LONU053 International Finance And Accounting Essay.

• • Chic Paints Ltd (CPL) was initially a subsidiary of a company named Ashstead Pcl. The company was a result of the management buyout and consisted of five directors since the beginning. These directors are Greg Pearce, Jane Yip, Ruth Jones, Ahmed Khan and Susan Mather. Recently Jane Yip had been replaced by Dave Whistler as a Finance Director.
  • In the year of 2005 Ashstead had taken up the decision to change the current model of business from being a seller of all household items to specialize in certain goods. Therefore CPL was sold and it was bought by its faithful directors and CPL started working in the paint industry specializing in the paints used by cars, boats and industrial machinery.
  • The company is dependent upon a number of stakeholders who essentially are the pillars of business. Internally they are the employees of the organization, unions and shareholders. Externally the shareholders are the suppliers, customers and the banks.
  • The stakeholders are the ones who hold and execute the business in a proper way. Each and every stakeholder is related to business in such a way that they have the power to affect business and vice versa.
  • The company consists of 350 employees and has an annual turnover of $120 million with a profit margin of 30% and net assets over £25 million.

• • The accounts department consists of eight major members. The members hold the following positions Finance Director, Chief Accountant, Accounts Payable Clerk, Accounts Receivable Clerk, General Ledger Clerk, Costing Technician, Payroll Clerk and Accounting Systems Technician.
  • The accounts receivable clerk, Xu Hin is also responsible for monitoring the credit control process of business. She also is responsible for chasing the debtors whose payments are due.
  • The accounts department on a whole is not only in charge of managing the books of accounts but also planning the financial strategy of business, authorizing the payments to suppliers via BACS and cheques, making the payroll taxes and also keeps on updating the company about the accounting forecasts and proceedings.
  • The basic function of the department revolves around issuing debit and credit notes and also serves the responsibility of taking care of the payroll of the wages and salaries of staff.
  • The accounts department communicates or relates with the different departments of the organization with the help of the general ledger accounting system in which all the transactions that the company enters into is recorded. It is the central financial hub of the company and is referred to in the preparation of any kind of financial statements.
  • A certain software named Sage 50 is used for the payroll system and is only authorized to be accessed by the officials of the accounting department depending on the responsibilities of the job that they execute. The major financial accounting system utilizes the Microsoft Office 2010 Excel spreadsheet in order to record the transactions.

• • The financial statements prepared by the company are prepared in such a way that they represent a true and fair view of the liquidity position and the financial condition of the company.
  • Dave Whistler the Finance Director is in charge of preparing the annual company report including all the statutory accounts.
  • The Statement of Profit or Loss of the CPL displays the total revenue and the expense or loss incurred by the company in a particular financial year. It essentially reflects the profitability of the organization and is accessed by the officials sitting at the top of the accounts department and the directors of the company.
  • The statement of financial position reflects the current value of the liabilities and assets utilized by business. It indicates the financial condition of business as well as the liquidity position of the company that is how well is the company being able to manage its debts. This particular statement is very useful for the management of the company and the Board of Directors for assessing the growth of the company. Even financial institutions before forwarding loans to CPL may go through the statement of financial position.
  • The statement of cash flow reflects the inflow of cash in business at a certain time period. The cash flow can be broken down into investing, operating and financing activities.

• • It is the primary duty of every business to comply with the laid down regulations by the management of the organization.
  • The accounting regulations that pertain to United Kingdom is the UKGAAP (Generally Accepted Accounting Principles).
  • Other two major bodies that cover the standards for preparing the statement of accounts are the Companies Act, 2006 and the International Financial Reporting Standards.
  • The company should also mandatorily comply with the data protection act and maintain the privacy of information obtained from its customers, suppliers or stakeholders of business.
  • The company also needs to follow the regulations as established by HMRC in relation to collection of tax from its employees and payments to HMRC.
  • The company has to work with money-laundering regulations as established by the UK Government. They mandatorily need to be registered under the Financial Conduct Authority.
  • The international customers of the company if not hailing from UK does not fall under the Sarbanes-Oxley Act,2002.

• • The Accounts department has certain flaws in it. The credit control procedures are not implemented in the organization
  • The staff employed is not qualified enough and does not have required experience to properly execute the job role. Even there is lack of proper training on the part of the staff of the accounts department as there is a continuous demand for stated guidelines and procedures regarding credit control.
  • The chasing of debtors is also done without following any proper guideline or manual.
  • The accounts receivable system should also develop a way to include the purchase order numbers from the customers for lesser happenings of misplacement in regards to invoicing and queries of customer[1].
  • The accounts receivable ledger is matched and the entries are recorded in the general ledger at the end of the month leading to errors of double entry and journal duplication.
  • A single person handling the ledger and entering transactions into it removes the chances of cross checking, therefore the early errors cannot be spotted[2].
  • The software used for maintaining the payroll and other accounting purposes is Sage and has limited access to it.
  • The task of credit control and maintaining the accounts receivable is done by a single employee which results in the employee doing extra hours.
  • The manual records created are not maintained properly as these are done on excel sheets and then uploaded into the main system once in a month.
  • The credit limit set by the credit controller up to £25,000 is not a very good decision especially in case of new customers.

• • 2.1 Following the incident of Rymore Boats who owed the company an amount of £40,000, Xu did admit that in spite of repeated enquiries there has been no implementation of credit control procedures in the firm.
  • Moreover she has also admitted to the fact that she was facing too much work pressure as she had to be the both Accounts Receivable Clerk and Credit Controller.
  • The issue of insuring against the risk of offering open trade credit has also been raised.
  • Therefore it is naturally assumed that the lack of a proper credit control procedure and also lack of staff is resulting in such a huge amount of irrecoverable debts [3].

• • It is the responsibility of the company to authorize all the credit limits but due to the extra work load the credit limits are not being recently monitored by the company as a result of which the clerks of accounts department are setting the limits without utilizing any proper method or reliable procedure. The reason for such high irrecoverable debt is due to the fixation of such improper credit limits.
  • The estimated amount of loss suffered by the company due to the irrecoverable debts amount to £120,000.

• • The store staff are not aware of the policies of the company and do not inform the account receivable department about the cash payment or other proceedings in the store. This result in confusion and errors on the part of accounting for these receipts.
  • This practice has led to loss of customers and will definitely resolve the issue if a little care is taken.

• • The clerk at the accounts department with the responsibility of handling the payroll is completely trained on the utilization of the software named Sage and is also responsible for the payment of wages and salaries of the staff of the organization. Now the particular area where the fraud may occur is that the inability of others to access the particular software gives the clerk the opportunity to commit fraud. This is because there is no other individual to check the workings of the particular clerk. The fraud might be committed by showing fake overtime hours worked by employees or by adding a particular ghost employee in the payroll.
  • The CPD levels are nil as none of the employees have received offers for this position.
  • The accounts payable ledger clerk also hoots away the suppliers in order to delay their payments. The clerk with permission from the management fakes the accounts of the management by reducing the company’s overdraft at the end of the month. This if reported will amount to fraud as manipulation of accounts is being carried out here.
  • Another area of fraud is that the company for its own benefit allows other employees to receive the payments for their colleagues. This act potentially has the opportunity to include ghost accounts in the books of accounts thus committing fraud.
  • The company no doubt has taken enough initiatives in order to mitigate fraud but the management should be more vigilant towards the workings of employees.

• • There is no code of conduct established by the management. This means that there are no laid down standards to which the employees can refer to.
  • Certain processes of the company lack honesty as it is the decision of the management to fend off the suppliers so as to delay the payments to the suppliers. This is done in order to get an elevated financial statement.
  • There are security breaches in case of the payroll software of the company. It has been known that all the staff of the accounting department has access to the software but this fact is not known to them.
  • Some employees do not have any concern regarding the laid down regulations and fix the credit limit according to their own judgment and thinking.

• • The company though had received an offer to use degradable containers for the purpose of business but the offer was rejected on the ground that the total cost of production increased by 20%. The management did decide that if any of the competitors started using bio degradable containers then the management would again thought upon the offer.
  • The accounts department as such maintains no record in case of in case of any contribution towards the corporate, environmental and social issues.
  • No sustainability code has been constructed by the company so that the staff of the organization could follow it and build a sustainable organization.
  • In case of chasing the debtors the utilization of letters must be decreased and in place of that the facility of emails must be used.
  • The IT facilities of the company in regards to backing up data should be improved. This means that the 42 computers used by the accounting department staff should have the facility of auto backing up so that they do not have to be logged into the system continuously and energy in terms of electricity is saved.
  • The abnormal increase in the wastage of goods should be reviewed as to what is the particular reason behind it and controls should be introduced in order to mitigate the amount of wastage.

• After a detailed observation into the proceedings of the company the following recommendations are chalked out for the purpose of removing the current issues faced by the company.
• Debt Recovery
  • The major issue that lies with the debt recovery of the company is that the number of staff employed in the accounts receivable function of the accounts department is really less. The staffs who are currently employed in the accounts receivable function is so much overloaded with work with their own responsibilities that none of them have enough time to chase the debtors whose payments are overdue. Therefore the particular recommendation in this case would be that a new accounts receivable clerk must be recruited.
  • The accounts receivable clerk should be recommended a suitable course where he or she could get enough training including both theoretical and practical knowledge in order to eable the employee to work better.[4]
  • The most suitable ption would be to enroll the employee on Level 2 AAT. Meetings or inductions conducted by the finance director and chief accountant should also be conducted in order to educate the employee about the course [5].The training should not exceed a time period of two working days and should be executed by other staff of the accounts department.
  • This will reduce the extra money that the company has to spend on overtime of the previous employee which amounts to be £3738.00 annually.

• • The major issue regarding the credit limit is that incase the company accountant is overburdened with work load then there must be a credible process or framework with the help of which a correct credit limit could be set so that the company does not suffer loss on account of irrecoverable debt.
  • The recommended solution for such an issue would be to delegate the general ledger clerk to help the employee during the first three weeks of the month in order to reduce the burden of work on him.
  • This will not only help the accounts receivable clerk in managing the responsibilities delegated to him but also ensure optimum utilization of the general ledger as he has nothing much to do during these weeks.
  • The accounts receivable clerk with such a help from a colleague may feel motivated to work.
  • A meeting with the chief accountant also has to be set up in order to set the timing for training required to be given to the general ledger clerk and also a raise in the salary of the general ledger has to be discussed.  
  • The total cost pertaining to the implementation of the recommendation may amount to £ But the potential benefit would be £975.
  • The cash on order trial period should be extended to a range of three to six months. This has to be decided by the chief accountant and the sales manager. The system should be developed in such a way that the system alerts when a particular customer reaches the credit limit.
  • The IT department needs to design the system with an alert feature and initial training is also required.

• • The company rather the IT department of the company should make it a point to create software authorizations and particular alerts that notify the finance director or chief accountant each every time a customer account is added or deleted.
  • The finance director should also be notified whenever a particular credit limit has to be approved and the employee will also be required to send an email to the concerned line manager with the report from Experien along with the advice of the employee on initial credit terms.
  • This may generate initial resentment among the employee as he or she would blame the company for not placing trust on them. But with time and proper explanation from the line managers the particular situation is likely to improve.
  • After the implementation of the software authorization, initial training to the finance director and chief accountant should be given. After this the line managers should be introduced to the system, post which the chief accountant would conduct an induction of the employees regarding the enw system.
  • The cost pertaining to this recommendation is £ However it would lead to a net benefit of £6,196.00

