GGG Enterprises Ltd. deals in currency transactions. The company is owned by three brothers who are equal
Question:
GGG Enterprises Ltd. deals in currency transactions. The company is owned by three brothers who are equal shareholders. The eldest, Ibrahim, is the CEO. Waheed is the VP Sales. The youngest brother, Mustafa, is the CFO. GGG’s strength has been providing higher levels of service than its competitors. Most of the company’s business is with small businesses that export or import goods. GGG buys and sells foreign currency on behalf of its clients who may not have experience managing foreign exchange transactions, especially when the contract settlement date is several months in the future. GGG charges a 2% fee for their services. Last year, fees totalled $22 million.
The brothers have invested enough money to provide long-term financing so GGG has no bank debt. To increase sales this year, GGG has reduced its fees. This strategy is not popular with the managers at the company’s several locations because their bonuses are based on net income for their own location. However, the brothers have made it clear that they are committed to this strategy for the short term at least. They expect to make up for lower margins by increasing their customer base so that profits should improve in the future.
a. Calculate planning materiality and justify your caculation.
b. Identify three factors that affect inherent risk regarding GGG Enterprises Ltd. For each factor, also state whether it increases or decreases inherent risk.
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick