The day after Pres. Trump was surprisingly elected in 2016, the US Treasuries yield curve got steeper. There was no change in short-term interest rates. Trump’s election surprised everyone. Trump, unlike his opponent Secretary Clinton, had promised a big tax cut. Why did the surprise election of a candidate who promised a big cut in taxes cause the yield curve to get steeper, even though it would be a full year before the tax cut bill was written, voted on, signed into law, and implemented? Would the effect on the yield curve have been the same if Trump’s election had been widely anticipated, rather than the surprise it was? Explain.

1. Mainstream economics teaches us that market competition is the most efficient way to regulate the production and distribution of commodities. And yet, many who are critical of President Trump’s policies have argued for the government to command enterprises to produce what is needed for this public health emergency and then distribute the goods according to need.

In one paragraph, briefly give me at least two reasons why it might make sense for the government to suspend the market and take control of the production and distribution of goods.

In a second paragraph, explain what problems a government’s command and control policies might cause.

In a final paragraph, tell me whether or not you think the critics of President Trump are correct.

Your firm is the incumbent auditor on Biotech Ltd, a pharmaceutical company. Since the previous audit, the company has listed on the Australian Securities Exchange which means the company has to meet additional reporting regulations. Due to rapid growth, Biotech Ltd is financially stretched and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Australian Financial Review, which stated that Biotech Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll.

Biotech Ltd is a pharmaceutical company, developing drugs to be licensed for use around the world. Products include medicines such as tablets, medical gels and creams. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. Drugs must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2020 financial year, Biotech Ltd lost several customer contracts to overseas competitors.

Biotech Ltd approached its bank during the year to extend its borrowing facilities. An extension of $20 million was sought to its existing loan to support the on-going development of new drugs. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3.5:1.

In addition, the company asked the bank to make cash of $5 million available if an existing court case against the company is successful. The court case is being brought by an individual who suffered severe side effects when participating in a clinical trial in 2016.

On 8 June 2020, the Company announced to the market it had been the victim of a cyber-security incident that resulted in supplier and customer details being disclosed on the dark web. The Company is assessing the costs of the incident and the subsequent reduction in revenue. The Company expects this to have a material impact on future earnings.

Minutes from the Audit Planning meeting with Simon Jones (Finance Director of Biotech Ltd) held on 30^th April 2020:

Due to the current government restrictions, the planning meeting with Simon Jones was held via Zoom. In attendance at the meeting was the Audit Partner (Michael), the Audit Manager (Amanda) and the Audit Senior (David).

The following key items were discussed during the meeting:

• Mr Jones raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor in future.
• Michael reminded Mr Jones that fees relating to the audit engagement from the previous year were still outstanding.
• Both Michael and Mr Jones also discussed the range of non-audit services provided to Biotech Ltd, which includes payroll preparation, tax computation and advice.
• Mr Jones gave the audit team an update on the court case pertaining to the individual who suffered severe side effects from a company trial (refer above). According to legal advice provided to Mr Jones by the company’s legal counsel, it is more likely than not that Biotech will lose the court case, which would result in a significant amount of cash having to be paid as a settlement.
• Amanda asked Mr Jones if he considered the decline in profitability as an indicator of a material uncertainty surrounding the going concern assumption. Mr Jones responded by saying, “Look, everything might seem dire, but we have it under control. We will be here this time next year, so keep that in mind”. Michael then looked at Amanda and David and said, “Make sure that you mention the conversation that we have just had with Mr Jones about the appropriateness of the going concern assumption in the audit working papers. This should be sufficient enough audit evidence for us.”
• Mr Jones also mentioned the following: “As you know, Biotech Ltd has a Goodwill asset on the balance sheet. This is an indefinite useful life intangible asset. In accordance with the Accounting Standards (AASB 138), we are required to test the asset for impairment every year. We usually prepare a Value in Use calculation based on discounted future cash flows that we expect to generate in the next five years. I have completed this year’s calculation by rolling forward the prior year’s calculation and have just updated the dates. There was no need to update the future cash flow figures.”

The Audit Team

The audit team consists of 4 people. The partner is Michael. He has been the audit partner on the Biotech Ltd audit for 6 years. The audit manager is Amanda. This is Amanda’s first time on the Biotech Ltd audit. David is the audit senior and is responsible for the initial audit planning. David has recently completed the Graduate Diploma of Chartered Accounting. David has just been offered a well-paying accountant position at Biotech but he has not yet decided whether to accept the position. The graduate on the audit is Audrey. Audrey’s friend is the receptionist at Biotech Ltd. The receptionist has no accounting knowledge and has no involvement with the recording or processing of accounting transactions.

