CPA UGANDA MODEL QUESTIONS AND ANSWERS
Absence of an ethical code of conduct
What are the ethical issues arising out of the Problem:
Ethical issues are such issues that affect one’s behavior. Anything that leads to unethical behaviors is what should be outlined here.
Ethics is basically distinguishing between what is good and bad, right and wrong.
Lack of Integrity
Respect for others
What, then, is ethics? Ethics is two things. First, ethics refers to well based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics because they are supported by consistent and well founded reasons.
Secondly, ethics refers to the study and development of one's ethical standards. As mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to constantly examine one's standards to ensure that they are reasonable and well-founded. Ethics also means, then, the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidly-based.
Business Ethics ask “what is right or wrong, good or bad, and harmful or beneficial regarding decisions and actions in and round organizational activities?”
Explain the arguments for and against ethics in business:
Ethics refers to well based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty.
· Ethics therefore applies to humanity and human activities.
· It is uncertain that most unethical businesses survive for long. Ethics is therefore important in business in that businesses may not survive without ethics. This may be ethics in production, sales and marketing, Human resource etc.
· A number of employees would prefer working for an entity that values them. This implies that for an employer to value an employee, there is need for the employer embracing ethics. Some un ethical behavior here would include issues like sexual harassment, discrimination in any form, Poor pay and failure to observe working hours. Etc
· All business entities aim at maximizing profits. In order to achieve their goal, they must run them ethically.
· Customers value ethics in a business entity and so they will support someone doing his business ethically. Eg advertising the right product, do not cheat customers; involve yourself in corporate responsibility etc.
· Having ethics in business will act as a tool for your public relations. This will bring in more customers and thus boosting your business
· Individualism. Bring individuals to act in societal settings
· Denial of politics
· Ethics requires you to get involved in issues like corporate social responsibility which involves spending from the would be profits.
· Business ethics in some or most cases is about obeying the law and what it stipulates. As a business entity, obeying the law may not be in line with my profit motives. This comes in as an argument a against business ethics.
· Business ethics at times fails to take in the reality of the situation. Take the case where by the society is rotten and yet one needs to get contacts for supply of materials. To get this one must return something to the staff involved.
· As a manager, your obligation is more to company and not other stake holders like the public etc.
Require the originator of any securitized assets or cash flows to retain a sizeable fraction of the equity tranche or first-loss tranche of the securitized instrument.
Take the rating agencies out of the regulatory process by eliminating the role of external
ratings in the Basel II capital risk-weightings.
Restrict firms providing ratings to engage in no other commercial activities.
Establish a global regulator (or a uniform standard for national regulators) for eligible
rating agencies. Require that parties requiring ratings for their securities pay the regulator. The regulator then assigns the rating decision to one of the eligible rating agencies, using a competitive process.
Establish a positive list of Gold-Standard ABS that are acceptable as collateral at the
discount window of the central bank and in repos.
The introduction and marketing of new financial products and instruments should be
regulated and be subject to testing in ways similar to those used for the regulation and testing of new medical and pharmacological drugs.
Any incorporated entity above a certain threshold size (de minimis non curat lex) and with
narrow leverage in excess of X (15, say) will be subject to the same capital requirements
regime, liquidity requirements regime, reporting regime and governance regime.
Establish a single EU-wide regulator for border-crossing banks.
Establish a single EU-wide regulator for other systemically important border-crossing
financial activities or institutions.
Where a multinational College of regulators is necessary, the host country regulator should
have the final say.
A supranational EU fiscal authority is required to provide proper fiscal backup for the
Failing that, an EU fund from which the ECB can be recapitalised should be created.
All new board members should take a written test, set by the regulator and marked by
independent experts, on the products, services and instruments traded and managed by their
financial institutions. Existing board members should be tested every other year. Unless a
passing grade is achieved, the would-be board member cannot serve. The graded test will be
in the public domain.
Stick to (or return to) strict fair value accounting, including mark-to-market whenever
possible. Do not permit reclassification of assets between liquidity categories. Use
regulatory forbearance as regards capital ratios, leverage ratios or liquidity ratios to address the undesirable pro-cyclical side effects of mark-to-market
Mitigate the pro-cyclical effect through regulatory capital requirements of external credit
ratings by eliminating the role of the rating agencies in Basel II.
Mitigate the pro-cyclical effect through regulatory capital requirements of the use of
internal bank models by precluding the use of information based on internal bank models
when calculating regulatory capital requirements.
