...co-author of American Factoring Law (Bloomberg/ BNA, 2009), together with David Flaxman and Jeremy B. Tatge. JEREMY B. TATGE OWNER AND CHIEF EXECUTIVE OFFICER CAPITOL FACTORS COMPANY, LLC Jeremy is owner and chief executive officer of Capitol Factors Company, LLC, doing business as Capitol National Factors Company, a start-up commercial finance company in Oak Hill, VA. He was previously employed in the global custody group of Brown Brothers Harriman & Co. in Boston, MA. Jeremy is a co-author of American Factoring Law. ©Shutterstock.com/Andrea Danti 56 September 2012 | practicallaw.com Copyright © 2012 Practical Law Publishing Limited and Practical Law Company, Inc. All Rights Reserved. Fundamentals of Factoring A guide to understanding factoring transactions, including advantages of factoring over traditional bank financing and key issues to consider in structuring and negotiating factoring agreements. M any businesses, both large and small, factor their accounts receivable (accounts). Factoring is sometimes wrongly perceived as a source of financing of last resort, favored by financially distressed companies that cannot obtain traditional bank financing. In fact, the majority of American factoring volume arises from contracts between large, old-line factors, many of which are bank owned or affiliated, and creditworthy client companies, many of which are in the apparel, textiles, furniture and footwear industries. Beyond these traditional factoring markets, factors...
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...WPS3593 The Role of Factoring for Financing Small and Medium Enterprises Leora Klapper Development Research Group The World Bank 1818 H Street, NW Washington, DC 20433 (202) 473-8738 lklapper@worldbank.org Abstract: Around the world, factoring is a growing source of external financing for corporations and small and medium-size enterprises (SMEs). What is unique about factoring is that the credit provided by a lender is explicitly linked to the value of a supplier’s accounts receivable and not the supplier’s overall creditworthiness. Therefore, factoring allows high-risk suppliers to transfer their credit risk to their high-quality buyers. Factoring may be particularly useful in countries with weak judicial enforcement and imperfect records of upholding seniority claims, because receivables are sold, rather than collateralized, and factored receivables are not part of the estate of a bankrupt SME. Empirical tests find that factoring is larger in countries with greater economic development and growth and developed credit information bureaus. In addition, we find that creditor rights are not related to factoring. This paper also discusses “reverse factoring”, which is a technology that can mitigate the problem of borrowers’ informational opacity in business environments with weak information infrastructures if only receivables from high- quality buyers are factored. We illustrate the case of the Nafin reverse factoring program in Mexico and highlight how the use of electronic...
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...Factoring's origins lie in the financing of trade, particularly international trade. It is said that factoring originated with ancient Mesopotamian culture, with rules of factoring preserved in the Code of Hammurabi. Factoring as a fact of business life was underway in England prior to 1400, and it came to America with the Pilgrims, around 1620.[10] It appears to be closely related to early merchant banking activities. The latter however evolved by extension to non-trade related financing such as sovereign debt.[11] Like all financial instruments, factoring evolved over centuries. This was driven by changes in the organization of companies; technology, particularly air travel and non-face to face communications technologies starting with the telegraph, followed by the telephone and then computers. These also drove and were driven by modifications of the common law framework in England and the United States.[12] Governments were latecomers to the facilitation of trade financed by factors. English common law originally held that unless the debtor was notified, the assignment between the seller of invoices and the factor was not valid. The Canadian Federal Government legislation governing the assignment of moneys owed by it still reflects this stance as does provincial government legislation modelled after it. As late as the current century the courts have heard arguments that without notification of the debtor the assignment was not valid. In the United States, by 1949 the majority...
