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Six months have passed since you briefed William Seaton, Director of Finance on the relationship between Slide and Fouce Oil.
You have been called into William Seaton’s office:
“We had a visit from the Chief Executive Officer of Fouce Oil yesterday. We had not received any prior notice of the purpose of the visit and assumed that he simply wished to make a courtesy call while he was visiting Fouce Oil’s subsidiary in this country. Instead, he came to initiate discussions over a strategy of collaboration on oil exploration.
Rather than explain things myself, please read the memorandum of understanding that he has asked us to sign. It is self-explanatory.
Once you have read the memorandum, I would like you to email me your thoughts on the following:
The suitability of this proposal for Slide.
The likelihood that Fouce Oil’s strategic interests will clash with our own.
The strategic risks that are likely to arise because of this arrangement.
The manner in which this strategic relationship should be communicated to the stock market.
I realise that this is a challenging request, but I need your response quickly because we need to respond to Fouce Oil.”
The Memorandum of Understanding can be found by clicking on the Reference Materials button.
A week later, Romuald Marek stops by your workspace and hands you a document.
The Board minute extract from Romuald can be viewed by clicking the Reference Material button above.
Reference Material
Board minutes extract: proposal to profit from ongoing strength of NS
Anna Obalowu Sole, Chief Operating Officer, reported that the strong NS was helping generate revenues from fuel sales. Discussion followed as to whether the strong N$ was likely to persist and whether a strong N$ benefits Arrfield overall.
Markus Jokela. Chief Executive Officer, stated that the Board should develop contingency plans that could be implemented if it seemed likely that the strong N$ would persist. In particular. Arrfield need not renew the contracts that permit aviation fuel suppliers to operate from its airports. Arrfield would then be free to create its own fuel sale business, buying fuel in bulk to replenish the storage tanks at each of its airports in Norland and then selling it directly to airlines He stated that this would almost certainly enhance Arrfield's share price
Romuald Marek reminded the Board that four of Arrfield's six airports are located in Norland and that those airports charge for aeronautical and non-aeronautical services in N$.
A month later, you receive the following email:
Reference Material:
From: Hesham El-Sayed. Independent Non-executive
Director
To: Romuald Marek. Chief Finance Officer
Subject: Collapse of fuel supplier
Hi Romuald
I am writing to give you some advance notice of an internal audit investigation that has been commissioned by the Audit Committee
Just over a year ago. Planejoos, a newly formed company, approached the management team at Airfield's Capital City International (CCI) airport and offered to take over refueling operations at Starport Planejoos offered a higher percentage of revenue than the existing supplier was paying CCI's management team agreed and appointed Planejoos rather than renew the existing supplier's contract.
CCI was unable to conduct the usual background and credit checks on Planejoos for two reasons. Firstly, Planejoos was a new company and so did not have an extensive credit history that could be checked Secondly CCI was under time pressure to reach a decision on whether to renew the existing supplier's contract or allow it to expire
CCI's management team claimed that it had acted quickly in order to benefit from the additional revenue that could be earned from dealing with Planejoos The management team was acting on the basis that it had an ethical duty to maximise the wealth of Airfield's shareholders and that maximising revenues from fuel sales through this agreement with Planejoos was consistent with that ethical duty.
Unfortunately, as a new company. Planejoos struggled to obtain trade credit and the high demand for fuel put the company's cash flows under extreme pressure Receipts from sales lagged behind payments for inventory Planejoos has now collapsed, leaving a large trade receivable that CCI will have to write off as uncollectable CCI had permitted this receivable to accumulate rather
than pressing for payment and so putting Planejoos under further pressure.
Fortunately, the previous fuel supplier was prepared to return to CCI.
Kind regards
TESTED 19 Apr 2024