Question

You are a manager who works for Hecht LLP, a local accounting firm. Your client is Triox Co. Triox is a major manufacturer of pharmaceutical products. A significant part of the company's operations involves research and development. Your firm has accepted the engagement to prepare a special report regarding the operations of Triox. (more will be discussed on this in unit five). Any findings in the report will be used to dictate the interest rate for future financing.

You have found that the company is near completion of a drug that is expected to save consumers significant money and compete effectively with the lead brands.

Upon review of the unaudited financial statements, you see a note states the government has provided funding for research contingent on the successful launch of the drug mentioned above. This loan will be forgiven upon successful launch of the product. The loan was not recorded on the books as the CFO of Triox felt that the new drug was near its final stages and would be launched within the timeframes specified in the contract with the government. Upon further enquiry, you also found there have been delays for a number of reasons of the new drug and it is unlikely the drug will be launched in time to meet the terms of the contract with the government.

Required:

1. Explain any concerns that you have given the recent information regarding the launch of the new drug (4 marks)
2. Discuss 5 procedures that you would perform to alleviate these concerns. (10 marks)

Answer 1

1) As a manager of Hecht LLP, my concern is

As I found client company loan amount is not recorded in company books, it might be repeated in the future as well

And there is a chance to miss loan exemption if the product is not complete within time-bound

and a chance to lose the reputation of the client company if the promise is not fulfilled with the government

2) first have to find out the route cause which is cause to delay to finish the product

drug company have to take the necessary measures to speed up the mission

if it is possible to negotiate with the government to extend the time period

should appoint a delegation to carry out the process fast

client company Triox have to support researching staff