¶ … F&C International Inc. Defining the Issues and Problem Statements

The case illustrated a large scale fraud that had plagued the F & C. international Inc. during 1990s.

The case reveals challenging issues facing stakeholders in undertaking valuation of a publicly listed company

The case also highlights a dilemma that can face top executives who intend not participating in the financial frauds of a company

The fraud strategies were be inflating the company financial records and overestimated the inventories.

The company top executives inflated sales revenues and overstating period-ending inventories in the 1990s.

For example, the barrels labeled as high concentrated flavors were filled with water.

Major cause of the problem was the fraud that had perpetuated the company in the 1990s.

The effect of the fraud made the company to record financial losses during the period.

Sale revenues declined that made the company to record a net loss.

Moreover, the company would not be able to raise banks loans with its financial records.

The company would not be able to raise shares from the public with its financial problems.

Analysis of the Case Data

The case shows that a company that lacks an internal control system faces the risk of internal frauds that can lead to bankruptcy.

Part of the problems was that the company concealed the real financial...

independent auditors.
The executives also diverted the attention of the auditors from its suspicious activities.

The company cumulative pretax earnings were overstated to approximately $8 million in 1990s.

In the fiscal 1992, F&C overstated its pretax net loss that reached $3.8 million.

Moreover, F&C's financial data were distorted systematically during the second quarter of 1993 fiscal year.

Approximately $1.5 million worth of inventory could not be located and accounted for.

The case reveals the F&C had inventory problems worth between $3- 4 millions.

Generating Alternatives

Different alternatives can be employed by the company to solve the problems

First, the company needs to design effective internal control systems compatible to the Section 404 of SOX (Sarbanes-Oxley) Act.

Moreover, the company should use external auditors to carry out a periodic auditing of the company financial records.

The internal auditor should not perform the same function of both internal and external auditor.

External auditor should carry out the auditing of the company financial records for a fiscal period before it is published in the annual report.

The company should set up an audit committee to serve as a watchdog of the company financial records.

Selecting Decision Criteria

The criteria to use are to select the option…