Mitigate the pro-cyclical effect of constant regulatory capital ratios by having countercyclical regulatory capital requirements.
Don't regulate on the basis of information that is private to the regulated entity. Only use independently verifiable information.
Nature of Markets:
· The Financial markets have very complicated transactions. This implies that one needs to have strong monitoring tools as well as internal controls
· In terms of regulation, the financial markets have become a regulatory problem globally. There is no single regulatory body to these financial markets. It depends on the way that such countries do regulate their financial markets. Give examples here in the case of money laundering.
· Very high competition in markets leading to the players doing such un ethical marketing practices. Look at the loan systems in the country today. Thank God there is a credit bureau now in place. But you may find that some banks may not follow this.
· Failure to adhere to corporate governance issues by the players.
· There has been a practice of giving out big bonuses to the executives leading to crisis where the executives declare exorbitant profits that may not even exist so as to get bonuses.
· Mortgages were being given out without any collateral. i.e People were using same properties revalued to get additional or top up motgages. Time came when the assets were almost at zero or negative value and could not regain their value.
· Fraudulent reporting in the financial sector has been occurring so as to boost the profits and earn bonuses.
MODEL PAST PAPER
Respect is...listening with out interrupting
Respect is...taking your partner's feelings into consideration
Respect is...keeping an open mind
Respect is...agreeing to disagree
Respect is...trying to understand your partner's viewpoint
Respect is...loving yourself
Respect is...trust and honesty
Respect is...giving each other space
Respect is...direct communication
Respect is...building a person up instead of tearing them down
Respect is…not pressuring the other person
Trustworthiness is being honest, telling the truth, keeping promises, and being loyal so people can trust you. Trustworthy people don't lie, cheat or steal. They have integrity and the moral courage to do the right thing and to stand up for their beliefs even when it is difficult to do so.
What Parents Can Do To Promote Trustworthiness:
- Teach children the importance of trustworthiness by word and example. Ask yourself "what message am I sending?" Avoid dishonesty, especially in front of your child.: ("A child's ticket, please, he is only 11.") Never ask your child to lie for you: ("Tell Grandma I'm in the shower.")
- Encourage honesty even when it may cause your child to get into trouble. Praise efforts to be honest and point out good examples whenever you see them. Express disappointment for dishonesty.
- Keep your commitments, be on time and do what you say you will do, especially when your child is involved.
- Teach that people need the courage to say "no" when friends ask them to do something that seems wrong. Explain that it is disloyal to ask a friend to be untrustworthy.
The worst part was I had to admit to my boss that I couldn't do the project on my own!"
Whether you are the boss or follow someone else's lead, responsibility is a concept that many of us misinterpret as performing a task. Growing up all I ever wanted was responsibility. My mom loves to tell people about my "terrible-2's" age when I went around slamming doors saying "My DOOR!" and putting my shoes on the wrong feet because they were "MY SHOES!". Like most kids at that age I wanted to control my surroundings and have direct influence over my achievements.
But does that fully describe being responsible? The actions of most people I have worked with seem to agree with this definition because they strive to be the person who actually does the work to fulfill their responsibility. I disagree with that definition.
To be responsible in my company means that you will do everything you can to ensure a goal is achieved regardless of the "how", "who", "what", "where" or "when". Responsibility is as simple as agreeing to follow something through to completion. Unfortunately many people complicate this concept by fusing it with their ego, their own personal desire to perform the actual work and to be recognized for the work, not the achievement of the goal.
We all want to be recognized for doing a job well, but achieving a collective goal requires recognizing every person's talents and contributions, not just the person responsible. When I was in my 20's I thought that I could do everything myself and I wanted to be recognized for my talents. And then I was given a deadline to finish a job that couldn't be done by my efforts alone. To complete my job I would have to get help, support from my boss and possibly spend money on tools that would save my overall project time and money. I was terrified because I knew I was destined to fail. The worst part was I had to admit to my boss that I couldn't do the project on my own! NOW what is the definition of responsibility?
Being responsible means to:
- Make use of all your resources, not just yourself
- Ask for help from your boss and peers
- Work smarter, not harder
Most important of all, responsibility means that you will give your boss a chance to help you when your project is at risk for failing or not being done on time.
