Question: Simmons Optics Company is a medical device manufacturing company in

Simmons Optics Company is a medical device manufacturing company in Florida. As such, it has a number of new products at various stages of development, with many swings notable in its Research and Development budget aimed at taking advantage of tax credits. With the downswing in the economy and change in the optics technology, a new competitor, Bright Eyes Instruments, Inc., is taking a larger percent of the optical market. As a result, the CEO is pushing supervisors to reduce product development time from 24 months to 10 months, but without any new capital expenditures. The Board of Directors almost always agrees with the CEO’s initiatives and has rubber-stamped this course of action.
The new CFO of the company has only been at his job for six months. He is a hands-off CFO and sees this position as a way to enjoy sunshine, golf, and the ocean. However, during this period he has realigned the reporting responsibilities of the company, so that the credit and collections department reports to the Sales Controller, rather than the head of the treasury department. He also gave the Sales Controller increased authority to develop business by negotiating the terms of sales transactions and the authority to recognize revenue. The Sales Controller developed and negotiated new type of agreements called Guaranteed Profit agreements that relieve Simmon's direct customers (primarily optometrists) of any obligation to pay for goods unless they were sold through to end users or patients. In these agreements, Simmons books the revenue, but the CFO is not aware of any reversals for unsold goods, but admits that the information system has had significant disruptions in processing during his tenure.

Identify the Entity Level - External and Internal Risk Factors in this scenario.

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  • CreatedJanuary 21, 2015
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