Amazing Fashion House Bhd (AFHB) was set up 5 years ago by En Rizman and his friends, AFHB sells clothing, with a strategy of selling high fashion items under the AF brand name. New ranges of clothes are introduced to stores every 2 months. The company relies on a team of highly skilled designers to develop new fashion ranges. The designers must be able to anticipate and quickly respond to changes in consumer preferences.
There is a high staff turnover in the design team because of high work pressured. The design team must be able to produce at least 6 new designs fortnightly. The design must be able to generate significant sales to AFHB or else the team will not be getting their commission or bonuses. Most of the sales are made in-store, but there is also a very popular catalogue, from which customers can place an order on-line, or over the phone. The company has recently upgraded the computer system and improved the website, at significant cost, in order to integrate the website sales directly into the general ledger, and to provide an easier interface for customers to use when ordering and entering their credit card details.
The new on-line sales system has allowed overseas sales for the first time. The system for phone ordering has recently been outsourced to minimize cost. The contract for outsourcing went out to tender and AFHB awarded the contract to the company offering the least cost. The company providing the service uses an overseas phone call centre where staff costs are very low as compared to Malaysia. AFHB has recently joined the Ethical Trading Course (ETC) conducted by the Ministry of Entrepreneur Development and Cooperatives.
The ETC is a compulsory course introduced by the ministry to all entrepreneurs in the manufacturing sectors registered with the ministry. This is a "fair-trade initiative in which the entrepreneurs are guided and exposed to various updated business strategy and related matters. Besides the entrepreneurs are been advised which means that any products bearing the AF brand name specifically and others must have been produced in a manner which is clean and safe for employees, and minimises the environmental impact of the manufacturing process. A significant advertising campaign promoting AFHB's involvement with this initiative has recently taken place. The AF brand name was purchased from a famous fashion house a number of years ago and is recognised at cost as an intangible asset, which is not amortised. The brand represents 15% of the total assets recognised on the statement of financial position. AFHB owns numerous distribution centres, some of which operate close to residential areas.
A licence to operate the distribution centres is issued by each local government authority in which a centre is located. One of the conditions of the licence is that deliveries must only take place between 8 am and 6 pm. The authority also monitors the noise level of each centre, and can revoke the operating licence if a certain noise limit is breached. Two licences were revoked for a period of three months during the year. AFHB is the client of Jalil & Partners a medium sized audit firm with its head office in Kuala Lumpur. The firm has opened a new branch in Johor Bharu since it has many clients over there, The branch is managed by Salbiah the audit manager and assisted by 3 audit assistants. The firm has been in the practice for the last 15 years and AFHB has been their client since incorporation. AFHB chooses Jalil & Partners since En Rizman the owner AFHB is a school friend of En Jalil, the partner. Jalil and Partners also provided tax services to AFHB. Salbiah is currently planning the audit of AFHB. AFHB year end is 30 November 2021.
Recently the company CFO left due to disagreement with En Rizman. The new replacement CFO is not due to start until approximately two months after the year end. En Rizman has asked his friend Jalil whether a member of the audit team be seconded to AFHB for three months to act as the temporary CFO before the new CFO start his work. The firm agreed to the request and will assign a member from Kuala Lumpur branch to be the temporary CFO.
