Toy Central Corporation - Case Study Example

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Case Study: Toy Central Corporation Case Study: Toy Central Corporation Internal Control over the financial reporting is considered to be the process that maintains a reasonable rationale with regard to the reliability of financial reporting in a company…
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Download file to see previous pages People with variety of roles, such as those who formulate and implement policies and those monitor systems are accountable for the success or failure of the process. The findings from interim audit procedures conducted in July and August 2007 reveals that the controls over the purchase and payments systems are managed efficiently. However, the delayed production to satisfy the enormous demand during 2006 holiday selling season had also created a lag in the smooth running of the business. Though a fair quantity of this product was sold out for Valentine’s Day 2007, rest of them was returned to TCC for a full refund. This created an adverse situation within the firm in managing the inventory. But it does not sound nice to go into the holiday season selling with the same stock again. This control issues must be looked into by the management. The physical environment in which companies conduct their business continues to change dramatically, and it requires the firms to make changes in their policies. Economic factors, advances in technology, and increasing global competition are some of the elements that force the management into greater challenges to control and manage liquidity while increasing sales (Preparing for internal control reporting, 2002). TCC executive have been putting efforts to boost the sales in September, the month that is “quiet before the storm” by negotiating with the Fathom Studios to obtain the right to produce the plastic-cast of the movie Delgo. Even though TCC had accrued $500,000 of sales revenue in September 2007 as expected while making the agreement, it had a delay in reaching the objectives. There was a delay in reaching the final licensing agreement which in turn delayed the final completion of the character toys. In the same way, TCC had invested nearly $150,000 in creating state-of-the-art software tools to develop Linux games. This decision seems to be a wrong one and shows the weakness of the control over financial reporting of the firm. On the other hand, the companies who hold the intellectual property rights to produce popular games currently produce consoles and computers that run on Windows based software. Therefore, investing too much on developing games for Linux based consoles may not bring the expected return over the investment. Most of the disbursements made by TCC were for purchase and of raw materials from suppliers in Taiwan. Though all items were properly accounted, there was inaccuracy in the accounts. One item seemed unusual in comparison to the sample. The transaction involved a $10,000 payment to the International Transport Union, requisitioned by TCC’s VP-Operations and approved by the CFO. The VP explains that the payment was “a gesture of support for U.S. transport workers—a gesture we believe is important these days, as transport workers believe they are significantly underpaid and talking about organizing work stoppage and strikes” (Earley &Philips, 2008). Though it was a non-operating expense, it shows a too much expense on the non-productive functions. The TCC’s management had fallen short in making correct financial analysis and preparing effective financial reporting. The findings of the interim report reveal that the retailers dramatically reduced the quantity of toys that they were willing to undertake in 2006 and sustained it through 2007. This reduction in the supply had intensified competition among all manufacturers of consumer ...Download file to see next pagesRead More
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