As a manager I want my team to tell me when a project is at risk. Since my responsibility is for the entire company's success I want to be given the opportunity to help keep a project on track so I can live up to MY responsibility. Yeah, that's right - bosses have responsibility too!
A key difference between being a good boss and a bad boss is how one deals with this concept of responsibility. A bad boss will make someone feel bad for asking for help to fulfill their responsibility. A good boss will reward someone for seeking help and exposing project risks in order to ensure the team's collective success. Whether you are the leader of a team or a leader of one (yourself), what kind of boss do you want to be?
Concern about other people. How they feel and what they do.
Ethics in research
Strive for honesty in all scientific communications. Honestly report data, results, methods and procedures, and publication status. Do not fabricate, falsify, or misrepresent data. Do not deceive colleagues, granting agencies, or the public.
Strive to avoid bias in experimental design, data analysis, data interpretation, peer review, personnel decisions, grant writing, expert testimony, and other aspects of research where objectivity is expected or required. Avoid or minimize bias or self-deception. Disclose personal or financial interests that may affect research.
Keep your promises and agreements; act with sincerity; strive for consistency of thought and action.
Avoid careless errors and negligence; carefully and critically examine your own work and the work of your peers. Keep good records of research activities, such as data collection, research design, and correspondence with agencies or journals.
Share data, results, ideas, tools, resources. Be open to criticism and new ideas.
Respect for Intellectual Property
Honor patents, copyrights, and other forms of intellectual property. Do not use unpublished data, methods, or results without permission. Give credit where credit is due. Give proper acknowledgement or credit for all contributions to research. Never plagiarize.
Protect confidential communications, such as papers or grants submitted for publication, personnel records, trade or military secrets, and patient records.
Publish in order to advance research and scholarship, not to advance just your own career. Avoid wasteful and duplicative publication.
Help to educate, mentor, and advise students. Promote their welfare and allow them to make their own decisions.
Respect for colleagues
Respect your colleagues and treat them fairly.
Strive to promote social good and prevent or mitigate social harms through research, public education, and advocacy.
CPA UGANDA MODEL QUESTIONS AND ANSWERS
Define the term Corporate Value Statements:
Corporate Values reflect a company's culture. Culture is what a group of people have in common, for example facing similar questions and problems because they operate in a similar business.
This is the internal element of culture, the other one is external oriented: in what environment does this group of people operate and how does this affect them. How do they interact with the environment?
Corporate value statements therefore are put in place to enact or emphasize how the entity will follow or fulfill their values.
Value statements would basically depend on the values set by each entity. Examples of Value statements include the following:
Do What's Right
We are committed to the highest standards of ethical conduct in all that we do. We believe that honesty and integrity engender trust, which is the cornerstone of our business. We abide by the laws of the Uganda and other countries in which we do business, we strive to be good citizens and we take responsibility for our actions.
We recognize that our success as an enterprise depends on the talent, skills and expertise of our people and our ability to function as a tightly integrated team. We appreciate our diversity and believe that respect - for our colleagues, customers, partners, and all those with whom we interact - is an essential element of all positive and productive business relationships.
Perform With Excellence
We understand the importance of our missions and the trust our customers place in us. With this in mind, we strive to excel in every aspect of our business and approach every challenge with a determination to succeed.
Ethics is a bout what is good or bad. It is a philosophy of deciding what is right or wrong
Ethics can also be defined as a branch of philosophy which seeks to address questions about morality; that is, about concepts such as good and bad, right and wrong, justice, and virtue.
Corporate value statements therefore guide the stakeholders in an entity on following ethical behavior in the organization.
Values of Victoria Fishing Company include the following:
Using the definitions of each of the values, the students should evaluate and see if Victoria Fishing Company is living to their values.
In order for values in an entity to be effective, they should be clearly communicated to all stake holders in the organization and understood.
Are the values being followed:
- Discharge of factory efluent in lake Ninja is violation of integrity and accountability to the people
- Inspectors are bribed, a violation of transparency
- Non communication of the whistle blowing policy to staff is also lack of transparency
- Reporting of issues to board members without action prooves lack of accountability by the board members
- Absence of team work.
B) Explain the term Whistle blowing:
An attempt by an employee or former employees of an organization to disclose what he or she believes to be wrong doing in an organization. A situation where one discloses information where ethical rules have been broken. Whistle blowing can be internal (by employees) and external (by media, vendors, dealers, general public e.t.c.).
