Accounting case study.. Essay Example

Merran Hill and Integrated Report at Aegon

Lecturer

  1. Merran Hill

Key issues:

1-Material:

Material Variance-raw-material

The main challenge that has led to the increased cost of production from the earlier budgeted $1.5m to the $2.1m spent was as a result of reports that the company was using an inferior cocoa in its production (Pavlopoulos et al. 2017). This followed criticism by a reputable newspaper. This had negated on the perception of the company a fact that could lead to reduced profits. This prompted Jane Oh to opt for a high quality cocoa that resulted into increased financial expenses. There was therefore needed to improve the quality of cocoa as agreed by the board.

2—Outsourcing:

Production of Berry Delight has proved to be a challenging task owing to increased cost of its production. This is also experienced by the increased amount sent on labour for its production. This has resulted into challenges in producing other related commodities as well (Beck et. al. 2017). This calls for an option of outsourcing its production to other companies as Merran work on its finances.

Vietnamese company, Madou, has been indicated to incorporate the use of carob powder that is obtained from firms that use children as its labour force. Another ethical issue is lack of purity of chocolate used as a bigger percentage of the raw materials is obtained from carob.

The first option available is to outsource the company to either Barry Gallebaut of Switzerland or Madou of Vietnam (Beck et. al. 2017). The former is 30% more compared to the latter yet a need to opt for the latter. This however is not perceived as the best option considering the security matters and the reputation of the company in the long run if it associates with Vietnam. A challenge exists also on the quantity of boxes Madou need. This does not augur well with the company as it is keen on maintaining a stock volume that does not render shortage and neither is it keen on spending extra costs on the storage of the Berry Delight. Madou is however keen on the 100,000 boxes.

3-Production issues:

The cost of production has been on the rise owing to the increasing wages of the employees that contribute to increased expenditure on the cost of production. The need to keep up with the use of specialized machines in the production has posed a challenge due to increased costs incurred with their use.

A challenge exists in consideration of the types of machines that are used to produce Choco Mint and Choc Almond following the high cost of the regular machines used in the production (Flower 2015). There company is not in a state to secure new machines considering the financial constraints of the company. This therefore presents with the only option of leasing production of one of the two remaining products.

The production of these products requires a steady and reliable timely delivery of the raw materials for the production purposes. However, opting to other suppliers might lead the company into losses owing to their unreliability. This could interfere with the production process and cause unnecessary delays that could translate into reduced profits as a result of negative perception towards the company.

4- Corporate governance issues:

Jane the production manager started her chocolate production as a hobby and was never earlier on exposed to management of a large company of the level of Merran Hill. Lack of experience with large companies could partly have contributed to irrational decision she had made to outsource the company’s two products. In her dealings, it is evident that she rarely consults other managers before making a decision that affect the entire company (Flower 2015). Even though the company had applied all the criteria required in chocolate production she did not respond when called by ICCO to provide evidence of the supply chain used in Merran production.

Dealing with Madou had proved to be a bad idea following the anonymous letter that indicated it only uses 10% of cocoa in its production (Flower 2015). As opposed to the information given by Jane, it emerged that only $40,000 is an additional costs incurred with production of Berry Delight as the other $200,000 is incurred on administration and does not indicate huge expenses towards production of Berry Delight. This would therefore not change. This means that the exact cause of the challenge is not production of Berry Delight but the increased cost incurred in administration overhead.

INTERGRATED REPORT AT AEGON

1-What is the reason they start looking at ESG (environmental, social, governance)

In investment processes and engagement with portfolio companies?

This followed pending loopholes that needed advancement and the impacts of the integrated reporting on the company’s asset management that had been on the rise since 2009 (Flower 2015). This followed an earlier attempt that had incorporated the use of integrated reporting as a way that could holistically represent the company in terms of the factors that affects its daily operations and the long terms targets, incorporation of stakeholders’ ideas and the link that existed between the financial data and the non-financial data (Forbes et al., 2010). All these had been in on the rise tandem with the CSR impacts.

2- Why did they need to improve their Website –?

The need to advance their website followed the consideration that it is a better way of interaction with the customers and the stakeholders thus could be used as an avenue to create new perception about the company (Aegon, 2001). There was also a need to have a forum that could enable the company interact more with their customers. The website that was in use did not have an ability to accommodate adjustments in terms of regulating the amount of information reaching the customers. There was therefore a need to customize the data released. Their website in use did not have a localized departmental control as all of the 129 websites were controlled by the head of Communications. Improvement in the website would be cost0-effective to the HR department. There was also need to feed information into the website for people who visit it.

3-
Need to provide linkage between financial and non-financial data (KPI) to value creation. (Why they need to improve).

This was improved as a need to focus on the loyalty if the customers and suit it to meet the individual needs of the clients. There was need to identify the most efficient way of incorporating the indicators into a system of data that is manageable as the data management system is a subject to evolution. Improvement would be helpful in assessing the level of care the company has towards its customers and that the method used was being implemented in the best way possible. The disparity that existed in the relevance of the KPI application in the sectors it was applied thus need to control the data (Beck et al. 2017). The data gathered was not directly an indicator of the financial implication of the company hence need for advancement. Need to comply with standards such GRI and IIRC and future of Aegon (Beck et al. 2017).

4-What is the NPS problem?

The NPS was based on an opinions feeling which did not augur well with the company. In terms of data and methodology, Aegon still had difficulties. NPS focused on customer loyalty rather than assessing the level of customer satisfaction thus failed to give the indicators required (Denel, 2013). Most of the customers were passive and the vocal ones were the dissatisfied. It did not provide the holistic evaluation of the company.

5- Can (IR) be an official regulatory document? -produced 4 reports prior to 2011.

Yes, IR can be an official regulatory document owing to the holes it punched in the four reports of Aegon which showed similarity in the information. Analysis of their external communication prompted this new revelation.

6- Why are they embracing (IR)?

At the time of its adoption, the company needed a system that could aid in its continuity in the long run. It had an ability to provide for new developments that are structured. The system is also praised as with it in use, the company is able to offer customer-oriented services. Adoption of a customer-focused strategy would enable the company prosper in its profits and ability to offer the best services to the clients and would in turn improve its outward look (Beck et al. 2017). Compared to the old system, IR is far much better and could not lead to the findings made by the disclosure committee earlier on the four year reporting.

References

Beck, C., Dumay, J. and Frost, G., 2017. In pursuit of a ‘single source of truth’: from threatened legitimacy to integrated reporting. Journal of Business Ethics, 141(1), pp.191-205.

Flower, J., 2015. The international integrated reporting council: a story of failure. Critical Perspectives on Accounting, 27, pp.1-17.

Pavlopoulos, A., Magnis, C. and Iatridis, G.E., 2017. Integrated reporting: Is it the last piece of the accounting disclosure puzzle?. Journal of Multinational Financial Management.