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...Transfer pricing By John C. Hollas Illustration: Susanna Denti How to apply the appropriate transfer pricing methods to intercompany financial transactions In Canada, taxpayers are seeing an increased scrutiny of and more audit focus on intercompany financing transactions by the international tax auditors from the Canada Revenue Agency. The related party financial transaction being most commonly audited by the CRA are intercompany loans, factoring of trade receivables and provision of financial guarantees. This environment of rising transfer pricing controversy risk with respect to intercompany financial transactions conflicts directly with the multinational corporation's (MNC) increasing need to finance its foreign operations through intercompany, crossborder financial transactions. The transfer pricing risks and implications remain very significant both from a tax compliance standpoint and from a controversy risk management perspective. Today, MNCs need to mitigate the risk of significant transfer pricing adjustments by local and foreign tax authorities. While our focus is limited to the Canadian tax environment, it is critical to recognize that in all international related party transactions, with financial transactions being no exception, the transfer pricing issues include the other tax jurisdictions of the foreign related parties that are involved in the intercompany transaction. As such the transfer pricing legislation in those foreign tax jurisdictions must...
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...MATH 102 – College Algebra FACTORING polynomials Factoring polynomials is simply the reverse process of the special product formulas. Thus, the reverse process of special product formulas will be used to factor polynomials. To factor polynomials will mean to express it as a product of positive integral powers of distinct prime factors. TYPES OF FACTORING Type 1. Common Monomial Factor Examples: 3x2 (4 – 3x) 1. 12x2 – 9x3 = 2. -10a6b5 – 15a4b6 – 20a3b4 Solution: The common factor of -10, -15 and -20 is -5; For a6, a4, a3, the common factor is a3 For b5, b6 and b4, the common factor is b4 Therefore, the common monomial factor of the given polynomial is -5a3b4 After getting the common monomial factor, divide the given polynomial by this to get the other factor. -10a6b5 – 15a4b6 – 20a3b4 = -5a3b4(2a3b + 3ab6 + 4) ax + ay = a(x + y) Type 2. Difference of Two Squares The difference of two squares is equal to the product of the sum and difference of the square roots of the terms. x – y = (x + y) (x – y) 2 2 Examples: 1. x 2 − 9 = x 2 − 9 x 2 + 9 = (x - 3) (x + 3) 2. 16x4 – 81y4 = (4x2)2 – (9y2)2 = (4x2 – 9y2) (4x2 + 9y2) = (2x – 3y) (2x – 3y) (4x2 + 9y2) 3. –ax2 + 9a = -a (x2 – 9) = -a (x – 3)(x + 3) Type 3. Perfect Square Trinomial The square of any binomial is a perfect square trinomial where the first and the last terms are the square of the first and square of last term of the binomial and the other term is a plus (or minus) the...
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...Filenote The purpose of this filenote is to outline the accounting treatment associated with the receivables securitisation arrangement with Westpac. Introduction AASB 9's requirements on de-recognition are complex and require interpretation in a number of areas. Factoring arrangements are often referred to as "with recourse" or "without recourse". In a "with recourse" arrangement, all or most of the credit risk remains with the entity. Such an arrangement will almost always fail the risks and rewards tests (and possibly others). It should therefore be accounted for as a loan. By contrast, a "without recourse" arrangement transfers all or most of the credit risk to the factor (transferee). Such an arrangement is likely to qualify for de-recognition (subject to an evaluation of other risks that might be relevant such as slow payment risk). In substance, such an arrangement could be economically similar to a sale of the receivables in which case it is accounted for accordingly. The continuing involvement accounting requirements of IAS 39 will rarely apply in most factoring arrangements because most arrangements result in substantially all the risks and rewards being either transferred or retained. These requirements include special rules on recording and measuring continuing involvement assets and liabilities that deviate from the normal requirements of IAS 39. Accounting Implications When an entity factors its trade receivables, an analysis should be carried...
