1.Identify the key accounting policies (step 1) and primary areas of accounting flexibility (step 2) for Euro Disney
Key accounting policies
•Euro Disney Associés has opted for financial lease. The firm leases the Disneyland Park from Euro Disneyland S.N.C. EDL Hotels S.C.A., which is owned for 99,99% by Euro Disney Associés, leases the hotels from a special-purpose financing company. •The special-purpose financing companies are fully consolidated in Euro Disney’s financial statements. The substance of the relationship between the group and these financing companies is such that they are effectively controlled by the group. Areas of accounting flexibility•The personnel is transferable between the park and the hotels and vice versa. This way, the company copes with the fact that 90% of the employees have a permanent contract. •Euro Disney can defer the payments of interest, royalties and management fees that it has to pay to The Walt Disney company, when the actual performance is less than the contractually agreed benchmark.
•The debt covenants limit the amount of new debt capital that Euro Disney can attract to $50 million. 2.What incentives may influence managing reporting strategy (step 3)? •The CEO of the Gérant, Philippe Gas, could obtain a discretionary annual bonus based on the individual performance relative to the objectives of the company. Moreover, he also obtains discretionary grants of the company’s stock options, The Walt Disney Company’s stock options and The Walt Disney Company’s restricted stock. •In 2005, Euro Disney obtained waivers for certain debt covenants from The Walt Disney Company. •In 2008, the firm did not recognize any asset write-offs which influences the net income positively. 3.What disclosures would you consider an essential part of the company’s annual report, given its key success factors and key accounting policies (step 4)?
•They have a lot of trained employees. These trained employees create added value for the company by improving customer service. To get a clear image of the workforce of Disney, a detailed social balance sheet and a detailed overview of personnel expenses should be included in the annual report. •Another disclosure that we would include in the annual report is an overview of the depreciation policies (and changes in the depreciation policies) of the fixed assets in the Disneyland park.