CS3 Questions and Answers
Question # 1
A month later, you receive the following email:
Reference Material:
From: Hesham El-Sayed. Independent Non-executive
Director
To: Romuald Marek. Chief Finance Officer
Subject: Collapse of fuel supplier
Hi Romuald
I am writing to give you some advance notice of an internal audit investigation that has been commissioned by the Audit Committee
Just over a year ago. Planejoos, a newly formed company, approached the management team at Airfield's Capital City International (CCI) airport and offered to take over refueling operations at Starport Planejoos offered a higher percentage of revenue than the existing supplier was paying CCI's management team agreed and appointed Planejoos rather than renew the existing supplier's contract.
CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons. Firstly, Planejoos was a new company and so did not have an extensive credit history that could be checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing supplier's contract or allow it to expire
CCI's management team claimed that it had acted quickly in order to benefit from the additional revenue that could be earned from dealing with Planejoos The management team was acting on the basis that it had an ethical duty to maximise the wealth of Airfield's shareholders and that maximising revenues from fuel sales through this agreement with Planejoos was consistent with that ethical duty.
Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand for fuel put the company's cash flows under extreme pressure Receipts from sales lagged behind payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will have to write off as uncollectable CCI had permitted this receivable to accumulate rather
than pressing for payment and so putting Planejoos under further pressure.
Fortunately, the previous fuel supplier was prepared to return to CCI.
Kind regards
Question # 2
A week later, Romuald Marek stops by your workspace and hands you a document.
The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.
Reference Material
Board minutes extract: proposal to profit from ongoing strength of NS
Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.
Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to replenish the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield's share price
Romuald Marek reminded the Board that four of Arrfield's six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.
Question # 3
Newsweb
Protesters block bulldozers
Attempts by Wodd to harvest some of the hardwood trees from their newly acquired Bravadorian forest suffered a further setback yesterday.
Wodd’s bulldozers have been unable to make any headway in clearing the site for the company’s first logging base because environmental groups from several countries have descended on the Bravadorian jungle to protest the proposed destruction of the forest and the associated harvesting of many rare hardwood trees. Protestors have chained themselves to trees and to heavy equipment, making it impossible to commence the clearance operations.
Wodd’s problems have been compounded by the recent discovery that a tribe of forest dwellers has lived in the forest for many generations, making little or no contact with the outside world in the process. The tribe is effectively nomadic, moving from one part of the forest to another, surviving by hunting game and gathering edible vegetation and relocating when food starts to become scarce. The environmental protestors claim that Wodd’s activities will make it impossible for this tribe to continue with its traditional way of life.
Wodd claims to adhere to The Forestry Stewardship Council of Marland’s ten principles, which include the assurance that "The legal and customary rights of indigenous peoples to own, use and manage their lands, territories, and resources shall be recognized and respected."
Reference Material:
