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For example, in France, business meetings begin promptly at the designated time and everyone is expected to be there. Foreign business people who are tardy are often left outside to cool their heels as a means of letting them know the importance of promptness. Unless one is aware of such expected behaviors he may end up insulting the people with whom he hopes to establish trade relations.
A second traditional problem is that of monetary conversions. For example, if a transaction is conducted with Russia, payment may be made in rubles. Of course, this currency is of little value to the American firm. It is, therefore, necessary to convert the foreign currency to American dollars. How much are these Russian rubles worth in terms of dollars？ This conversion rate is determined by every market, where the currencies of countries are bought and sold. Thus there is an established rate, although it will often fluctuate from day to day. For example, the ruble may be worth '0.75 on Monday and '0.72 on Tuesday because of an announced wheat shortage in Russia. In addition, there is the dilemma associated with converting at '0.72. Some financial institutions may be unwilling to pay this price, feeling that the ruble will sink much lower over the next week. As a result, conversion may finally come at '0.69. These "losses" must be accepted by the company as one of the costs of doing business overseas.
A third unique problem is trade barriers. For one reason or another, all countries impose trade barriers on certain goods crossing their borders. Some trade barriers are directly related to exports. For example, the United States permits strategic military material to be shipped abroad only after government permission has been obtained. Most trade barriers, however, are designed to restrict import. Two of the most common import barriers are quotas and tariffs.
The best title for the passage would be ______.
A．How to Succeed in International Trade
B．Monetary Conversion
C．Trade Barriers
D．Unique Problems in International Trade
From a different supplier, Nesud Co purchases $2·4 million per year of Component K at a price of $5 per component. Consumption of Component K can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to meet demand and the cost of placing each order is $248·44. The holding cost for Component K is $1·06 per unit per year.
The finance director of Nesud Co is concerned that approximately 1% of credit sales turn into irrecoverable debts. In addition, she has been advised that customers of the company take an average of 65 days to settle their accounts, even though Nesud Co requires settlement within 40 days.
Nesud Co finances working capital from an overdraft costing 4% per year. Assume there are 360 days in a year.
Required:
(a) Evaluate whether Nesud Co should accept the early settlement discount offered by its supplier. (4 marks)
(b) Evaluate whether Nesud Co should adopt an economic order quantity approach to ordering Component K. (6 marks)
(c) Critically discuss how Nesud Co could improve the management of its trade receivables. (10 marks)
Hummingbird Scents Co (Hummingbird) manufactures and sells luxury toiletries; they have been trading for over 20 years and the company’s year end is 30 September 2014. Hummingbird sells products to trade customers via its own website; this represents 60% of revenue. Remaining revenue is generated by contracts to supply toiletries to hotels. Below is a description of the sales system.
Hotel revenue
The hotel revenue is made up of four key customers. Hummingbird has one sales clerk, Brenda, who maintains all aspects of this revenue stream; Brenda receives customer orders, raises sales invoices and processes payments. In raising invoices, the sales system automatically inserts the online trade customer prices for products. However, each hotel customer has contracted prices which are lower than the online prices and hence Brenda manually edits the invoices prior to despatch.
Online revenue
New trade customers are set up in the sales ledger master file upon passing suitable credit checks, and a credit limit is set at this stage by the finance director. Customers place online orders up to their pre-set credit limit; they receive an email confirmation and the sales order interfaces into the despatch system. The order number is linked to the customer account number. Goods are despatched daily with a goods despatched note which is referenced to the sales order number but are not sequentially numbered. Hummingbird used to despatch goods via a reliable national courier company. However, to reduce costs they have changed to a cheaper local courier and some orders have been delivered to customers late.
Trade customers’ sales invoices are automatically generated by the system on the day the online order is placed. The prices are inserted in accordance with the website rates. Occasionally Hummingbird makes special offers or discounts sales; when this occurs the master file data has to be amended to ensure that the correct prices are used on invoices. This task is usually performed by a senior sales ledger clerk.
Revenue and receivables records
On a monthly basis statements are sent to the hotel customers; a number of trade customers have been requesting monthly statements and Hummingbird is considering this request. The company only reconciles the sales ledger control account at the end of September in order to verify the year-end balance.
Required:
(a) As the external auditor of Hummingbird Co, write a report to management in respect of the sales system described above which:
(i) Identifies and explains SEVEN deficiencies in the sales system; and
(ii) Provides a recommendation to address each of these deficiencies.
A covering letter IS required.
Note: Up to two marks will be awarded within this requirement for presentation and the remaining marks will be split equally between each part. (16 marks)
(b) Describe substantive procedures the auditor should perform. to confirm Hummingbird Co’s revenue. (4 marks)
The price in the foreign exchange market is called ______.
