Review of financial reporting - Gaming Innovation Group Inc.
Published: 30 June 2017
Finanstilsynet has reviewed certain matters related to the 2015 annual financial report of Gaming Innovation Group Inc. ("GIG"), as well as its interim reporting of 2015 and the first half of 2016.
Finanstilsynet found that GIG's accounting practices for business combinations and purchases of groups of assets had been of inferior quality, and that this had caused numerous material errors and omissions related to the recognition, measurement and disclosure of these transactions. A common feature of most of the recognition and measurement errors, was that GIG had failed to identify certain intangible assets with limited useful lives, and hence allocated too much of the consideration to either goodwill or other intangible assets with indefinite useful lives.
A prominent example is the accounting for 5 purchases of groups of assets within GIG's affiliate marketing business, for which 95 % of the considerations had been allocated to internet domains with indefinite lives. These internet domains were found not to be of significant value, and that the consideration should have been allocated to other identifiable intangible assets that must be depreciated over a limited useful life. The review revealed that that GIG had shifted part of the consideration offered to Optimizer Invest Ltd ("Optimizer") between two linked transactions made in 2016. More precisely between the consideration paid to Optimizer for their majority shareholding in Betit Holding Ltd ("Betit") and the repurchase of Optimizer's minority shareholding in GIG's iGamingCloud subsidiary. The extra consideration deemed to relate to the acquisition of Betit, was exclusively paid to Optimizer.
GIG has corrected the accounting errors and omissions identified by Finanstilsynet, either in its 2016 annual report or in preceding interim reports. GIG has presented reworked comparatives for previous accounting periods, but the adjustments and error corrections will not have full year effect before in 2017. If compared to the initial accounting of the transactions in the 2015 and half year 2016 financial reporting, the effect is an increase in GIG's depreciation and costs in 2017 of approximately EUR 3.2 million. GIG has further presented significantly improved disclosures, taking into consideration most of Finanstilsynet's findings and recommendations relating to additional disclosures for revenue reporting and business combinations.