FNS60217: Advanced Diploma of Accounting - Accounting Assessment Answer

Assessment Task:

FNS60217

Case Study 1
OK Construction Pty Ltd is a construction company operating in Australia with operations in several states. It provides a wide range of building and construction services mainly to the Department of Human Services and private sector. OK Construction Pty Ltd has undergone significant growth in the past three financial years with the turnover increasing from $500m to $800m from 30th June 2014 to 30th June 2017. At the end of 30th June 2017 70% of company revenue was generated from the Department of Human Resources and 30% of revenue was generated from the private sector. The Department of Human Resources needs houses constructed as part of its new community welfare program and serves as the biggest customer for OK Construction Pty Ltd.
The board of directors of OK Construction Pty Ltd consists of 8 directors, of which 5 directors are involved in the full-time management of the business. Stuart Warwick is the chairman of the board of directors. Stuart has over ten years’ experience in the building and construction industry. Stuart is also involved in the management of the business and overseeing day to day construction projects. Robert Penn is the chief executive officer of OK Construction Pty Ltd and is also one of the board of directors. Robert is responsible for the ongoing operations of the company including constructing the strategies and significant policies of the company. Robert with his management team undertakes the implementation of the corporate strategies approved by the board of directors.
OK Construction Pty Ltd is looking into establishing its operations in European countries. The business will require a significant amount of funding to expand its operations in the European market. The company is also heavily reliant on overseas markets for the supply of its construction materials. In regard to the shareholders’ composition, a majority of the shareholders are made up of small Self-Managed Superannuation Funds.
During the financial year ending 30th June 2017, OK Construction Pty Ltd invested a significant amount of funds in the latest information management system for their industry. The new system allows the company to track progress of the work undertaken on each site. The system then links to the trade debtors’ management. Invoices are raised based on the completion percentage of work on each site. Stuart enters information in the system regarding the stage of completion for each job. This information is reviewed by Robert, who then raises the invoices. At the end of each month a report is printed from the system showing the amount owed on each job. This report is presented to the board of directors along with the monthly financial reports. FNS60217

Complete the following activities: FNS60217
1. What are the key drivers of Corporate Governance in OK Construction Pty Ltd? Your answer should make reference to the key drivers such as Globalisation, Capital Markets and Shareholders Activism.

2. Comment on the board composition of the OK Construction with reference to the ASX corporate governance principals and recommendation for the board of directors.

3. The board chairman Stuart Warwick has asked you to provide a brief review of the audit committee of OK Construction Pty Ltd.
You are to evaluate the effectiveness of the audit committee in relation to the ASX principles and recommendations on Corporate Governance. Your review should provide a summary of the ASX recommendation outlined in Principle 4, and advise how OK Construction Pty Ltd addresses this.

4. Access the ‘Principles of Corporate Governance ‘document from the Organisation for Economic Cooperation & Development website.
Provide a summary report to Stuart Warwick on how OK Construction Pty Ltd can shape its Corporate Governance Framework to address these principles.

5. Assess how the risk management committee can enhance the management of Internal Control systems in OK Construction Pty Ltd? Your answer should make reference to the relationship between Internal Control systems and Risk Management.

6. How can you relate Agency theory to Corporate Governance in OK Construction Pty Ltd?

Case Study 2 FNS60217

Perfect Fruit Pty Ltd is a large business entity with orchard operations in regional Victoria. The company operates in growing stone fruit and selling it Australia wide and overseas. The business has increased the production by 20% in the past two years with significant increase being in export. The main risk for the export is Australian currency fluctuations and the change in Australian dollar which can have major impact in exports for Perfect Fruit Pty. Due to the size of the business and volume of the transactions, Perfect Fruit Pty Ltd uses accounting software to record financial information. The software allows the administrator to enter the customer orders in the system. The customer order does not affect the Profit & Loss or Balance Sheet items until the sale transaction is created. Once the order is approved, it is converted into a sale transaction. It is very important to keep track of the dates in the software. The date of the sale transaction should be the date it is converted from customer order not the date when original order was created. At the end of each month Financial Reports are printed from the software and provided to management. The management then reviews the reports and ensures the business has complied with the following Corporate
Governance objectives:
A. Fruit sales are in line with the budgeted target of an average of $400,000 per month.
B. Trade creditors balance is maintained at the creditors ageing 30 days.
C. Trade debtors balance is maintained at the debtors ageing 30 days.
For the month ending 30th June 2017, the Financial Reports produced from the software show the following figures:
Fruit Sales $325,000
Trade Debtors $300,000 (60% ageing 30 days, 40% ageing 45 days)
Trade Creditors $180,000 (70% ageing 30 days, 30% ageing 45 days)
After reviewing the above figures, Lenard Cooper the head manager of Perfect Fruit Pty Ltd is concerned as the business has been unable to meet its Corporate Governance for the month of June 2017.Upon further investigation he found there were customer orders entered in the month of May 2017; these orders became sale transactions in the month of June 2017. When the orders were converted into sales, the dates on the transactions were not changed. Also, there was a delay in reporting due to the major breakdown of the IT system.

7. Explain the Performances; as one of the key elements of Good Corporate Governance?

8. The CEO is trying to identify a performance measure for Fruity Fruits Pty Ltd. He wants to take into account the Qualitative's factors of performance. During his research, he comes across the term; Balanced Scorecard and Discuss how the company can assess their operations in relation to the four dimensions of the ‘Balanced Scorecard’.

9. Discuss whether Perfect Fruit Pty Ltd has complied with its Corporate Governance objectives in relation to each of the dimensions in the Balanced Scorecard.

10. What remedies should Perfect Fruits Pty Ltd take to improve Performance in order to meet its Corporate Governance objectives?

11. Do you believe that the business is effectively using its financial management system? Provide a brief report evaluating the management system. How can it be made more useful in ensuring that the corporate governance objectives are met?

12. Discuss whether Perfect Fruits Pty Ltd managed to achieve its corporate governance objectives by reviewing the financial reporting of the corporate governance objectives on 30th June.

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