Ariff Mini Market Bhd (AMM) is a medium-sized public-listed company that operates a chain of grocery...
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Ariff Mini Market Bhd (AMM) is a medium-sized public-listed company that operates a chain of grocery stores in Kelantan. You are the audit senior assigned to plan the audit of this client and you are in the midst of gaining an understanding of the company's objectives and strategies and the related business risks. AMM operates in a highly competitive environment, where major supermarket chains aggressively buying out smaller rivals, and discounting goods below cost in order to increase market share. In order to compete, AMM has had to offer value-added services, such as quantity discount and loyalty rewards. While these strategies have helped to maintain its customer base, its gross profit margins have dropped by over the years. In an effort to increase profits, AMM has recently added higher margin products such as gourmet foods to its range. To date, these items have achieved only limited acceptance among its customers. AMM rents the premises where the stores are located. The tenancy agreement for five of the rented premises are due to expire prior to the end of the current financial year ending 31 December 2019. In two cases, the land upon which the premises are situated has been re-zoned from commercial use to residential use (i.e. business-related activities to housing purposes). The re-zoning of land use to residential purposes will increase the value of the land and, because of the benefit from higher land value, the owners of these premises are demanding a significant increase in rent from AMM. AMM is also experiencing difficulties with one of the major suppliers, which has withdrawn their bulk purchase discount and reduced payment terms from 45 days to 21 days. Also, AMM has recently commenced legal action against a major supermarket chain for anti-competitive behaviour and predatory pricing. Required: (a) From the case study, identify the business risks faced by Ariff Mini Market Bhd that may impact the financial performance of the company. (b) For each of the business risk identified in (a) above, explain how it may lead to the risk of material misstatement in the financial statements. Ariff Mini Market Bhd (AMM) is a medium-sized public-listed company that operates a chain of grocery stores in Kelantan. You are the audit senior assigned to plan the audit of this client and you are in the midst of gaining an understanding of the company's objectives and strategies and the related business risks. AMM operates in a highly competitive environment, where major supermarket chains aggressively buying out smaller rivals, and discounting goods below cost in order to increase market share. In order to compete, AMM has had to offer value-added services, such as quantity discount and loyalty rewards. While these strategies have helped to maintain its customer base, its gross profit margins have dropped by over the years. In an effort to increase profits, AMM has recently added higher margin products such as gourmet foods to its range. To date, these items have achieved only limited acceptance among its customers. AMM rents the premises where the stores are located. The tenancy agreement for five of the rented premises are due to expire prior to the end of the current financial year ending 31 December 2019. In two cases, the land upon which the premises are situated has been re-zoned from commercial use to residential use (i.e. business-related activities to housing purposes). The re-zoning of land use to residential purposes will increase the value of the land and, because of the benefit from higher land value, the owners of these premises are demanding a significant increase in rent from AMM. AMM is also experiencing difficulties with one of the major suppliers, which has withdrawn their bulk purchase discount and reduced payment terms from 45 days to 21 days. Also, AMM has recently commenced legal action against a major supermarket chain for anti-competitive behaviour and predatory pricing. Required: (a) From the case study, identify the business risks faced by Ariff Mini Market Bhd that may impact the financial performance of the company. (b) For each of the business risk identified in (a) above, explain how it may lead to the risk of material misstatement in the financial statements.
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a Business risks faced by Ariff Mini Market Bhd AMM that may impact the financial performance of the company include Intense competition and market consolidation The aggressive buying out of smaller r... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0071339476
Volume 1, 6th Edition
Authors: Beechy Thomas, Conrod Joan, Farrell Elizabeth, McLeod Dick I
Posted Date:
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