• • The company should make it a point to acquire CCTV in order to monitor and control the delivery and treatment of the goods. [6]
  • The company should also make it a point to pay a particular staff his wage in his own hands [7]. This means that employees should not be allowed to collect payments on behalf of their colleagues. This will mitigate the unnecessary confusion and the loophole for committing fraud will be removed. In case of an employee being sick, another colleague may be allowed to collect the pay by displaying a written and signed authorization from the employee. 
  • Another important point to be noted is that the issue of falsifying the accounts prior to quarter ends must be controlled so that they reflect a true view of the financial statements.[8]

• • The trade credit as is not insured, enough research should be done and the company should enter into contract of business with a credit insurance company [9].
  • The chief accountant and the finance director should research the company with which the entity would enter into business and pass the results of the research to the Board of Directors and eventually the employees would be informed of the final decision.
  • The insurance company may as well send an employee who would conduct an induction of the employees along with the finance director and the chief accountant in order to make them understand about how the insurance company works and the perks offered by it.
  • The cost of such a recommendation would be £40,000 but would lead to a net benefit of £152,000.

• • The availability of a written document consisting of all the guidelines as to how to control the flow of credit, when and how to chase the irrecoverable debts and other important related information would be very helpful especially for the employees who could refer to it.
  • This will definitely motivate the employees as they will get access to a well structured guideline regarding credit control.
  • In order to set up the written document, meetings should be held between the chief accountant, the finance director and the employees. A proper set of guidelines if set will definitely increase the amount of debt collection.

Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.

Michalski, G., 2013. Portfolio management approach in trade credit decision making. arXiv preprint arXiv:1301.3823.

Michalski, G., 2014. Factoring and the firm value.

Pedneault, S., Silverstone, H., Rudewicz, F. and Sheetz, M., 2012. Forensic accounting and fraud investigation for non-experts. John Wiley & Sons.

Petroons, J., Hanan, C.C., Bailey, A.G., Gupta, S.D., Mellyn, K.L., Saal, M., Alexander, M. and Mondschein, C., Jpmorgan Chase Bank and NA, 2014. Electronic multiparty accounts receivable and accounts payable system. U.S. Patent 8,712,887.

Vural, G., Sökmen, A.G. and Çetenak, E.H., 2012. Affects of working capital management on firm's performance: evidence from Turkey. International Journal of Economics and Financial Issues, 2(4), p.488.

Wells, J.T., 2017. Corporate fraud handbook: Prevention and detection. John Wiley & Sons.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.

Wu, D.D., Olson, D.L. and Luo, C., 2014. A decision support approach for accounts receivable risk management. IEEE Transactions on Systems, Man, and Cybernetics: Systems, 44(12), pp.1624-1632

[1] Michalski, G., 2013. Portfolio management approach in trade credit decision making. arXiv preprint arXiv:1301.3823.

[2] Michalski, G., 2014. Factoring and the firm value.

[3] Petroons, J., Hanan, C.C., Bailey, A.G., Gupta, S.D., Mellyn, K.L., Saal, M., Alexander, M. and Mondschein, C., Jpmorgan Chase Bank and NA, 2014. Electronic multiparty accounts receivable and accounts payable system. U.S. Patent 8,712,887.

[4] Wu, D.D., Olson, D.L. and Luo, C., 2014. A decision support approach for accounts receivable risk management. IEEE Transactions on Systems, Man, and Cybernetics: Systems, 44(12), pp.1624-1632.

[5] Vural, G., Sökmen, A.G. and Çetenak, E.H., 2012. Affects of working capital management on firm's performance: evidence from Turkey. International Journal of Economics and Financial Issues, 2(4), p.488.

[6] Pedneault, S., Silverstone, H., Rudewicz, F. and Sheetz, M., 2012. Forensic accounting and fraud investigation for non-experts. John Wiley & Sons

[7] Wells, J.T., 2017. Corporate fraud handbook: Prevention and detection. John Wiley & Sons.

[8] Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.

[9] Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting. John Wiley & Sons.