Accounts Receivable / Sales Accounting Cycle and Internal Control System

At the end of each month, the sales manager determines the amount of products required to meet sales demand for the following month based on sales orders received. He reviews the sales orders received from customers and then prepares the pre-numbered inventory requisition forms, which he then sends to the warehouse managers so that they can prepare the goods for delivery. One copy of the sales order and inventory requisition form is sent to the warehouse, one copy is sent to the accounts receivable department and one copy is filed in the sales department.

The warehouse prepares the goods for delivery to the customers and generates the delivery document. When the goods have been delivered, the signed delivery document, which includes the delivery details, is forwarded to the accounts receivable department. The other copy is filed in the warehouse. The accounts receivable clerk matches the signed delivery document with the sales order and inventory requisition form. Once satisfied that all of the details agree, the clerk generates the sales invoice. Once generated, the clerk does another check to ensure that all details per the sales invoice agrees to the delivery document and sales order. Once satisfied, she writes “checked” on the sales invoice and sends it to the customer. At the end of every week, a different clerk in the Accounts Receivable team reviews the bank statements for receipt of payments from customers and performs a reconciliation against the sales invoices. Once a customer has paid the sales invoice, the clerk stamps “received” on the sales invoice and files that along with all the other documents in date order.

The walk-through of the accounts receivable/sales cycle confirmed that the accounting and internal control system was working as documented above.

Test of control:

As part of the audit, Audrey tested the controls over the accounts receivable system. She selected a sample of twenty sales transactions and tested the control that all details had been checked. Out of the 20 sales transactions that were selected for testing, 5 sales invoices in the sample did not have the word “checked” written on them. When documenting the results of the test performed, Audrey concluded that the internal control did not operate effectively and consistently throughout the year but that no further audit work is required.

Substantive test

In order to test the occurrence of the sales transactions, Audrey selected a sample of sales invoices and traced them to the General Ledger to test that they were properly recorded.

Subsequent events not previously mentioned

• One of Biotech Ltd’s major customers went into liquidation in July 2020. The balance due from the customer at 30 June 2020 was $564,000. This is a material amount. There has been no provision/allowance for doubtful debts raised for this debtor in the financial statements for the year ended 30 June 2020. Biotech Ltd’s legal adviser stated in a telephone call that that the probability of any funds being received from the debtor is remote.

• On 2 July 2020, Biotech Ltd declared a one-for-five rights issue of 100,000 shares at $2.20. These shares were payable in full on 31 July 2020.

Misstatements identified

What is the audit opinion for the above case study?

Tesla, Inc. is an American automotive company that specializes in electric car manufacturing. The company and Elon Musk, it’s current CEO, has been an innovator in the United States automobile industry. Tesla has used technology as one of it’s driving factors. They provide online software updates and have open source technology, to an extent. Tesla’s production efficiency and sales have increased the last few years. During 2018 & 2019, they were able to achieve some quarters profitability.

Despite of these improvements, the company has had to deal with a number of challenges. Among them:

-   Elon Musk is a dynamic leader; however, he is also unpredictable. For example, in 2018 Musk reported that the company may be going private. The statements were deemed to be misleading for a publicly traded company. Musk and the company were fined a total of $40 million dollars and Musk was not allowed to serve as Director of the Tesla Board for at least three years.
-   Although production has improved, it is still has not met expectations. The company has had many issues which include, assembly line issues, battery integration, and delivery logistics. During this time, Musk has made statements regarding production which has over promised to the market.
-   Tesla had achieved quarterly profitability for some quarters during 2018 and 2019. They had losses for years. Obviously, this is a problem but not unusual for a manufacturing company that takes a number of years to develop a market. The issue is that with accumulating debt, the unpredictability of production and costs have caused major concerns in the investor market place.

Operating a company the size of Tesla is a major task. It takes many teams, with numbers of functions. Address the following questions as advice for the Tesla Board of Directors

1.   The leader of the company, Elon Musk, has created issues on his own for the company. What structure could be put in place to minimize negative impacts?
2.   Chapter 4 of the Group Dynamics for Teams text addresses group cohesion and team roles. What concepts could be utilized to improve the Board’s results?
3.   Tesla was founded in 2003. What factors would you consider to be critical when forming the initial board?

