#86- Unpresented Cheque- Part II

In our previous post #80 Bank Reconciliation Review- Unpresented Cheque, we posted the following example and question:

Susan is the accountant of Company ABC, who has a December year-end. On 31 December 2008, Susan has approved a few cheques payable to their creditors, amounted to US$200k. Account executive has input the payments into the systems after Susan has approved the cheques. However, the cheques payable to their creditors are not delivered to their creditors until after year-end.

Is there any financial impact to the financial of the Company? Yes or No? If yes, what would be the impact then ?

Answer:

Apparently, cheques are dated before 31 December 2008 while the cheques are only delivered to the supplier after year-end. Susan has posted the following entries and recorded in 2008's book:

Dr. Trade Creditors
Cr. Cash

From accounting point of view, cheque should not be deducted from the above cash account until cheques have been delivered to the supplier. In above example, cash and trade creditors balance have been understated. A re-classification entries should be reversed out.

Auditor's Responsibility

We should inquire our clients that there are no cheques not delivered to supplier as at balance sheet date.

#85- Seagate Technology Singapore to retrench 2000 employees

Seagate Technology, hard disk drive manufacturer, has 3 facilities in Singapore, namely: Woodlands, Ang Mo Kio and Science Park.

Seagate Singapore has announced that they are going to lay off 2000 employees in Ang Mo Kio plants by end of 2010. Ang Mo Kio plant is principally involved in disk drive manufacturing. Employees being laid off will be offerred retrenchment benefit in line with industry standard.

In our opinion, the shifting of manufacturing operations out from Singapore is in line with general industry trend. In recent years, Singapore entities tend to shift their production plant out from Singapore, especially those labour-intensive manufacturing process, to China, Thailand, Malaysia. This is because labour costs are much lower in those countries, and the Singapore entities will be able to achieve cost savings in medium term.

#84- Market capitalization vs book value

In accounting, we look at net asset of the Company as an estimated guide of the value of the Company. However, the market value of the Company might differ from the book value (i.e. net asset of the accounting record).

Auditor can request management to analyze the difference between market capitalization and book value.

If market capitalization > book value. Auditors should consider what are the premium the investors are paying? Any figures on the balance sheet does not reflect true picture? Does the figure stated in accordance to accounting standards?

If market capitalization < book value. Auditors should consider the impairment issue for all assets and goodwill.