Question Two (50 Marks): Mr. Chan, the CFO of a listed corporation in Hong Kong, recently held a meeting with Mr. Wong, Chairman of the listed company on 15 September Year Y. During the meeting the following dialogues were recorded by Mr. Chan: Mr. Chan: Mr. Wong, recently many financial analysts criticized that our company is performing badly over the last two years, and it is because we have not maintained a good management as well as accounting system. How will you expect me to respond? Mr. Wong: I will not be bothered by those nave comments. We have an excellent management team with most members obtaining MBA from Harvard and Stanford, and our accounting staffs are all well qualified accountants. In fact, I wonder many analysts in Hong Kong are not qualified accountants, and they even do not really understand the contents of our published financial report. Mr. Chan: But we may not simply state this statement in our announcement, saying that many financial analysts are not qualified to give expert or professional opinion on the financial performance of our company, may we? Mr. Wong: I believe we could invite these financial analysts to attend a financial analysis forum organized by your accounting team. During the forum, you can demonstrate to them our team members' professional qualifications and rich experiences. You can also set a game where they can obtain some gifts from our company if they can answer your financial analysis questions. Mr. Chan: Would you propose the kind of questions that you wish to raise for the questioning game please? Mr. Wong: Well, how about these questions, such as: what is the problem of showing the office properties of our company at their cost value in our annual financial report; why are there questions for us to show our brand name value in our Statement of Financial Positions; why are some reporters still query the reliability of a company's financial reports if the auditors already issue a clean audit report to the company. They often raise these unacceptable criticisms and comments on us. I have to let them know that actually they cannot answer these questions. Mr. Chan: But I am worried that if we set these questions, the reporters who attend our forum may demand us to give a proper or model answer for their appreciation. You know it is not an easy task to persuade some guests to accept our explanation because of various reasons. If they do not believe in our explanations or "answers, then we may even get into bigger troubles. Mr. Wong: I do not worry about this at all. After all, I am not keen to increase our public awareness, business reputation or even share price movements. You know that I just wish to keep our company save and survived until I retire within 10 years' time. And you know I am also not keen to increase our operational profits. Mr. Chan: I see. I know what to do now. Mr. Wong: That is good. As my CFO, you should be able to handle and solve these troubles for me. I will totally rely on you in this respect. Mr. Chan: By the way, may I suggest you to think about how to answer the question if some reporters ask whether you know how to manage our company and how to utilize our financial information for management and business purpose? They may challenge you as you have no formal business and financial qualifications. Mr. Wong: Come on, I am so experienced in running business and managing a company as Chairman and Executive Director for more than 30 years. How could they suspect my ability in utilizing financial information for management and business purpose? Mr. Chan: Two other simple questions please: in what way shall we entertain the reporters and other guests? Shall we prepare simple drinks and snacks, or shall we provide expensive wines and delicious foods for them? Also, what should be value of gifts for correct answers to our question in the questioning game. Mr. Wong: Well, I am willing to provide expensive wines and delicious foods to them and you need not worry about the costs. The gifts are of high value as well. We should take this opportunity to demonstrate to these reporters that we have high ability to support luxurious activities. Mr. Chan: I got it now. I will prepare the forum at your satisfaction. You are required to: A. Identify the various issues of financial reporting and analysis as mentioned in the dialogue between the CFO and the Chairman of the company. (25 Marks) (Note: You are NOT required to comment on any of these issues for this part of the question alone.) B. Choose just one issue that you have identified in (A) above, and comment to what extent you agree with the view of Mr. Wong, the chairman. (25 Marks) END of PAPER