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...Question 1 Listing on a stock exchange might be highly desirable for a company, but there are a number of requirements, conditions and costs associated with becoming a publicly listed corporation. a) Discuss the ASX profit test and asset test requirements. b) Analyse the advantages and costs that are incurred when a company becomes a publicly listed corporation. a) To meet the profit test requirements of admission, an entity must satisfy each of the following conditions: * The entity must be a going concern, or the successor of a going concern. * The entity must have been engaged in the same principal business activity for the last three full financial years. * The entity must provide audited financial statements for the last three full financial years. The statements must be accompanied by audit reports, which must not be qualified with regard to the entity’s capacity to continue as a going concern, or satisfy the profit levels required. * The entity’s aggregated profit from continuing operations for the last three full financial years must have been at least $1 million. * The entity’s consolidated profit from continuing operations for the twelve months to a date no more than two months before the date the entity applied for admission must exceed $400 000. * The entity must give the ASX a statement from all directors (in the case of a trust, all directors of the responsible entity) confirming that they have made inquiries and nothing has come...
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...First name Last name Name of Course Name of Professor 12 November 2012 Brief Analysis of Asset-based Financing and Consequent Audit Risk The article by Robert A. Modansky and Jerome P. Massiminom mainly discusses the features and rationale of three asset-based financing methods-revolving lines of credit, purchasing order financing and factoring and further introduces how to account for them according to U.S. GAAP. Companies that are highly-leveraged or do not have the credit rating or track record to qualify for bank financing now find asset-based lending a pleasant choice instead of the financing option of last resort. The main difference between the asset-based lending and traditional types of banking is that asset-based financing is secured by an asset like trade account receivable, inventory or property and equipment not credit rather than credit ratings (Robert A. Modansky, Jerome P. Massiminom).The benefit of placing the borrower’s assets as collateral is that the borrower will receive a higher amount of maximum credit with a lower interest rate. Revolving lines of credit requires the borrower to grant a security interest in its receivables and inventory to lenders as collateral to secure the loan, which creates a borrowing base for the loan. It’s worth noting that not all receivables and inventory are eligible to constitute the borrowing base. For instance, receivables that are more than 90 days old and related party receivables would be ineligible (Robert A...
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...Report On “FACTORING VS FORFEITING” Submitted by Payal Pasad A-22 Vaishali pise A-23 Rupalika Sarkar B-30 Asiya Shaikh B-32 For subject Banking and Insurance [pic] Aruna Manharlal Shah Institute of Management and Research Ghatkopar [W], Mumbai-86 2012-13 TABLE OF CONTENTS |Chapter 1 |FACTORING | | |1.1 |Overview: Factoring |3 | |1.2 |Factoring Services |3 | |1.3 |Factoring functions |3 | |1.4 |Funding process |3 | |1.5 |Types of Factoring services |4 | |1.6 |Two factor system of factoring |4 | |1.7 |Benefits of factoring |5 | | | | | |Chapter 2 |FORFEITING | | |2.1 ...
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...The relationship between management and shareholders is sometimes referred to as an Agency Relationship, in which managers act as agents for the shareholders, using delegation powers to run the affairs of the company in the best interest of the shareholders. Since the agent and the manager may have different value of the company to perform agency relationship share prices.When a manager hires an agent to carry out specific tasks, the hiring is be called principal agent relationship, or simply an agency relationship. When a conflict of interest between the needs of the principal and those of the agent arises, the conflict is called an agency problem.In financial markets, agency problems occur between the stockholders and corporate managers .While the stockholders call on the managers to take care of the company, the managers may look to their own needs first. It should be stressed that most severe conflict of interest exists between shareholders and managers . This situation exists despite the rights of shareholders to manage the company by participating and they may also sell the shares that they own and put their company at risk of being taken over, For example, if managers hold none or very little equity shares of the company they work for, what is to stop them from working inefficiently, not bothering to look for profitable new investments opportunities, or giving themselves high salary or perks and managers avoid problems stemming from reductions in employment levels...