Whistle Blowing basically is done by an employee where he finds that the ethical rules are broken knowingly or unknowingly.
A moral dilemma can occur when a loyal employee observes the employer committing or assisting in an illegal or immoral act and must decide what to do. The Whistle Blower may not only lose his job but may also experience negative effect on his career and personal life. His services may even be terminated.
There are two kinds of whistle blowing
Ø Inter Personal
Ø Government Whistle blowing
Conditions under which whistle blowing is justified: Whistle blowing will depend on the type of the case.
However following conditions will justify whistle blowing:
Ø When some thing will cause harm to society
Ø When superiors do nothing a bout reported cases
Ø There must be evidence a bout the cases being reported
Ø Good grounds to expect change as a result of whistle blowing
The conditions in which Whistle Blowing is morally justified in Victoria Fishing Company.
· A product or policy that will commit serious and considerable harm to the consumers, employees, other stakeholders.
Victoria Fishing Company is discharging waste into the lake Ninja which issued by the local people. This may cause danger to the people around.
· A situation where the supervisor does not act on un-ethical issues happening within the organization and brought to his attention i.e. When the business is carrying out unethical business conduct i.e. money laundering, tax evasion etc.
Reports regarding the discharge of the waste material in Lake Ninja have been made to some members of the board but no action has been taken. As superiors, they should take action with regard to the reports
· Whenever an employee feels serious threat or harm to him or anybody
Employees in the company are facing violations of health and safety regulations. This is harmful to them and management is not bothered. They have not been given the gloves for use while packing and processing fish for export.
Good practice in whistle blowing.
Ø Have a policy statement regarding whistle blowing in place. The statement should be endorsed by the CEO. The statement should clearly define what whistle blowing is and the objectives.
Ø Action be taken by management where there are cases of reported or suspected unethical behavior in the entity
Ø Ensure whistle blowers are protected
Ø Provide information and training to staff
Ø Ensure that you have your facts right
Ø Evaluate the consequences of your action
Ø Ensure that you are protected
Ethical Dilemas in the scenario:
Ethical dilemma is a complex situation that will often involve an apparent mental conflict between moral imperatives, in which to obey one would result in transgressing another. This is also called an ethical paradox since in moral philosophy, paradox often plays a central role in ethics debates.
For instance, an ethical admonition to "love thy neighbour as thy self" is not always just in contrast with, but sometimes in contradiction to an armed neighbour actively trying to rape you: if he or she succeeds, you will not be able to love him or her. But to preemptively attack them or restrain them is not usually understood as loving. This is one of the classic examples of an ethical decision clashing or conflicting with an organismic decision, one that would be made only from the perspective of animal survival: an animal is thought to act only in its immediate perceived bodily self-interests when faced with bodily harm, and to have limited ability to perceive alternatives - see fight-or-flight response....
However, human beings have complex social relationships that can't be ignored: If one has an ethical relationship with the neighbour trying to kill you, then, usually, their desire to kill you would likely be the result of mental illness on their part, stories told to them by others, e.g. their daughter claims you raped her. Such conflicts might be settled by some other path that has strong social support. Societies formed criminal justice systems (some argue also ethical traditions and religions) to defuse just such deep conflicts. Such systems always impose trained judges who are presumed to have an ethical relationship and also a clear obligation to all who come before them.
Ethical Dilemmas in the Scenario include the following:
- Unethical to give bribes to the inspection team. But the company needs to function in order to make returns
- Employees reporting the discharge to the environmental agency. The implication is closure of the factory leading to absence of income
- Company is the only licensed to process and export Fish to Europe. Its exposure may lead to bad image of all fish from Uganda therefore loss in foreign Currency
- Protection of the countries image.
Concept of Corporate Governance:
Corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants, typically shareholders and management, is critical. Additional participants include employees, customers, suppliers, and creditors. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community. Whereas the 20th century might be viewed as the age of management, the early 21st century is predicted to be more focused on governance. Both terms address control of corporations but governance has always required an examination of underlying purpose and legitimacy. - - James McRitchie, 8/1999Money
What are the roles of Internal Audit in corporate Governance:
Role of internal audit in corporate governance is to ensure that an entity follows the code of best practice or best practice principles. Function and importance of internal audit includes the following:
Ø Internal Audit is a management tool. It basically reviews the effectiveness of other controls within the entity
Ø In some cases, it is a statutory requirement to have an internal audit function within an entity.
