Ford Motor Company: Audit Risk Analysis - Research Paper Example

Ford Motor Company Audit Risk analysis Information Report American Rd Dearborn, MI, 48126 United s (313) 322-3000 This audit was done, following the accepted, The International Auditing and Assurance Standards Board (IAASB) Company profile: Ford Motor Company, was incorporated in the year 1919, producing of trucks and cars. Its subsidiaries do participate in other businesses, which includes financing vehicles and many others. Ford operates under two sectors: that is financial services and Automotive. Ford’s Automotive Sector includes the following Ford South America, Ford North America, Ford Asia Pacific Africa and Ford Europe. While on the other hand Financial Services includes its Credit Company and Other many other Financial Services. Ford North America comprises the sale of Lincoln-brand vehicles and Ford- and other related service parts in North America, in the United States, Mexico, Canada, altogether with associated expenses to improve, the manufacture, distribution and service vehicles and their parts. While Ford South America encompasses sale of Ford-brand vehicles and other services related to parts in South America, altogether with associated expenses to manufacture, develop, distribute and service to these vehicles and their parts. And Ford Europe includes the following sale of the Ford-brand vehicles and other related service parts both Europe, Russia, together with associated expenditures to manufacture, develop, distribute and service vehicles and their parts. And lastly Ford Asia Pacific Africa include sale of Ford-brand vehicles, other related service parts in South Africa Asia Pacific region, altogether with associated expenses to distribute , develop, manufacture, and other service vehicles and theirparts.in the Ford Motor Credit Company take account of financing vehicle-related issues, insurance, leasing, lastly Other Financial Services Contains a diversity of businesses like holding real estate and companies. January 15, 2011, it completed its acquisition of the Cologne Precision Forge GmbH (CPF). The company’s technological advancements Ford to Demonstrate Smart Electrification Technology That Can Adapt with Green Cities Trend Ford researchers are trying to demonstrate how smart electrification technology which uses data and cloud-based computing, in optimizing plug-in hybrid’s powertrain efficacy at the 18th World Congress on Intelligent Transport Systems Standard Compensation Arrangements Fees. July 13, 2006, the Board of Directors gladly reduced the Board fees payable to the non-employee directors By almost half resultant into the following fee structure: Annual Board membership fee $100,000 Annual Committee chair fee $ 2,500 Annual Presiding Director fee $ 5,000 In 2009, the Board again voluntarily forgoes the cash portion of annual fees. Subsequently, around $60,000, (60% of Annual fee for Board membership) got credited to its directors’ accounts under the Deferred Compensation Plan for the Non-Employee Directors. Directors failed to receive any cash payments comparative to the board fees in 2009.the company disclosed in their 2010 Proxy Statement that according to their significant growth during 2009, their positive financial projections for 2010 and in light of analysis of the director’s compensation being paid through the peer group companies, which includes payment of the director compensation at the General Motors following its insolvency, Board of Directors established that it was rather appropriate that the compensation remunarated non-employee directors of Ford’s return to the 2006 levels. Therefore, effective as from January 1, 2010, Board of Directors agreed that the below compensation will be given to the non-employee directors of Ford motor Company: Annual Board membership fee $200,000 Annual Committee chair fee $ 5,000 Annual Presiding Director fee $ 10,000 In conjunction to the above, by restoring compensation to previous levels would assist the Company in attracting new directors in an environment, increasingly difficult to attracting qualified directors. Insurance. The company provides the non-employee directors with $200,000 of life insurance cover .as from December 31, 2008, Board modified this strategy so that life insurance coverage come to an ends for currently both directors who retire in and retired directors, future, with an exception for those presently the retired directors who, previously nominated reduction in the life insurance cover and $15,000 annuity shown below, in that case only annuity would carry on. Director who retire from the Board after 70 year of age or, after age 55 following the Board approval, and who served the company for a period of five years, might have voted to have life insurance cover reduced to $100,000 and will receive $15,000 a year for life. Although Edsel B. Ford II does not take part in this plan, as a former employee, he is currently entitled to a$25,000 of Ford company-provided for life insurance cover. The Company’s Bad Debt Record Year Ended January 1, 2011 Under the company expense account, below is a report of the bad debt trends TRANSACTIONS Jrnl. Dr. Cr. Monthly adjustment of allowance for doubtful notes and accounts SE Bad Debts 8700 Bad Debts—Service—QL/FL/QCSC 8705 Bad Debts—Parts—QL/FL/QCSC 8726 Allowance for Doubtful Receivables 1290 Write-off of uncollectible P, S & B accounts receivable G Allowance for Doubtful Receivables 1290 Accounts Receivable—Parts 1120 Accounts Receivable—Service 1121 Accounts Receivable—Body Shop 1122 Collection by an agency of account previously written off CR Cash in Bank—General 1001 Professional & Service Fees 8660 Professional & Service Fees—Service—QL/FL/QCSC 8665 Professional & Service Fees—Parts—QL/FL/QCSC 8706 Allowance for Doubtful Receivables 1290 From the Account’s 1290, Allowance for the Doubtful Receivables, and the dealerships may record bad debts on the basis of allowance method, which is more recommended, or direct write-off method. Should the latter be used, collections of the