Mitchem Lethbridge Ltd
Case #2
Mitchem Lethbridge Ltd. Financial Statement Analysis
Section A
Introduction
Mitchem Lethbridge Ltd. is an individual franchise of the parent company Mitchem Office Corporation, which holds a contest every third year to award the franchise with the greatest improvement in net income. This year the Lethbridge franchise has won the contest, however the Halifax franchise, who had a net income increase of 60%, contends that Lethbridge’s financial records have been manipulated to reflect higher net income numbers. The Mitchem head office has asked us to look at the financial records and interview the Lethbridge management to determine if an audit is required because of suspect manipulations to the statements. We also have been required to suggest some improvements to the contest rules to the Mithcem head office. The Lethbridge franchise is currently solely owned by Lisa McGovern and had been going through a tough year in 2010. At the end of the period they made many adjustments that had negative effects on the net income in the 2010 year and positive effects towards the net income of the 2011 year. These issues and the effects they had on net income will determine if there is a need for an audit. They will also help provide insight to determine any improvements that can be applied to the rules of the contest to ensure the future winners are indeed complying with the rules. Improvements would also help curb franchises towards the purpose of the contest, which is to be continually improving net income each year. After determine Mitchem Lethbridge Ltd. Financial statement, we comment on some issues them may address, and
Issues
Commissions Expense
At the end of the 2010 reporting period Mitchem Lethbridge Limited decided to pay expected commissions of January 2011 to employees in December to help offset the poor sales year they just had in 2010. This practice is neither acceptable by
Mitchem Lethbridge Ltd. Financial Statement Analysis
Section A
Introduction
Mitchem Lethbridge Ltd. is an individual franchise of the parent company Mitchem Office Corporation, which holds a contest every third year to award the franchise with the greatest improvement in net income. This year the Lethbridge franchise has won the contest, however the Halifax franchise, who had a net income increase of 60%, contends that Lethbridge’s financial records have been manipulated to reflect higher net income numbers. The Mitchem head office has asked us to look at the financial records and interview the Lethbridge management to determine if an audit is required because of suspect manipulations to the statements. We also have been required to suggest some improvements to the contest rules to the Mithcem head office. The Lethbridge franchise is currently solely owned by Lisa McGovern and had been going through a tough year in 2010. At the end of the period they made many adjustments that had negative effects on the net income in the 2010 year and positive effects towards the net income of the 2011 year. These issues and the effects they had on net income will determine if there is a need for an audit. They will also help provide insight to determine any improvements that can be applied to the rules of the contest to ensure the future winners are indeed complying with the rules. Improvements would also help curb franchises towards the purpose of the contest, which is to be continually improving net income each year. After determine Mitchem Lethbridge Ltd. Financial statement, we comment on some issues them may address, and
Issues
Commissions Expense
At the end of the 2010 reporting period Mitchem Lethbridge Limited decided to pay expected commissions of January 2011 to employees in December to help offset the poor sales year they just had in 2010. This practice is neither acceptable by