Month / February 2007

by Edgar

Ford Motor Co – Can this pre-historic company survive?

This 103 years old company recorded a whopping USD$12.7bio loss for 2006.

Why?
– slumping sales and huge restructuring costs

What is Alan Mulally, the president and CEO, and its management team trying to do?

Apparently they are executing a plan that will put the 103 years old company through a complete makeover costing USD$23.4bio. The makeover has started in 2006 and is expected to end in 2009. To pay for the bill all the way to year 2009, it has mortgaged its assets and borrowed the money.
  • To shrink its massive production capacities to match shrinking demand.

  • To change their product lines of trucks and petrol-guzzling SUVs to producing smaller, more fuel efficient vehicles.

  • To clear up its pension commitment to 38,000 employees.

  • To remove 14,000 white-collar managers.
Can they pull it off?
If not, another pre-historic dinosaur will disappear.
by Edgar

FRS 39 – etched in an apprentice’s memory forever

Hi friends,

I am reproducing, with permission, an email (albeit edited) from a friend.

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Hi Edgar,

Share with you my day in the office today. I had been working on this assignment on FRS 39 – revaluation of fair value of term loans for a week already.

I submitted my completed audit schedule to the Accountant. With one glance and she said this to me, “The figures don’t make any sense. How can the bank be making huge losses and the company be logging huge gains by lending the money to the company?”.

She picked up a high-lighter and high-lighted almost every item in the schedule. I started laughing uncontrollably. Of course I am laughing at my stupidity.

Of course, I understand perfectly the remarks, “The figures don’t make sense.” because in auditing, somehow we are trained to have feelings for numbers.

FYI – The Accountant had been explaining FRS 39 to me for ONE WEEK already.

As she stared straight into my eyes, I felt her asking me telepathically, “Can or can you not handle it?”.
My subconcious mind responded, “And what makes you think I can handle it?” But for my pride and dignity, I kept silence. Yet I was very apologetic that I was not able to perform and deliver on my work.

FRS 39 should be included in paper 1.1, so that I don’t have to look stupid. But I did learn a thing or two from this assignment. FRS 39 is actually a schedule to calculate the IRR in order to get the effective interest rate and compare against the book value as per the general ledger.

Am I right, Edgar?
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P/S Jane Doe :), thanks again for letting me share a page from your auditing life with your fellow students.