Bega Cheese is an Australian based that has been engaged in the business of dairy products in the country. The company has been established in Bega a town in New South Wales Australia. The company was listed in the year 2011 in Australian stock exchange. Nearly half of the company’s shares are still been held by the Bega farmers suppliers. The company has been regarded as the Australian largest dairy companies in the country. The net valuation of the company has crossed the mark of AUD 775 million by December 2016 end. 25% stake in Bega Cheese Company has been held by Capitol Chilled Foods (Australia) Pty Ltd whose controlling interest lies in the hand of the multinational company Lion.
The company is majorly engaged in producing the core dairy products which includes Cheese, cheese cream, powdered milk. These products in total captured around 40% of the total revenue of the company. The company is also engaged in producing the nutritional products under the brand name of Bega Bionutrients brand. This captures around 20% of the total revenue of the company. As per the recent report, the products of the company are popular worldwide with an average 400 shipping containers are being exported per month to nearly 70 destinations across the globe.
The management of the company is abide by all the regulations that are applicable on the company in the country. But being Bega Cheese limited is into the diary based products business, there are few specific food regulations as well which are applicable on the company.
The management of the company is required to abide by the Federal and State Environmental Regulations. These include reporting requirements under the National Greenhouse and Energy Reporting Act 2007 (Cth), the Protection of the Environment Act 1997 (NSW) and the Clean Energy Act 2011 (Cth). At the same time the management of the company is required to meet all the requirements of the employee related act which includes the Superannuation Guarantee Act where all the superannuation contributions are to be made in accordance with the Superannuation Guarantee Act. Now being the company is engaged in food industry, they are required to comply with the Primary Production and Processing Standard for Dairy as per the Australian food safety standards. At the same time there are certain dairy specific regulations that are also needs to be maintained by the company which includes food standards code and particularly the Standard 4.2.4 - The Primary Production and Processing Standards for Dairy Products, the Export Control Act 1982. In this regulation, the requirements of the customers, food safety measures and parameters are well defined.
As per the nature of the company, there are certain inherent risk that are baked in the company, Inherent risk refers to the risk where error or omission can be there in the financial statements due to factors other than failure of control. These risks can take place in the financial statements at times when there are complex transactions and high degree of judgment is required to be placed in at times of making the estimates in the books. In case of Bega Cheese some of the inherent risk that might be prevailing in the financial statements is as follows:
Fair value estimation: At times of preparation of financial statements of the company, the management of the company is required to make certain estimates. The auditors in this case are required to test the basis of the estimation that has been made in the management and required to document those through the help of some samples. In case of Bega limited, the management based on their understanding for the tax laws makes estimation for the tax liabilities. The auditors are required to test the completeness of the tax liabilities and their might be a risk that the tax amount so computed by them is not correct and may require some modification. In this case the accounts that will be impacted will be the tax accounts, fixed assets, inventory etc.
Inventory: The valuation of the inventory is again a major are that arose the attention of the auditors. Being the company is engaged in the food industry, the gestation period of the inventory should be low. There might be a possibility that the inventory that has been maintained by the company may not be in a usable state and thus that needs to be written off. Thus in that case, there is an existing inherent risk attached to the inventory level for the company. Further, the method used in for inventory valuation should be considered considering the nature of the product that needs to be valued. In this case the accounts that will be impacted will be the inventory accounts, Cost of goods sold etc.
Controlling interest: The Company is a holding company for many subsidiaries, thus in that case there might be risk related to consolidation of the accounts. The related transactions should be eliminated etc needs to be considered thoroughly by the auditors. In this case the accounts that will be impacted will be the goodwill and majorly all the accounts of the company.
Accounts receivables: The Company deals with numbers of dealers within the county as well as outside. As per the recent report, the products of the company are popular worldwide with an average 400 shipping containers are being exported per month to nearly 70 destinations across the globe. Thus in that case the valuation of the same and checking the correct aging the balances is again a challenge for the company. In this case, the auditor of the company is at the risk that the account receivable balances are not overstated mean whether the company has made adequate provisions in the books for the aged accounts receivables or not. In this case the accounts that will be impacted will be the accounts receivable balances and the provision for doubtful debt accounts.
Contingent liabilities: The off balance items has their own importance associated to the financial statements of the company. The management has to clearly mark down the contingent liabilities and state the correct picture in front of the stakeholders and shareholders of the company. In this case, the auditor of the company is at the risk whether any provision is required to be made in the books in respect to the contingent liability. In this case the accounts that will be impacted will be provision accounts and all the other liabilities accounts that are related to the contingent liabilities.
Foreign Exchange Gain/loss: The Company has its operations all across the globe. They have been transacting in many countries as result, they are always lying under the risk of facing fluctuations in the foreign currency rate. This will impact the profit of the company at a greater pace. This will have a big inherent risk for the management. In this case the accounts that will be impacted will be all the foreign related transactions.
Dairy Australia.com, Regulatory overview, viewed on 23rd April 2017, Retrieved from https://www.dairyaustralia.com.au/Industry-information/Food-safety-and-regulation/Regulatory-framework/Regulatory-overview.aspx#key regulations
Food standards.com, 2015, Dairy Standard (Australia only), viewed on 23rd April 2017, Retrieved from https://www.foodstandards.gov.au/code/primaryproduction/dairy/pages/default.aspx
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