Ø The internal auditor has the responsibility of reviewing financial controls
Ø Assist in identification of significant risks
Ø Assist in carrying out special investigations within an entity
Ø Review compliance with laws and other external regulations
Ø Review the Economy, Effectiveness and Efficiency of Operations
What factors affect the need of internal audit?
Ø Scale of diversity and complexity of the company’s activity
Ø Number of employees involved
What is Money Laundering and how does it affect the economies of the country:
Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source
It's a tough task to trace the origins of any deposit when there are about 700,000 global wire transfers occurring every day. Which is the dirty money and which is the clean stuff? Within the United States, there are two primary methods employed by the government to detect and combat money laundering:
The basic money laundering process has three steps:
- Placement –
At this stage, the launderer inserts the dirty money into a legitimate financial institution. This is often in the form of cash bank deposits. This is the riskiest stage of the laundering process because large amounts of cash are pretty conspicuous, and banks are required to report high-value transactions.
2. Layering –
Layering involves sending the money through various financial transactions to change its form and make it difficult to follow. Layering may consist of several bank-to-bank transfers, wire transfers between different accounts in different names in different countries, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money's currency, and purchasing high-value items (boats, houses, cars,diamonds) to change the form of the money. This is the most complex step in any laundering scheme, and it's all about making the original dirty money as hard to trace as possible.
3. Integration –
At the integration stage, the money re-enters the mainstream economy in legitimate-looking form -- it appears to come from a legal transaction. This may involve a final bank transfer into the account of a local business in which the launderer is "investing" in exchange for a cut of the profits, the sale of a yacht bought during the layering stage or the purchase of a $10 million screwdriver from a company owned by the launderer. At this point, the criminal can use the money without getting caught. It's very difficult to catch a launderer during the integration stage if there is no documentation during the previous stages
Effects of Money Laundering:
II. The Financial Sector: Money Laundering Undermines Domestic Capital
A. Money laundering erodes financial institutions
B. Money laundering weakens the financial sector's role in economic growth
C. Anti-money-laundering reforms support financial institutions through enhanced financial prudence.
III. The Real Sector: Money Laundering Depresses Growth
A. Money laundering distorts investment and depresses productivity
B. Money laundering facilitates corruption and crime at the expense of development
C. Money laundering can increase the risk of macroeconomic instability
IV. The External Sector: Money Laundering Diverts Capital Away from Development
A. Outbound capital flows: facilitating illicit capital flight
B. Inbound capital flows: depressing foreign investment
C. Trade: distorting prices and content.
V. Offshore Financial Centers: Money Laundering Hinders Their Development Role
A. OFCs as an economic-development strategy
B. Effect of money-laundering activity on OFC development
legislation and law enforcement.
Money laundering is a serious charge -- in 2001, U.S. prosecutors obtained almost 900 money-laundering convictions with an average prison sentence of six years. The rise of global financial markets makes money laundering easier than ever -- countries with bank-secrecy laws are directly connected to countries with bank-reporting laws, making it possible to anonymously deposit "dirty" money in one country and then have it transferred to any other country for use.
The negative economic effects of money laundering on economic development are difficult to quantify, yet it is clear that such activity damages the financial-sector institutions that are critical to economic growth, reduces productivity in the economy's real sector by diverting resources and encouraging crime and corruption, which slow economic growth, and can distort the economy's external sector—international trade and capital flows—to the detriment of long-term economic development.
Developing countries' strategies to establish offshore financial centers (OFCs) as vehicles for economic development are also impaired by significant money-laundering activity through OFC channels. Effective anti-money-laundering policies, on the other hand, reinforce a variety of other good-governance policies that help sustain economic development, particularly through the strengthening of the financial sector.
The financial sector-
A broad range of recent economic analyses points to the conclusion that strong developing-country financial institutions—such as banks, non blank financial institutions (NBFIs), and equity markets—are critical to economic growth. Such institutions allow for the concentration of capital resources from domestic savings—and perhaps even funds from abroad—and the efficient allocation of such resources to investment projects that generate sustained economic development. Money laundering impairs the development of these important financial institutions for two reasons.
