Professional Documents
Culture Documents
2008368767
2008383779
2008333715
2008318359
CONTENTS
Page
Introduction
1. What were the problems/issues facing the
company?
2. Who are the stakeholders and what their stakes
are?
3. How were the affairs of the company managed?
4. How would you describe the system that existed
within the company?
5. How would you assess and rate the financial
health of the company?
6. What are the possible salvage plans?
7. What would you suggest as appropriate course
of actions?
8. How would an external auditor perform his work
in this company?
9. If you are appointed as the auditor to handle the
work of this company, describe an appropriate
audit programme on Trade Receivables of the
company?
10. How should a professional member conduct
himself/herself in commerce and industry?
11. What are the roles of professional accountants
in relation to their compliance to the By-Laws of
the Malaysian Institute of Accountants as in this
case?
12. List 6 critical success factors for small and
medium size enterprise.
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Chicken Run
Introduction
Encik Selamat, a Certified Public Accountant (CPA), had been the General Manager of
Excel Poultry & Meat Sdn Bhd (EPM) since 2005. EPM was established in 1998 to carry on
chicken farming and supplying of whole chicken to various outlets in Malaysia. Now, EPM
had more than 200 employees within the organization and started positioning itself amongst
the top 5 chicken suppliers, in the mid-tier producers in country. The company was able to
maintain its operations and started to make profits in the poultry and meat industry since the
demand for chicken buoyant. However, the company had facing problem in 2008. The
issues arose includes the management of trade receivables, in dealing with superiors,
subordinates and customers as well as in handling credit control. The case became worse
with a situation faced by general manager of the company who took opportunities and
capitalized on his past connections while assuming office. The issues also highlighted the
leadership style, lack of adequate internal control system on sales and collection processes,
flaws in internal reporting channel as well as issues on professional ethics and conduct of an
accountant. Besides, it was also related to situation when accountants would be required to
act when information might not readily be available.
Another problem faced by the company is that the companys General Manager, Encik
Selamat has close relationship with one of the executive directors of Cold Gold Sdn. Bhd.,
Encik Azman. This relationship has enabled Cold Gold to extend its credit limit with
authorisation from Encik Selamat and not the Credit Controller (Ms. Choy).
Encik Selamat also has personal interest in the deal with Cold Gold Sdn. Bhd. The deal was
if Encik Selamat extended the credit limit of Cold Gold Sdn. Bhd., he will personally benefit
from the deal. Encik Selamat did not disclose this matter to the Board.
The company also faced a decrease in net profit within 3 years of its operation in year 2006
2008. The decrease of net profit is mainly because of the feeding cost hike and also
undiscovered irregularities in the accounts.
The figures in the balance of the accounts of the company do not tie up to the confirmations
given to their debtors and creditors. This proves that the companys accounts are not in
proper order and there is possibility of misstatements in their accounts.
Another problem discovered during the aging analysis is that in EPMs books, a retailer, Mr.
Sivas account had outstanding balance. This was in contrast with the books of Mr. Siva,
where he claimed to have paid all outstanding balance and the cash payments had been
made to Encik Munir (one of the former personnel in finance department).
Another stakeholder of the company is the employees. As employees, they are concerned
about not losing their jobs (i.e. job security). They need to be assured that their time and
energy spent on the company are worth it. Therefore, they need to be assured that the
company is doing well so that they do not have to find another job that has higher job
security.
4. How would you describe the system that existed within the company?
In account receivable system of Excel Poultry &Meat Sdn Bhd, marketing department send a
copy of sales invoice of each sales transaction to the accounting department. The account
receivable division in the accounting department will set credit limit for every customer to
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make sure there is cash inflow to the company. Then, accounting department will send
timely reminders to customers with outstanding balances in respect of their accounts. Then
the department will produce aging analysis of customers and the credit controller will report
customers who have reach their credit limit to Encik Selamat. Customers will then pay the
amount payable by them to the finance department. After that, finance department will send
a copy of the payment receipt to the accounting department to update the customers
accounts.
5. How would you assess and rate the financial health of the company?
Generally, the financial health of Excel Poultry & Meat Sdn Bhd (EPM) is getting worse year
by year. It was getting worse because the net profit of EPM is decreasing since year 2006.
