-11 of Standard 15, the examination of whether the value of the property was impaired was derived from the question of whether the growers signed marketing contracts for the next season and whether the company's budget anticipated profits from those engagements. Since the expectation of economic benefits must be at least equivalent to the cost of producing them, contracts that yield losses cannot establish a recoverable amount, and this is sufficient to require recognition of a decrease in value or disqualification of the asset in the first place. In practice, as appears from the opinions submitted and from the testimonies in this case, the examination was conducted on a collective global basis, in contravention of sections 65 and 66 of Regulation 15, which testify, as stated, that as far as possible, each item should be examined separately as a result of the rationale for reaching a true registration. Kost Forer's letter of reference to the report of the Investigator in Charge can also be inferred from the plural ("advances") that the items were not examined in a specific manner, but globally collectively (in section 34):
"At the time of the approval of the company's financial statements, most of the growers had signed marketing contracts for the next season, and the company's budgets expected profits.In 2008 there were declines in the yield of growers, which were explained by the damage caused by the cold.As a result of the firm's discussions with the company's management , the company's management reached the conclusion that the advance amounts of ILS 8 million in the financial statements for 2008 should be reduced in relation to the amount initially presented."
- In accordance with the aforesaid indications, Agrexco and its accountants should have examined, at least in a sample, what is the recoverable amount expected from each "advance" - for example, by estimating the future consideration produced by that grower or the expected economic benefits from the relationship with it - on the basis of a contract or other binding formal agreement. This examination is required to ensure that the property is listed at a value that does not exceed the economic benefit that can be realized from it. In this case, in the absence of a structured return mechanism or contractual security, any 'advance' to the grower constitutes, in practice, an asset at risk whose recovery must be checked.
- This is what emerges from the testimony of CPA Morad regarding the consequences of the lack of individual examinations (Transcript, p. 1043, s. 13 to p. 1044, s. 2):
"A: ... After Yohanan's consultation with the company's management, it was decided not to register another order because, according to the company, the decrease was in the quantity marketed, but the number of growers did not change.
- I mean, he didn't check it.
- It's (unclear) the accountant's, yes?
- Yes. So I mean, if I understand correctly, that what you saw was that Mr. Gav told him that, and then he was satisfied. It's not that he checked it. The company's management told him that the decline was just what was written, what you read to me, so he checked. But you didn't see an examination of it.
- There's no way he didn't check it, and if he didn't check it then he doesn't know what his situation is today and he has to get his license. Because when I get a management position, I always check it and always verify it. By the way, we keep saying in our profession that we are accountants and not accountants. So if someone says something to me, I usually check."
In particular, for 2007, no documentation of the appearance was presented in which an examination of a refundable amount was carried out for advances (Transcript, p. 1035, paras. 4-10):