.Thursday, October 02, 2008 ' 1:52 AM Y
puppies are loved <3
OMG!! I couldn't believe i type so super slow!! I still planned to type this out in 20 minutes but it goes much beyond that. I started at 1245am but now its already 150am! God me really noob in high technology i'm so slow!! How long do you guys use to type this long answer? I started to write in pieces of papers at 11pm and just copy it from the papers at 1245. It's a 50% question.
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Ching Yong here, the guy who knows Helen, Aveline they all.
Here goes the answer for EWMC.
Part a
Strategic risk is the risk affecting the organisation as a whole such as entrance of new competitors or advancement in technology for example product range that render the company's product to be obsolete. Failure to manage this risk at best will result in the organisation falling behind its competitor or at worse, threaten the going concern of the organisation. Economic factor is also an example for strategic risk as the 'needs' and 'wants' from each individual may be vary as they are from different background. Thus, the management should identify customers 'needs's as primary as everyone needs basic stuff such as clothes, foods to survive, 'wants' maybe secondary.
Operational risk at the other side refer to risk that affect the smooth running of the day to day business. Examples includes stock out situation for a particular type of raw material due to poor planning or high absentism due to workers suffering food poisoning. Increase in customers complaints and fraud perpetuated by staffs such as collusion among several employees or with third party could be operational risk as well.
The main difference between this two risks are the level of severity. As seen above, strategic risk is more serious compared to operational risk. However, if corrective measures are not taken to address operational risk, it may escalate to more serious and may turn it to become strategic risk.
Strategic risk is for long term action plan to achieve objectives set by the board comparatively with operational risk, is short term action plans translated from minor-minor strategies risk.
The person who responsible for strategic risk is stated in Enterprise Risk Profile (ERP) also known as risk register as immediate action must be taken to address this serious risk, The risk owner must identify the likelihood and impact of the risk and determined existing control take to address the risks. The time line to implement the plan is crucial if benchmark with operational risks. The risk owner usually determined by the board.
While responsibility of operational risk fall under each head departments for their division. For example, purchasing head is responsible to address the risk in their own department itself. Thus, their responsible is not so crucial as compared to strategic risk. However as mentioned above, corrective actions must be taken at the best earlier time possible.
Part b
The risk that could exist in Manage Limited for Utopia are as follows:
The main risk are financial risk that is extremely important to Utopia as they are in USA while Manage is in EU countries. Utopia need to pay Manage in let say Euro or Pounds sterling in order to acquire Manage, rather than in their own currency USD. If USD is weakening at the acquisition period, Utopia is expected to suffer extra cost. The control to reduce the impact of this risk is to hedge against the currency at certain rate so that to secured the cost and to avoid material fluctuation of the currency.
Besides that, is the debt finance risk. Utopia have to dispose off their subsidiaries in EU countries within one year in order to acquire Manage. The interest rate may be fluctuating as well affecting the cash flow to be tight. Worse case, Utopia acquisition of Manage may be six months and uncertain timing to buy over Manage Limited. The amount is also less clear as the income of subsidiary disposed is almost equal means? There might be some economic downpour that hardly to be predicted.
The culture in USA and UK is difference as the services expected by UK may be vary from USA's customers. Thus, Utopia may be unfamiliar with UK services industry ended up destroying the value of Manage that established for many years.
As mentioned in the case, Utopia can retained some Manage staff as they are more familiar with EU countries culture, rules, market etc. Thus, the Human Resources department should be retained by Manage staff but a few Utopia staffs to sit on Manage's board to observe them.
Laws and regulations is another extreme risk that Utopia should give priority as it may threaten the operation of the company. If the regulator stop granting licenses, Manage couldn't operate. Therefore, the relationship with government should be built up before acquiring Manage.
The Corporate Governance in both Utopia (USA) and Manage (UK) is significantly difference as the former adopting Rules based while the latter adopting principle based. Hence, Utopia should not be so rigid in considering the operations or internal control in Manage. Principle based approach adopting comply or explain structure.
Part c
(i)
Board of directors- Appointment of the members of the board by nomination committee. It must be transparent and disclose in annual report.
- Induction program introduce to the board member to understand the entity's nature of business and it's environment.
- Continuing Professional Development for each directors to make sure they are competence in doing their task for the benefits of the company keeping update with the latest laws and regulations.
- Every company sure will have risk, to ensure that appropriate internal controls implememnted to mitigate the risk.
- Existence of remuneration committee to ensure remuneration package for Executive Directors is link to individual and corporate performance. No one individual can determined their own remuneration
Individual
- To ensure directors have sufficient qualification, technical knowledge to run the task given by the board effectively.
- Experience of each individual , usually the more experience , the more responsibility and higher salary being given.
- Directors background investigation also known as due diligent to ensure the director have ethical behavior as well as professionalism, no black listed on stock exchange.
(ii)
Accountability and audit
- Establishment of audit committee comprising of at least 2-3 Independent Non Executive Directors (depend on the size of the company), one of them is financial expert to oversee Financial Reporting and Internal Control.
- Audit committee is impartial body for External and Internal auditor to consult.
- Responsibility of each individual accountable for their superior to safeguard shareholders interest.
Part d
According to Turnbull, a sound system of Internal Control should comprises of the following elements :
- Control activities which are policy, procedures and processes that should be establish within the company to safeguard shareholders investment.
- Monitoring process to ensure continue effectiveness of the control
- Communication process to feedback the result of monitoring to the board so that prompt action can be taken.
- All the above processes should be incorporated in the company operation and form part of its culture
- Capable of addressing any new risk that emerge in the business in the speedy manner.
- Existence of procedure to communicate significant risj to management in charge so that prompt corrective measures can be taken.
Manage Limited could demonstrate they have met all elements by showing the attitude, awareness and action of those charge with governance and management function towards important of Internal Control. A strong control environment would result in strong control activities as it establish by the board itself. Senior management should set the tone at the top.
Cost spend bu Utopia to acquire Manage for example retaining some of the Manage staffs. The staffs salary may be enough attract and retained employees. Manage's staffs would be motivated to work harder for their parent company.
Segregation of duty among Manage's staffs as no one individual can be managing many task to avoid manipulation the control and dilute the chances of colloboration as the punishment they could get may outweigh the benefit.
Authorisation and approval as material transaction should be authorised by senior personnel as junior may goes wrong. Material amount should authorised by at least two staffs assuming senior manager absent. The service contract sign with customres must ensure the sub-contractor is able to cope with the job.
Arithmetical control to ensure the amount on contract is accurate. Check against with the budget, recorded in ledger or invoices to matches against with to contract agreement.
The end.
Question 3 will be delivery hopefully in 2 days time. Now is near 2am. Tired. Sleep good night.
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Anyway, 1 question done left 1 more. This 2 days i really no study, mahjung a few hours already. Sigh. Must study lor left only 2 more months to finals. All the best. Tired now already 2am. Good night everyone.
