In its 2010 IFRS annual financial statements APEN Ltd significantly overstated the amount of its borrowings. The error in the valuation resulted from the incorrect application of the effective interest method. Due to the overstatement of the company's borrowings, interest expense from borrowings and the net loss for the period were overstated. The impact of the error on net loss for the period was CHF 14 million (57%).
As part of the sanction notice SIX Exchange Regulation has imposed a fine over CHF 15,000 on APEN Ltd. The company has accepted the sanction notice and has corrected the error through a restatement in its 2011 IFRS interim financial statements.
Appendix regarding 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.
The following accounting standards were relevant for the assessment of the case in question
After their initial recognition financial liabilities are measured at amortised cost in accordance with IAS 39p47. Amortised cost are determined using the effective interest method. IAS 39p47(a)-(d) excludes certain financial liabilities measured at fair value through profit and loss, financial guarantees and loan commitments from the measurement at amortised cost. However, in this particular case none of the exceptions are applicable.
Under the effective interest method, an entity amortises any fees, points paid or received, transaction costs and other premiums or discounts included in the calculation of the effective interest rate over the expected life of the instrument on an accrual basis in accordance with IAS 39AG6.
In this case amortised cost was determined using the effective interest rate of the borrowings, however, interest paid was not deducted from the amount to be amortised. As a result, APEN Ltd did not comply with the requirements to measure its financial liabilities in accordance with the effective interest method in IAS 39p47.