Even the company had growing in revenue in which cause by the demand in the poultry and
meat industry, the company still cannot gain higher operating profit. It was mainly pertaining
to significant increase in cost of sales. The company had to incurred higher feeding cost
because the increasing in purchase price of a bag of feed. The increasing affect on the
companys cost of sales.
The financial position becomes worse as the company continued supply products to their
customers even though their customer credit limit had already exceeded. The customers had
difficulty in paying the debt which leads to long outstanding debts. Therefore, there are
increasing in trade receivables as well as trade creditors. The increasing in trade creditor
caused of low operating cash. So, the company had to resort to significant increase in the
short-term borrowings in order to meet its financial operating obligation.
In order for the company avoid in having risk of customers purchase with credits, the
company probably can look for potential customers that purchase their products by cash.
The customers can be small-medium sized company or small groceries stores. The income
of the company can be increased and higher operating cash flow.
The company can apply for banking facilities in order to meet their financial obligations. The
money they received can be used for improving the cash flow of the company. The company
can purchase additional raw materials in order to supply their products to their customers.
Besides, they can use the money for encouraging their customers in paying the debt. For
example, provide reminders and improve the company debt collection.
Ms Choy. Encik Selamat said to have a deal between him and one of the director in Cold
Gold Sdn Bhd (highly likely to be En Azman). If this was the case, looking at the bigger
picture, this conflict of interest somehow can be one of the factor of the financial fiasco faced
by EPM. In handling this proble, again, EPM need to have a proper guideline or policies and
procedures so to speak in handling conflict of interest. Implementing a policy to ensure the
members of EPM to disclose any conflict of interest in any of their client is to be made
compulsory. This is a good first step in moving EPM in a better direction, a company which
does not tolerate with any such behaviour. My next suggestion in handling this problem in
much quicker and more serious, is to have interference of Board of directors seem
appropriate before the situation gets much worst. At least to have En Selamat being
transferred to other subsidiary. The successor however need to be an experienced person in
poultry industry to turn EPM around. In a bigger picture, the subordinates of En Selamat will
view of the action(transferring En Selamat to other subsidiary) to be a serious measure
shown by the Board of Directors to not tolerate with greediness and putting self interest
beyond the interest of the company.
9. If you are appointed as the auditor to handle the audit work of this company, describe an
appropriate audit programme on the Trade Receivables of the company?
In designing the tests of details of balances in trade receivables of the company, the auditor
must satisfy eight accounts receivable balance-related audit objectives which are as follows:
1. Accounts receivable in the aged trial balance agree with related master file amounts,
and the total is correctly added and agrees with the general ledger. (Detail tie-in)
2. Recorded accounts receivable exist. (Existence)
3. Existing accounts receivable are included (Completeness)
4. Accounts receivable are accurate. (Accuracy)
5. Accounts receivable are properly classified (Classification)
6. Cutoff for accounts receivable is correct (Cutoff)
7. Accounts receivable is stated at realisable value. (Realisable value)
8. The client has rights to accounts receivable (Rights)
After all of these eight objectives have been achieved, external confirmation are given to the
accounts receivable. The primary purpose of accounts receivable confirmation is to satisfy
the existence, accuracy and cutoff objectives.
When sending in confirmations, there are basically two types of confirmations: positive and
negative. Positive confirmation is a confirmation requesting the debtor to confirm directly the
amount stated in the confirmation is correct or incorrect. Negative confirmation is a
confirmation addressed to the debtor but requests only to responds if debtor disagrees with
the stated amount.
When there are non-responses in the first confirmation sent, second and third requests of
confirmation are sent. Even with these confirmations, debtors still does not respond to the
confirmation, subsequent test are necessary. For example, subsequent cash receipts,
duplicate sales invoices, and shipping documents.
10. How should a professional member conduct himself/herself in commerce and industry?
A professional member in commerce and industry should always comply with the
Companies Act 1965, Accountants Act 1867, and other regulatory bodies constituting its
responsibilities.
MIA By-Law has distinguished the responsibilities between professional member in the
public practice and professional members in business. However, both parts require a
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professional member to always act with integrity, objectivity or the good reputation of the
profession and as a result would be incompatible with the fundamental principles.
