Handout 1 - Background to South Bay Systems Ltd
South Bay Systems Ltd manufactures integrated hardware and software chemical analysis products for the medical and drugs industries. The company is owned and run by Tim Falco, recognised throughout the industry as being one of the most innovative hardware engineers in his field. He has already built up one very successful business in a similar market that he sold to a major competitor 5 years ago.
Tim Falco established South Bay Systems Ltd after the sale of his previous business. The company has grown rapidly since that time. The early products were very successful and quickly established South Bay Systems as one of the major players in the industry. The company has worked hard to keep that early momentum going and continues to spend considerable amounts on research and development. The company has a high public profile and Tim frequently appears on television, explaining the company’s latest innovations.
During recent times, the company has found it more difficult to keep ahead of its competitors. At the time of the audit, the company was confident of gaining a major contract. The potential customer, Cosmonet, is a major medical equipment retailer in the UK and Europe. During the audit, negotiations were still in progress, but Tim Falco seemed certain that South Bay Systems would get the contract.
Company personnel and systems
Tim Falco is the managing director and sole shareholder. Although the company has been established for 5 years, Tim retains his hands-on approach to all areas of the company and hence gets closely involved in the accounting function. The company only has one qualified accountant, Fernando Clarke, who has an AAT trainee to help him. The company uses SAGE for its accounting system, together with a stock recording system written by Tim Falco and one of his software engineers.
The audit is carried out by a...