Mr. Braganza, the CEO of Bright Star Limited, receives the company's audited annual results for the year ending March 2012 showing a loss of Rs. 188 million compared to a profit of Rs. 500 million the previous year. Despite a 25% increase in sales, higher costs have resulted in the loss. Braganza asks the CFO Jacob to recheck the numbers but the next day Jacob confirms that a thorough rechecking found no mistakes in the accounting figures maintained in SAP. Braganza must now prepare for an upcoming Board meeting to discuss the unexpected loss and consider steps to improve performance in the current financial year.

1. A Brief Case study
Mr. Braganza is the CEO of Bright Star Limited, which manufactures and
sells consumer electronics and durables. The company manufactures and
sells a wide range of consumer electronic products viz. televisions, washing
machines, refrigerators, & audio appliances. The products enjoy a fairly
good reputation for its quality and brand in the market. The company has a
build a good network for distribution of its products all over India.
Braganza has a Board meeting scheduled in about two weeks’ time. The
main item in the agenda is to discuss and approve the audited annual
results for the year ending March.
Mr.Jacob, the CFO, has just finished the audit of accounts for the year
ending 31st
March 2012. He looks very relieved after a very hectic schedule
of very long working hours without any week-end breaks.
Branganza picks up the inter-com and asks Jacob “Are you through with
the final audited figures?” A relieved Jacob replies” Yes, we are finally
through. I am just mailing you the summarized results in a few minutes”.
In the next ten minutes Braganza receives the mail from Jacob giving the
summary results for the company for the year ending March 2012.

2. Following are the excerpts from the summarized results:
(Rs Million)
Braganza is shocked to see the company has reported a loss figure of Rs
188 million as against profit of Rs 500 Million in the previous year. He
immediately calls .Jacob to his room.
Current Year -
31st March
2012
Previous
Year - 31st
March 2011
Rs Rs
Sales 6250 5000
Les:Cost of Goods Sold 4563 3350
Salary and other manufacturing cost 563 300
Selling & distribution exp 438 250
Administrative expense 563 400
Financial cost (Interest exp.) 313 200
Total Expenditure 6438 4500
Net Profit/ (Loss) -188 500
Financial Results of Bright Star Ltd

3. A worried CEO asks Jacob “I cannot understand how the results can show
a loss especially when we have done extremely well in the sales front. We
had planned an overall turnover target of 20% increase over the last year.
We have had regular reviews on the sales achievement vis-à-vis target with
our marketing team in all business groups. Except for the appliances
segment where we managed to hold on to our last year figures (which is
incidentally a very small and negligible portion of our overall business
portfolio), in all the other main business segments, and we had right
through done better compared to both the last year as well as our plan. In
fact, we achieved a record 25% increase in the sales over the previous
year which is the highest ever since the inception of the company. I think
you need to recheck the numbers thoroughly once again and get back to
me latest by tomorrow morning. We have to discuss this once again
tomorrow first thing in the morning. I am very hopeful you would get to me
back with some better bottom line figures.”
Jacob gets back to his room and calls his two able accounts assistants.
“Guys, we need to recheck the audited numbers finalized and I have to get
back to the CEO latest by tomorrow morning. Since we have very limited
time, let’s quickly carry out overall control checks and look if there are any
major incorrect major wrong bookings in any of the cost heads. We would
have long day ahead and I do not see an option but to burn the midnight oil
tonight as well.”

4. The Accounts of the company are maintained on SAP, one of the best
internationally acclaimed ERP tool available in accounting. The accounts
assistants have been trained well and have a good expertise in the
financial accounting module of SAP. Periodic checks and confirmations
from the suppliers and customers account are obtained to ensure there are
discrepancies with the records maintained by the company. As at end
March 2012, for the first time Jacob has ensured that there has been a
100% check and confirmation on all the balances from suppliers and
customers obtained. checks carried out to ensure that all transactions.
He has a discussion with the Company’s auditor to find out if the auditor
has any specific observation which could have an impact in improving the
bottom lines figures. The auditor replies” We have carried out all necessary
checks including system compliance checks on SAP. We have not come
across any instance of wrong booking. We had some observations
regarding the provisioning of some marketing expenditure, which was not
done earlier but all these have already been corrected and incorporated”.
Next day first thing in the morning, Jacob hurries up to Branganza’s room.
He starts the discussion” Sorry Chief, we have spent the entire yesterday
afternoon and night.I am unable to give you any better information. We
have rechecked the figures and have no found there are no glaring
mistakes. So the figure as given earlier stands. As you may be aware, our
accounting systems are fairly good and maintained in SAP and we have
carried out all possible checks and do not find any changes in the figures
as reported. Both me and the auditor are ready to certify the correctness of
the figures.”

5. Is there anything the CEO and his team could have done better?
How do you think CEO and his team should prepare themselves for the
forthcoming Board Meeting given the short time?
What steps and actions could CEO and his team take in the current
financial year.