Manfold Toy Company Case Analysis

ManFold Toy Company Case Analysis

Seattle University

Acct 542 Individual Case Study

Professor Davis

March 9, 2014

ManFold Toy Company Case Analysis

Seattle University

Acct 542 Individual Case Study

Professor Davis

March 9, 2014

I. Introduction:

Manfold Toy Company is a listed company in Hong Kong, which sells and manufactures bath and water toys. It was founded by Joseph Wan in 1983, and has experienced a phenomenal growth since established. Despite its rapid growth of business, Manfold Toy Company had many legal and ethical problems raised by the Directors, Senior Management, and other stakeholders. This report aims at identifying the issues and conducting analysis to find possible solutions. After detailed research, 4 major issues have been identified: weak control environment, improper disclosure of information, misconduct of management and director’s duties, and violation of professional conduct.

II. Weak Control Environment

Proper control environment is the foundation for all other components of internal control. It sets the tone of an organization, influences the integrity, ethical values, and competence of the entity’s people. Manfold Toy Company has a weak corporate governance framework, which can be exemplified by its composition of the Board of Directors as well as the role of the Audit Committee.

According to the Board Composition Principle, “The board should have a balance of skills, experience and diversity of perspectives appropriate to the requirements of the issuer’s business. It should include a balanced composition of executive and non-executive directors so that there is a strong independent element on the board, which can effectively exercise independent judgment.” Based on the summary of relation figure in the case, although the company did have sufficient non-executive directors on board, most of them still had a close relationship with the Chairman, Joseph, and with the Senior Executives. They...