A．the trade surplus
B．the exchange rate
C．the money price
D．the currency rate
A、abolish
B、accomplish
C、distinguish
D、establish
the audit of the financial statements for the year ended 30 November 2007. The draft financial statements show
revenue of $125 million (2006 – $103 million), profit before tax of $5·6 million (2006 – $5·1 million) and total
assets of $95 million (2006 – $90 million). Your firm was appointed as auditor to Island Co for the first time in June
2007.
Island Co designs, constructs and installs machinery for five key customers. Payment is due in three instalments: 50%
is due when the order is confirmed (stage one), 25% on delivery of the machinery (stage two), and 25% on successful
installation in the customer’s coal mine (stage three). Generally it takes six months from the order being finalised until
the final installation.
At 30 November, there is an amount outstanding of $2·85 million from Jacks Mine Co. The amount is a disputed
stage three payment. Jacks Mine Co is refusing to pay until the machinery, which was installed in August 2007, is
running at 100% efficiency.
One customer, Sawyer Co, communicated in November 2007, via its lawyers with Island Co, claiming damages for
injuries suffered by a drilling machine operator whose arm was severely injured when a machine malfunctioned. Kate
Shannon, the chief executive officer of Island Co, has told you that the claim is being ignored as it is generally known
that Sawyer Co has a poor health and safety record, and thus the accident was their fault. Two orders which were
placed by Sawyer Co in October 2007 have been cancelled.
Work in progress is valued at $8·5 million at 30 November 2007. A physical inventory count was held on
17 November 2007. The chief engineer estimated the stage of completion of each machine at that date. One of the
major components included in the coal extracting machinery is now being sourced from overseas. The new supplier,
Locke Co, is located in Spain and invoices Island Co in euros. There is a trade payable of $1·5 million owing to Locke
Co recorded within current liabilities.
All machines are supplied carrying a one year warranty. A warranty provision is recognised on the balance sheet at
$2·5 million (2006 – $2·4 million). Kate Shannon estimates the cost of repairing defective machinery reported by
customers, and this estimate forms the basis of the provision.
Kate Shannon owns 60% of the shares in Island Co. She also owns 55% of Pacific Co, which leases a head office to
Island Co. Kate is considering selling some of her shares in Island Co in late January 2008, and would like the audit
to be finished by that time.
Required:
(a) Using the information provided, identify and explain the principal audit risks, and any other matters to be
considered when planning the final audit for Island Co for the year ended 30 November 2007.
Note: your answer should be presented in the format of briefing notes to be used at a planning meeting.
Requirement (a) includes 2 professional marks. (13 marks)
A．imports automatically increase
B．currency automatically depreciates
C．exports automatically decline
D．currency automatically appreciates
______ are the basis of foreign exchange dealings.
A．World trade
B．The cross-border money
C．Capital movements resulting from financial transactions
D．All of them
which were recently discussed at the monthly audit managers’ meeting:
(1) Nate & Co has recently been approached by a potential new audit client, Fisher Co. Your firm is keen to take the
appointment and is currently carrying out client acceptance procedures. Fisher Co was recently incorporated by
Marcellus Fisher, with its main trade being the retailing of wooden storage boxes.
(2) Nate & Co provides the audit service to CF Co, a national financial services organisation. Due to a number of
errors in the recording of cash deposits from new customers that have been discovered by CF Co’s internal audit
team, the directors of CF Co have requested that your firm carry out a review of the financial information
technology systems. It has come to your attention that while working on the audit planning of CF Co, Jin Sayed,
one of the juniors on the audit team, who is a recent information technology graduate, spent three hours
providing advice to the internal audit team about how to improve the system. As far as you know, this advice has
not been used by the internal audit team.
(3) LA Shots Co is a manufacturer of bottled drinks, and has been an audit client of Nate & Co for five years. Two
audit juniors attended the annual inventory count last Monday. They reported that Brenda Mangle, the new
production manager of LA Shots Co, wanted the inventory count and audit procedures performed as quickly as
possible. As an incentive she offered the two juniors ten free bottles of ‘Super Juice’ from the end of the
production line. Brenda also invited them to join the LA Shots Co office party, which commenced at the end of
the inventory count. The inventory count and audit procedures were completed within two hours (the previous
year’s procedures lasted a full day), and the juniors then spent four hours at the office party.
Required:
(a) Define ‘money laundering’ and state the procedures specific to money laundering that should be considered
before, and on the acceptance of, the audit appointment of Fisher Co. (5 marks)
A．there is no self-correcting mechanism
B．currency values become unstable
C．the value of the reserve currency declines
D．world inflation increases