accounts previously written off may be credited to the Account 8700. Write-off of the uncollectible receivables ought to have prior approval from an appropriate dealership management. The Receivables written off as the uncollectible should get transferred from subsidiary ledger to the memorandum collection ledger for an additional collection effort. And for the departmentalization reasons, bad debts expense ought to be distributed to operating department which received credit for applicable sale. Under the assets account, ALLOWANCE FOR DOUBTFUL RECEIVABLES, see details, below ACCOUNT EXPLANATION TRANSACTIONS Jrnl. Dr. Cr. Monthly adjustment of allowance for doubtful notes and accounts SE Bad Debts 8700 Allowance for Doubtful Receivable 1290 Write-off of uncollectible P, S & B customer service G Allowance for Doubtful Receivable 1290 Accounts Receivable—Parts, Service and Body Shop 1120 Agency collection of account previously written off CR Cash in Bank—General 1001 Professional & Service Fees 8660 Allowance for Doubtful Receivables 1290 Comments and Explanation and recommendations Using the allowance method for accounting for uncollected accounts receivables, utilizing the Account 1290, identifies the loss expected in the future as a result of un-collectability of the currently existing receivables. This estimated can be computed by applying a percentage, using the previous experience as a base, to the current credit sales or by approximating the anticipated losses built upon the age of receivables. Genuine write-offs of uncollectible accounts should be charged to the allowance, and collections of the amounts formerly written off should be credited to the allowance. As an Auditor I recommended this as it facilitates control of the costs and provides a closer matching of the incurred expense with the income. Recommendations The above method, it should be applied consistently according to the accepted accounting principles. Tax counsel should also be consulted before changes are made in the method of accounting for the bad debts. The balance remaining in this account should get adjusted monthly reflecting estimated losses from the uncollectible notes and accounts receivable. Write-off of the uncollectible receivables should have an earlier approval of the appropriate management.Receivables written off as the uncollectible should get transferred from subsidiary ledger to memorandum collection ledger for furthering the collection effort. The Financial Condition of Ford Company. Subsequent Profitability Ratios, below is a tabular representation, and a chart on the same Profitability 2002-12 2003-12 2004-12 2005-12 2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 TTM Tax Rate % 31.69 9.85 19.31 — — — — 2.28 8.28 — — Net Margin % -0.61 0.30 1.94 1.14 -7.88 -1.58 -10.03 2.30 5.09 14.83 13.35 Asset Turnover (Average) 0.58 0.54 0.56 0.63 0.58 0.62 0.59 0.57 0.72 0.79 0.76 Return on Assets % -0.35 0.16 1.10 0.72 -4.60 -0.98 -5.90 1.32 3.65 11.78 10.18 Financial Leverage (Average) 51.76 27.12 18.24 20.80 — 49.62 — — — 11.87 9.80 Return on Equity % -14.88 5.74 24.08 13.96 -265.76 -251.78 — — — 281.62 142.46 Return on Invested Capital % -0.58 0.25 1.90 1.14 -6.94 -1.59 — — — 18.52 17.12 Company’s liabilities and Net worth Account Explanation, allowance for the losses expected from purchase of the repossessed vehicles TRANSACTIONS Jrnl. Dr. Cr. Monthly provision for estimated repossession purchase loss SE Repossession Purchase Loss—New 6070 Repossession Purchase Loss—Used 6170 Estimated Liability for Repossession Purchase Loss 2600 Repossessed vehicle (originally sold as a new car) purchased from financing institution—purchase cost in excess of inventory value CD Inventory—Used Cars 1350 Estimated Liability for Repossession Purchase Loss 2600 or Repossession Purchase Loss—New (excess of purchase cost) 6070 Cash at Bank—General 1001 Comments And Explanations The direct write-off method do not identify losses till particular repossessions ensue, at the time they get charged to the Account 6070, Repossession of the Purchase Loss—New/ Repossession Purchase Loss—Used/ Account 6170, depending on whether sales which ensured into the repossession was a used vehicle sale or new vehicle sale. Following this method, Account 2600 is useless. Recommendations substantive procedures and Analytical Procedures between the company and other companies like Motor Ford Company and the Toyota Motor Corporation should be encourages as this corporation, are likely to increase the general output of the company, it will also make then company enjoy the economies of scale Carry Should Carry Out Test Of Control, Such As The control environment, the managements should be aware their functions, and actions of those responsible for the governance and the management regarding the entity’s internal control and their importance in the entity. The entity’s risk assessment process, the entity’s directives should be able to identify, business risk relevant to the financial reporting goals, and estimating the significance of the risk, gauging the likelihood of them occurring, and making conclusive decision on how to address this risk. The Information system pertinent to financial reporting, management should ensure that procedures and records are established to start record, process and report the entity transactions and maintain the accountability for the related liabilities, assets, and equity. Control activities- policies and procedures enacted by the company should see to it that the management directives get carried out to the latter. This includes activities relating to authorization, performance reviews, processing of information, segregation of duties and physical control. Monitoring of controls, the directors would assess designs and operation of controls on a prompt basis and take necessary corrective actions adapted for changes in conditions. Works Cited Ford Motor Co(F) Company Profile|Reuters.com. Reuters.N.P., Retrieved on.Web.1Dec.2012. From http:/www.reuters.com/finance/stokes/ comapanyprofile?symbol=F Read More