A professional accountant shall comply with the five main fundamental principles. The first
fundamental principle is integrity. A professional accountant should be straightforward and
honest in all professional and business relationships. A professional accountant should also
be objectivity. He is not allowed to be bias, have conflict of interest or undue influence of
others to override professional or business judgments. A professional accountant must be
competence and due care to maintain professional knowledge and skill at the level required
to ensure that a client or employer receives competent professional services based on
current developments in practice, legislation and techniques and act diligently and in
accordance with applicable technical and professional standards. A professional accountant
is also required to act with confidentiality. He must respect the confidentiality of the
information acquired as a result of professional and business relationships and, therefore,
not discloses any such information to third parties without proper and specific authority,
unless there is legal or professional right or duty to disclose, nor use the information for the
personal advantage of the professional accountant or third parties. A professional
accountant must act with professional behaviour that complies with relevant laws and
regulation and should avoid any action that discredits the profession.
As a professional member of public practice and commerce, one should always avoid
threats to the compliance of the fundamental principles. The first threat is self-interest threat.
This threat is the threat that a financial or other interest will inappropriately influence the
professional accountant judgment or behaviour. The second threat is self-review threat. This
is the threat that a professional accountant will not appropriately evaluate the result of a
previous judgment made or service performed by the professional accountant, or by another
individual within the professional accountants firm or employing organization, on which the
accountant will rely when forming a judgment as part of providing a current service. The third
threat is advocacy threat. This threat is the threat that a professional accountant will promote
a clients or employers position to the point that the professional accountants objectivity is
compromised. The fourth threat is familiarity. This is the threat that due to a long or close
relationship with a client or employer, a professional accountant will be too sympathetic to
their interests or too accepting of their work. The final threat is intimidation threat the threat
that a professional accountant will be deterred from acting objectively because of actual or
perceived.
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11. What are the roles of professional accountants in relation to their compliance to the ByLaws of the Malaysian Institute of Accountants as in this case?
In this case, all the accountants of EPM are considered professional members in business.
Professional members in business and public practice both must comply with the
fundamental principles in Section 100 in the MIA By-Law. It also stated that all professional
members of the public and business must eliminate or reduce threats to an acceptable level.
Encik Selamat is a Chartered Professional Accountant. According to section 100.8 of the
MIA By-Law, he is facing the self-interest threat because he is accepting personal benefits
when he extended the credit of Cold Gold Sdn. Bhd. Self-interest threat is a threat that a
financial or other interest will inappropriately influence the professional accountant judgment
or behaviour. Encik Selamat is supposedly to safeguard which is to eliminate or reduce
this threat.
According to Section 320 of MIA By-Law which regards to the preparation and reporting of
information, a professional accountants shall take reasonable steps to maintain information
for the professional accountant in business is responsible in a manner that firstly describe
clearly the true nature of business transactions, assets or liabilities. Secondly, classifies and
records information in a timely and proper manner. And thirdly, represents the facts
accurately and completely in all material respects. It also stated that threats to compliance
with the fundamental principles, for example in this case intimidation threats to objectivity or
professional competence and due care. Ms Choy is pressured to decide whether or not to
raise the case of personal interest of the Encik Selamat, the General Manager of EPM. The
significance of the threats will depend on factors such as the source of the pressure and the
degree which the information is, or may be misleading. It is the duty of Ms Choy and Pn
Azura to reduce the significant threats to an acceptable level. If still Ms Choy and the other
professional accountants cannot eliminate the threat of intimidation to the GM, they should
disassociate themselves from the information that creates threat. The first way is that they
should obtain legal information to report the actions of En. Selamat for his personal interest
with Cold Gold Sdn. Bhd. Another way is to consider resigning.
12.
List six critical success factors for small & medium size enterprise.
1. People - The right people needed to be employed by the company to ensure the
growth of a company.
2. Price The right price of the product and services is crucial in attracting
customers. The profit margin need not be too high and too low.
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3. Place The place the business took place is very important as to make easy for
the customer to come and do business. A place which too remote from the target
customers or too near to other competitors will not be advisable.
4. Product A company must always bear in mind to not sacrifice the quality of their
product in achieving high profit solely. A company which is able to have loyal
customer always a winner.
5. Prize A company may be successful in a short term but to maintain in a long
run, to always reward the employees who worked hard day in day out will always
enhance their working productivity which at the end of the day benefits the
company entirely.
6.
Marketing A company need to have the right type of marketing (based on their
respective industry) to ensure them to reach their target market and make known
of their quality product and services at large. Failing to do that, a company may
find them a hard way to expand or grow their business further.
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