Reference no: EM133375293
Case Study: Beautiful Desserts operates 10 shops throughout Australia which are leased from shopping centers and it also supplies gourmet shops and restaurants. Beautiful Desserts employs 200 people and has various properties which are mortgaged to the National Bank.
Currently, the business is performing poorly. Beautiful Desserts is 4 months behind in payment in 7 of its leases and 6 months behind in the payment of its mortgage and 3 months behind in payment to its flour supplier. So far all employee wages and entitlements have been paid, but the directors are worried about the financial position of the company.
The board of directors is concerned to ensure that the company does not trade when it is insolvent because of the potential liability of both the company and its directors. You are asked to produce a report specifically relating to the aspect of insolvent trading. In the report you are to set out and explain:
Questions:
1. Advice the directors, on what company records and policies need to be checked and what possible action could they take?
2. What the relevant parts of the Corporations Act 2001 (Cth) are that apply to Insolvent trading and clearly state the legal definition applicable to insolvent trading?
Corporations Act 2001 (Cth) are that apply to Insolvent trading:
3. Briefly explain and interpret the requirements of the director's duties in relation to insolvent trading sections, in particular the breach of the sections that may lead to noncompliance by a director.
4. Discuss two issues with internal controls relevant to the accounting system that could be the cause of the company's current financial crisis.
5. List two effective examples of internal control of accounting systems, which will assist in managing and monitoring the risk of insolvent trading. You may wish to refer to the Australian Auditing Standard ASA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment.
6. Prepare a suitable Risk Management plan for the company for the next 12 months.