The real sector-
Aside from money laundering's negative effect on economic growth through its erosion of developing countries' financial sectors, money laundering has a more direct negative effect on economic growth in the real sector by diverting resources to less-productive activity, and by facilitating domestic corruption and crime, which in turn depress economic growth. As can be seen from the various money-laundering typologies reports, money laundered through channels other than financial institutions is often placed in what are known as "sterile" investments, or investments that generate little additional productivity for the broader economy, such as real estate, art, antiques, jewelry, and luxury automobiles. For developing countries, the diversion of such scarce resources to less productive domestic assets or luxury imports is a serious detriment to economic growth. Moreover, criminal organizations can transform productive enterprises into sterile investments by operating them for the purposes of laundering illicit proceeds rather than as profit-maximizing enterprises responsive to consumer demand and worthy of legitimate investment capital.
The external sector-
Unabated money laundering can also impair a developing country's economy through the country's trade and international capital flows. The well recognized problem of illicit capital flight from developing countries is typically facilitated by either domestic financial institutions or by foreign financial institutions ranging from offshore financial centers to major money-center institutions such as those in New York, London, or Tokyo. Given that illicit capital flight drains scarce resources from developing economies, transnational money-laundering activity helps impair developing-country growth. Moreover, just as the confidence that developing-country citizens have in their own domestic financial institutions is critical to economic growth,
Describe the professional Image of an accountant:
Introduction and Fundamental Principles
A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s*responsibility is not exclusively to satisfy the needs of an individual client or employer.
In acting in the public interest a professional accountant should observe and comply with the ethical requirements of the ethical Code.
This Code establishes the fundamental principles of professional ethics for professional accountants and provides a conceptual framework for applying those principles. The conceptual framework provides guidance on fundamental ethical
A professional accountant is required to comply with the following fundamental principles:
A professional accountant should be straightforward and honest in all professional and business relationships.
A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.
(c) Professional Competence and Due Care
A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services.∗
A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.
(e) Professional Behavior
A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession.
Each of these fundamental principles is discussed in more detail in
CPA UGANDA MODEL QUESTIONS AND ANSWERS
MANAGEMENT DECISION AND CONTROL
Excel Construction Ltd is a local company that manufactures Uninterrupted Power Supply Units (UPS)
The Company has production and logistical capacity to produce 2,400 units per month. Any production beyond their optimal capacity will involve expanding the production capacity and other logistics such as storage facilities, which will increase the current fixed costs by 50%. The current factory can only be expanded up to 3,000 units per month beyond which the company would have to build a completely new factory.
The company has contracted local agents and distributors who purchase each unit at Shs 200,000.
Currently the company is producing and selling an average of 2,000 units of UPSs per month, implying there is still some spare capacity.
The monthly cost estimates of Excel Electricals Ltd based on optimal production capacity of 2,400 Units as follows.
The Marketing manager of Excel Electricals Ltd has conviced the Board that they should start expanding to the regional market. He is persuading them to accept the following offers:
i) A dealer in Rwanda will need 500 Units per month at a price of Shs 180,000 per Unit. He needs a discount of Shs 20,000 per Unit to assist him meet other related costs.
ii) A dealer in DR Congo will need 300 Units per month, and is willing to pay Shs 160,000 per unit, he argues that DR Congo is far, thus a bigger discount is needed.
The board has requested you as the Finance Director to advise them on whether they should accept both orders, or only one of them based on your recommendations.
a) Basing on computations (quantitative factors only), advise whether the order for an annual sale of 6,000 Units to Rwanda should be accepted. 8 Marks
b) Basing on computation advise whether the annual supply of 3,600 units to DR Congo should be accepted 6 Marks
c) Basing on qualitative factors (non Computational) ,give reasons in support for and against the suggestions made by the marketing manager. 6 Marks
The company has excess capacity 400 Units per month
The Dealer wants 500 Units
This means expanding capacity therefore increasing Fixed costs by 50% x 96
Direct Lab our
Additional Fixed Overheads
Net Incremental Relevant Cash flows
The company should not accept the order.
b) Order of 300 Units will be converted without expanding the fixed costs
Additional Fixed Overheads
Net Incremental Relevant Cash flows
The order of 300 units per month @ 160,000 should be accepted.
Positive 18m cash flows.
d) Arguments in Support
Opportunity to enter Rwanda and DR Markets, orders will increase in time and cover costs.
Since there is spare capacity it is better to produce more and sell more to maximize profits.
New Customers are buying @ Lower price than the existing price , may discourage the current dealers .
They sell cheaply in Uganda instead of exporting to DR Congo , thus affecting the market of the existing dealers.