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CASE ANALYSISScenario :You are the Financial Director of a large private construction company, X Pte Ltd. The company undertakes major construction projects such as building new commercial offices and private residential developments, etc. Until last year, the company had been very profitable but th...

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CASE ANALYSIS Scenario : You are the Financial Director of a large private construction company, X Pte Ltd. The company undertakes major construction projects such as building new commercial offices and private residential developments, etc. Until last year, the company had been very profitable but the economic downturn has started to hit the company hard. The company’s year-end is 31 August and the auditors were in during October to do their fieldwork. It is now December and the auditors are coming in tomorrow for their closing meeting to discuss their main findings and any adjustments that will be required to the draft accounts. You are aware of at least one significant issue which requires to be discussed at the meeting. This relates to the fact that a significant debtor as at 31 August, Y Pte Ltd, has just recently run into financial difficulties and could possibly end up in bankruptcy. Additionally, Y Pte Ltd has been disputing the quality of the work and hence the actual amount due. No payments have been received from that customer post year-end. You are unaware as to whether the auditors are aware of this fact or not. If none of the debt is recovered then the balance sheet position as at the yearend will reduce from a net assets position of S$2,500,000 to S$700,000. What makes it worse is that the company has carried out further work for this client post year-end to the sum of S$650,000. You have not yet had time to update your projections to take account of the likely impact of this potential bad debt and of the worsening economic environment which has seen many potential development projects postponed. The projections which the auditors had reviewed in October in your opinion now appear to be very optimistic. You believe that they will need to be updated and a copy given to the auditors. Just as you are thinking this over, Mr Z, the Chief Executive Officer (CEO), comes into your office. He asks whether you have updated the accounts and projections to take account of the new information. You advise that you are just about to do so and that the figures will be available later in the day. He advises you that there is no need and that what the auditors already have is sufficient for their purposes and that projections are a “guesstimate” at the best of times. He also informs you that no adjustments should be made for the debtor which has just recently run into

financial difficulties and could possibly end up in bankruptcy. You inform him that the auditors will demand that the year-end debt is provided for. He advises you to leave the discussions on the recoverability of the debt to him. Additionally, you inform him that the projections will require to be updated as they now look overly optimistic given what has happened in the past few days with your largest debtor now possibly going into bankruptcy and development projects which you had budgeted on winning being postponed. Mr Z replies that, “The past year has been very challenging and the bank is putting pressure on me to send them a copy of the audited financial statements at the earliest possible opportunity. If the financial statements do not show the company to be in reasonable health then negotiating our new funding facilities is going to be at best very difficult. Remember, it is not only your job that is on the line – think of all the other 60 or so employees and their families. We will be able to trade through this downturn if we are only given a chance. It is not our fault that we find ourselves in this position – don’t let them pull the rug from our feet.” What do you do now?

CASE STUDY REPORT FORMAT GUIDELINE

Following is a suggested guideline for preparing your case study reports (remember to always use APA Style for all formatting and referencing). However, your paper should be FLUSH LEFT margin (business report format) with extra line space between paragraphs and ARIAL 12 pt .

Cover Page (Include student names and student Ids) Executive Summary (If appropriate – should be written last to focus on key points/findings) Brief outline of main findings Analysis Current Situation Analysis and pertinent Background including a synopsis of the relevant information from the case analysis tool short form. 

Including the answers for the ff. questions : A. What are the readily-identifiable ethical issues for your decision? B. Who are the key parties who can influence, or will be affected by, your decision? C. What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?

PROPOSED SOLUTION AND RECOMMENDATION:  

Proposed Solution Recommendation

References - LINKS TO COURSE READINGS AND ADDITIONAL RESEARCH) Recommend that you source business journals, periodicals, and textual references as well as any online research. Make sure you support your ideas with facts and figures. Please try to use your own words and ideas based on research rather than copy and paste other’s words from the internet....