Financial Risks and Ethical Concerns: Manfold Toy Company Report

This report analyzes the financial, ethical, and social responsibility challenges faced by Manfold Toy Company. The memorandum highlights issues such as the audit committee's concerns regarding financial risks, the management's limited attention to internal controls, and the new secretary's attempts to benchmark corporate governance practices. The report also examines the impact of the company's pricing strategy, the senior management's efforts to expand sales channels, and the potential takeover by Mitchell & Meyer. Furthermore, the report touches upon fiduciary duty and investment ethics. This report is a case study that provides insights into corporate governance, financial risks, and ethical dilemmas within the context of Manfold Toy Company.

Running head: FINANCE, ETHICS AND SOCIAL RESPONSIBILITY
Finance, Ethics and Social Responsibility
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Author Note

1FINANCE, ETHICS AND SOCIAL RESPONSIBILITY
MEMORANDUM
To: The Audit Committee
CC:
From: Joseph Wan
Subject: Highlighting the problems faced by Manfold Toy Company
Date: 06th October 2019
The preparation of the memorandum has been done by the chairman and founder of Manfold Toy
Company, Joseph Wan who wanted to provide the audit committee with a positive image but had to highlight
the necessary problems that had to be looked upon for making the suitable amendments. Fred Wong along with
other independent non-executive directors who were Sherona Leung Ka-yi and Matthew Ip Man-ching
belonging to the management had identified that the accounts which had been audited may not have considered
the financial risks faced by the company (Gorbenko & Malenko, 2014). The management had also given little
attention to its aspects relating to the internal control of its operations. The new secretary, Vivian Chen who had
been appointed was given an alert relating to the corporate governance framework that was set by the Hong
Kong Stock Exchange (Balsam, Jiang & Lu, 2014). As the secretary, Vivian Chen Wing-yi had previously
worked in various companies’ compliance and legal departments, Vivian Chen Wing-yi aimed to benchmark
the companies along with that wanted to adopt their practices of internal control. Daniel had warned Vivian to
follow the regulatory requirements prescribed by the exchange regarding the endorsement of reports relating to
the corporate governance before adopting other practices but it was ignored by the secretary (Newton et al.,
2015). The board of directors had reviewed the endorsement reports just as a formality without raising any
queries on its content. The pricing strategy of low prices that the company had initially adopted had backfired
in the future years as the competitors had also adopted the strategy of low pricing. This had resulted in the
decrease of the market share as well as of the profit margin for the company (Lin et al., 2014). The sales
channels and brand image of Mitchell & Meyer had been blamed for its lack of success by the senior
management. They were looking forward for opportunities to get access for its products at new market. The
takeover would also benefit Manfold Toy as Mitchell & Meyer had a strong online channel. Mitchell also
identified the opportunities of leveraging the licensing deals and brand of Manfold Toy for selling its products
to the young population. Therefore, they immediately showed an interest in the lucrative takeover of Manfold
Toy.
Regards
Joseph Wan
Company Founder and Chairman, Manfold Toy

2FINANCE, ETHICS AND SOCIAL RESPONSIBILITY
Reference list
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Accounting Research, 31(1), 178-201.
Gorbenko, A. S., & Malenko, A. (2014). Strategic and financial bidders in takeover auctions. The Journal of
Finance, 69(6), 2513-2555.
Lin, Y. C., Wang, Y. C., Chiou, J. R., & Huang, H. W. (2014). CEO characteristics and internal control
quality. Corporate Governance: An International Review, 22(1), 24-42.
Newton, N. J., Persellin, J. S., Wang, D., & Wilkins, M. S. (2015). Internal control opinion shopping and audit
market competition. The Accounting Review, 91(2), 603-623.