THE AIR
(Part 3: “The Other half of the Picture”)
Following on last week’s conclusion in investment in a company, we now look at some implications of events within Air
It should be noted that decisions are only as good as the information upon which the decision is based. Bad Information Means Bad Decisions! Auditors – A J Shah – have a duty of care when undertaking the audit of Air
The Board of Directors, sanctioned at the AGM, appoints the auditors - the board relies on information, opinions, or reports of the auditors as the basis for a formal board action. However, the auditors remain responsible for the work they execute. The duty of care must be discharged diligently and in good faith. Auditors must act with knowledge and after deliberation, and should carefully establish policy and regularly oversee its implementation and administration by a competent staff.
A director who is present at a meeting when an action is approved by the entire board is presumed to have agreed to the action unless the director objects to the meeting because it was not lawfully called or convened and doesn’t participate in the meeting, or unless the director votes against the action or is prohibited from voting on the action because of a conflict of interest.
Impermissible conflicts of interests are characterized as interests of a financial or fiduciary nature that divest some profit or benefit to someone other than the organisation. For instance, an impermissible conflict and, therefore, a breach of the duty of loyalty occurs when a board member official contracts with the organisation that the public official serves. A clear instance of this being when Air Seychelles CEO David Ralph Savy, contracted with Air Seychelles through a special subsidiary Veiling for the onward lease of an Air Seychelles plane to Air Sahara of India. The Air
The above instance of conflict of interest makes the CEO’s words
“Air
sound surprisingly hollow and senseless as also he goes on to say
“…we all swear by the Parastatal Code of Ethics and Conduct…”
Was the Air Seychelles CEO, by acting on information obtained during the course of his employment and putting this information to his personal benefit, acting within the boundaries of Duty of Care to Air
Interestingly, another question we now raise is that of the role of the audit within this scenario. If the auditor is to report “that the accounts give a true and fair” on the state of affairs of the company; what do they view as a breach of the duty of loyalty? In continuance of these if the Auditor fails to see the conflict of interest in such transactions, is the auditor fit to assume the responsibility given by the Audit Mandate?
Another case of conflict of interest arises with particular relevance to the keeping and management of accounting records by Air
Books and Records
An auditor needs to have general knowledge of the books and records of the organization and its general operation. The organization’s articles of incorporation, bylaws, accounting records, voting agreements, minutes, and list of voting members must be made available to auditors, members and directors who wish to inspect them for the proper purpose of accountability, transparency and good governance.
Accurate Record Keeping
The Board of directors needs to be familiar with the content of the books and records to ensure that the organization’s records and accounts are accurate. This may mean the director must take steps to require regular audits by an independent certified public accountant. Under the Companies Act 1972 registered organizations are required to be audited by an independent certified public accountant. At the very least, the director needs to be aware of what the financial records disclose and take appropriate action to make sure there are proper internal controls.
The above picture becomes an even uglier sight when regarded in the light of credit management ratios: The Net working capital ratio, The Current Ratio, and The Quick ratio. The liquidity ratio is primarily concerned with the ability of a business to pay its debts as they fall due. As such, the focus is on the current assets and liabilities, which are due within one year.
It may be argued that the liquidity ratios are the most important measures for credit managers, because they demonstrate the ability of a business to meet its debts. If the annual accounts show that the business is unable to meet its current debts it is doubtful whether this is a business to which credit should be extended. However, a balanced view will be achieved by using the three ratio groups collectively.
Net working capital
Net working capital is current assets less current liabilities. For most financially healthy businesses, this should be a positive number. In Air
Current ratio
The current ratio is current assets divided by current liabilities. It should be at least one (1.0), and preferably higher: In Air
Quick ratio
The quick ratio is current assets, less inventory, divided by current liabilities. Since inventories can sometimes be difficult to liquidate, the quick ratio is considered by some to be a better measurement of a business’s ability to pay its bills than the current ratio. The quick ratio is sometimes called the “acid test” ratio. Again The Air Seychelles ratio of 0.73:1 does not augur a positive future.
The importance of liquidity is that if a business is unable to meet its debts as they fall due, irrespective of its profitability; its ultimate fate is one of death, otherwise known as liquidation. Has this news been conveyed to the Board of Directors, The people of