AC557 Unit 2 Case Study Revised per instructor.docx -...

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Running Head: Assignment 1 Unit 2 Case Study Assignment 1 Unit 2 Case Study Tamara Knight AC557 Internal Control Assessment and Design June 2, 2015
1 Company and Situation China International Trust Investment Corp, was founded by Yiren Rong in 1978. It is an investment company in China. Citic Pacific purpose was to attract foreign investment and technology to China and to develop international business. The company manufactures special steel, and the development of major property in China. The company was very popular among foreign investors, who wanted to be part of the economy in China. Many investors wanted the high standards of Hong Kong's corporate governance. Citic Pacific also had invested in industries such as aviation and civil infrastructure. Citic Pacific annual accounts reported that in 2007 the company was committed to the standards of corporate administration and business practices. The criteria were set high and carried beyond the fulfillment of the basic mandatory requirements of the Companies Ordinance of accounting standards and blood exchange. In 2008, Citic Pacific announced due to foreign exchange exposures, it stands to lose $2 billion. Six weeks later a financial report showed dramatic dropped 55.1% to 6.52 in one day. (Stephen, 2009). Citic Pacific invested in a project of excavation of iron ore in Western Australia. Capital estimated for 2010 expenditure requirement was $1.04 billion. There is a lower requirement in capital for $107 million. Australian and Euro dollar against the United States dollar was away the company like to ensure the price it wanted to pay for this investment. Citic Pacific entered contracts of currency based on its assumption not facts that the US dollar would stay to appreciate the Australian dollar and the euro; instead they depreciated against the buck. This presumption made by both the Board of Directors and internal risk management, was the downfall of the Citic Pacific. The Board of Directors of Citic Pacific did not acknowledge the losses that could accumulate if the Australian dollar depreciates against the buck. The Australian
2 currency depreciated nearly 30% in July 2008. The President Mr. Yang admitted the products were high risk and were not properly authorized which led to the possibility of fraud or illegal activities. The CFO did not conform to the policy of the Group by not conveying to the attention of the President, as unusual transaction. CFO was asked to resign as a result.

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