1. An example of a tangible product is a) consulting advice b) the symphony c) banking d) clothing e) travel

2. What are the most important demographic trends to be considered by toy manufacturers? a) Extending life expectancy b) Growing urban population c) Declining birth rates d) Growing international migration e) Rise of single-women households

3. An example of a tangible product is a) consulting advice b) the symphony c) banking d) clothing e) travel

4. The US-China trade war and tariffs will mostly affect companies who manufacture their products in the US a) True b) False

5. Brands depicted as points in the positioning matrix close together are those perceived as a) expensive b) high-quality c) similar d) different

6. Recent outbreak of coronavirus COVID-19 can be classified as a __________ environment factor a) Technological b) Economic c) Political d) Demographic e) Natural

7. Jen is developing the positioning for a new line of sunglasses. In a meeting, the marketing team tells Jen that she has clearly expressed the competitive advantage of the brand so that it can be used in dialogues and communications. Which element of crafting the positioning has Jen’s team just approved? a) positioning statement b) target marketing c) target segmenting d) unique selling proposition

8. P&G introduced Folger’s Instant Coffee Singles for people who live alone and don’t need to brew a full pot of coffee at a time. This is segmentation based on: a) Income b) Social class c) Family life cycle d) Culture e) Personality

Please write down your response after reading the paragraph. (At least 5 sentences long. 150-200 words)

While it may be obvious to some that saving more lives would be minimizing total harm, it becomes difficult when we begin to consider the value of each life at risk. We cannot necessarily say the value of the driver's life is less than the lives of the pedestrians simply because of quantity. If the driverless car kills the driver, then it will be doing good for those pedestrians, not the driver, and vice versa. However, the challenge to our morality comes into play when we determine what the car's primary goal should be, to save the driver, or to save those in the surroundings. Right now, we all buy cars that will be safest for us as drivers and passengers, and I am not sure why this would change with the implementation of driverless cars. If these cars were to be implemented in society not everyone would have one, for one reason or another. Let us say that the driverless car runs a red light and crashes into a vehicle driven by a mother with her child in the back seat. If these two cars were driven by people, the person who ran the red light would clearly be punished. But now we are faced with a situation where blame cannot be directly placed on anyone. The issue now becomes, how can we get justice for the people who are impacted by the accidents of these driverless cars? While it may seem to be such innovative technology that makes life easier, the more our technology advances, the more we must advance to keep up with it and the issues that come as well.

An auto company C Ltd. is facing a problem of declining market share due to increased competition from other new and existing players in the market. Its competitors are introducing lower-priced models for mass consumers who are price sensitive. For quality-conscious consumers, the company is introducing new models with added features and new technological advancements.

Guide Questions:

1. Prepare a model business plan for C Ltd. to meet the existing challenge. You need not be very specific about quantitative parameters. You may specify which type of plan you are preparing.

2. Identify the limitations of such plans.

3. How will you seek to remove these limitations?

BUSINESS FINANCE

Question 1

As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of

management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to

perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain

members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the

Chairman, are expected to keep the actions of the management in check.

Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?

BUSINESS FINANCE

Question 1

As companies grow in size, it is inevitable for the shareholders to hire management to run the operations of the business. The entire team of

management, starting from the CEO and other top-level management, all the way to the middle and bottom level management are expected to

perform towards the growth of the business. Since the shareholders of large companies are scattered across geographies, they appoint certain

members as representatives who are elected to represent them on the company board. The board of directors of a company, along with the

Chairman, are expected to keep the actions of the management in check.

Explain the above in context of agency theory and corporate governance. What can companies do to ensure adequate corporate governance?

Missouri was International Shoe Corporation's principal place of business, but the company employed between 11 and 13 salespersons in the state of Washington, who exhibited samples and solicited orders for shoes from prospective buyers in Washington. The state of Washington assessed the company for contributions to a state unemployment fund. The state served the assessment on one of International Shoe Corporation's sales representatives in Washington and sent a copy by registered mail to the company's Missouri headquarters. International Shoe's representative challenged the assessment on numerous grounds, arguing that the state had not properly served the corporation. Is the corporation's defense valid? Why or why not? [International Shoe Co. v. Washington, 326 U.S. 310 (1945).]