Chicken Run

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MAF680 CASE: CHICKEN RUN
GROUP MEMBERS
AFIQ IZDIYAD BIN IBRAHIM 2008368767

AHMAD SABRAN JAMIL BIN MOHD AMIN 2008555807 MUHAMAD RUZAINI BIN AB RAHMAN DAYANG CASANDRA ASMALIA BT SAIDI ILI NAZIEERA BT MOHD SOHED 2008383779 2008333715 2008318359

CONTENTS
Page Introduction 1. What were the problems/issues facing the company? 2. Who are the stakeholders and what their stakes are? 3. How were the affairs of the company managed? 4. How would you describe the system that existed within the company? 5. How would you assess and rate the financial health of the company? 6. What are the possible salvage plans? 7. What would you suggest as appropriate course of actions? 8. How would an external auditor perform his work in this company? 9. If you are appointed as the auditor to handle the work of this company, describe an appropriate audit programme on Trade Receivables of the company? 10. How should a professional member conduct himself/herself in commerce and industry? 11. What are the roles of professional accountants in relation to their compliance to the By-Laws of the Malaysian Institute of Accountants as in this case? 12. List 6 critical success factors for small and medium size enterprise. 3 3 4 5 5 6 6 7 8 9

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Chicken Run Introduction Encik Selamat, a Certified Public Accountant (CPA), had been the General Manager of Excel Poultry & Meat Sdn Bhd (EPM) since 2005. EPM was established in 1998 to carry on chicken farming and supplying of whole chicken to various outlets in Malaysia. Now, EPM had more than 200 employees within the organization and started positioning itself amongst the top 5 chicken suppliers, in the mid -tier producers in country. The company was able to maintain its operations and started to make profits in the poultry and meat industry since the demand for chicken buoyant. However, the company had facing problem in 2008. The issues arose includes the management of trade receivables, in dealing with superiors, subordinates and customers as well as in handling credit control. The case became worse with a situation faced by general manager of the company who took opportunities and capitalized on his past connections while assuming office. The issues also highlighted the leadership style, lack of adequate internal control system on sales and collection processes, flaws in internal reporting channel as well as issues on professional ethics and conduct of an accountant. Besides, it was also related to situation when accountants would be required to act when information might not readily be available.

1. What were the problems/issues facing the company? Since 2008, the company has been facin g the problem of increased chicken feed cost which has risen to RM88 from RM54.50 (an increase in almost 61.5%). The increase in feeding cost has ultimately increased the company¶s production cost to about 56.5%. The increase of feeding cost has affected t he whole industry. Thus, FLFAM has called for higher chicken prices in order to protect producer¶s earnings in the face of feed cost hike. However, members of the FLFAM had seen a drop in demand of the chicken. Since the event of the feed cost hike, the company discovered that they have systematically low operating cash. In that event, the company resorted to borrowing short -term loans from the bank in order to meet operating obligations. This in turn increased i ts financial obligations in terms of interest payments. The aging analysis of the customers of the company had turned out that one of the major customers ± Cold Gold Sdn. Bhd. has gone over the company¶s credit limit, yet marketing department continued to supply products to the company.

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Another problem faced by the company is that the company¶s General Manager, Encik Selamat has close relationship with one of the executive directors of Cold Gold Sdn. Bhd., Encik Azman. This relationship has enabled Cold G old to extend its credit limit with authorisation from Encik Selamat and...
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