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...Importance of Separation of Duties Student CMGT/430 Date Professor The Importance of Separation of Duties Introduction Riordan Manufacturing is one of the industry leaders in the field of plastic molding injection. The company headquarters office is in San Jose, California and has three other plants, including one international location. The list of locations includes Albany, Georgia, Pontiac, Michigan and Hangzhou, China. The San Jose, California, location serves as the company’s headquarters and the home of their research and development. The Albany, Georgia, plant produces beverage containers. The Pontiac, Michigan, location produces custom plastic parts. The international location in Hangzhou, China, produces custom plastic fan parts. Riordan employs 550 people and have projected annual earnings of $46 million. The purpose of this proposal, submitted by Smith Consulting, is to advise Riordan Manufacturing on the best practice to secure the company network after evaluating the company network and what steps are necessary to set forth enterprise security policies via segregating duties of employees by role assignments. Minimizing Risk The goal of any company should be to successfully minimize their risk and optimize their profitability. To accomplishing this progress is to examine their current network for shortfalls that allow security breaches, theft by client or employee and to minimized possible mistakes...
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...Science Technology Company Financial Projections, 1985 – 1989 Criticisms 1. No benchmark. 2. The markets to be exploited are not specified. 3. The 30% annual growth rate projection is unrealistic. First, the average growth per year of STC, as shown by the table below, is only 12% — a far cry from the 30% annual growth rate projection. Second, the division managers or STC did not provide which product lines will produce the estimated increase. Growth Percentage (per year) |Year |Percentage | |1980 - 1981 |7% | |1981 – 1982 |11% | |1982 – 1983 |20% | |1983 – 1984 |10% | |Average growth = 12% | 4. The estimated net profit from $23 million to $61 million is unfeasible. First, the increase between $23 million...
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...Worksheet for You Decide Name _JANICE VALDEZ Course Code _AC555ON_Grade ___/ Date 4/15/_2012_ Questions: Q1: Discuss how the SEC has influence (if any) over the audit of Smackey Dog Foods, Inc. Solution: The Securities and Exchange Commission (SEC), an agency of the federal government, assists in providing investors with reliable information upon which to make investment decisions. The Securities Act of 1933 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. The Securities Exchange Act of 1934 requires public companies and others to file detailed annual reports with the commission. SEC examines these statements for completeness and adequacy before permitting the company to sell its securities through the securities exchanges. SEC requires that financial statements be accompanied by the opinion of an independent public accountant, which is a part of a registration statement and subsequent reports. Since Smackey Dog Foods, Inc. is not a public company, there is no direct influence of SEC. However, SEC’s rules establish the guidelines of GAAP and personal conduct for Smackey Dog Foods, Inc. (Auditing and Assurances Services, 13th Edition. Pearson Learning Solutions p. 30). <vbk:9781256083337#outline(6.7)> Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: 1....
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...How does the sales growth rates in recent years compare with the growth in inventory and accounts receivable? What might explain why these rates are similar or different? In the last financial year, preliminary reports indicate that the company managed to generate $42.6 Million compared to the previous year where it generated $35.1 Million reporting an increase of 21.3% in revenue. Inventory grew by 16.9% and account receivable grew by 40.1% from 2005 to 2006. Ceres is a service company and they carry fewer amounts of inventory compared to a typical manufacturing company. This is an explanation for the lower percentage increase between revenue and inventory. The percentage difference between account receivable and sale revenue is about 20%, this shows that Ceres Company has been very effective in collecting funds from debtors. Additionally, it can also be explained that debts from prior periods have also been collected. What have been the key factors in the company’s growth? The Ceres Gardening Company has been exceptional in many respects. At the outset, it is imperative to acknowledge its founders vision: It is the most profitable business in the organic farming sector and has grown successfully for the last 25 years it has been in operation. It began with a simple vision and mission of transforming lawns and home gardens into independent nurseries, gardens and immense farms in Northern California area and is expanding its business across United States quite rapidly...
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...Case Study 1: And the Fraud Continues Forensic Accounting July 22, 2012 Abstract This case represents features of organized crime, occupational fraud and abuse. Most of these crimes involve many individuals and organizations as well as management and/or co-workers that are in a lot of social and financial pressures. Some of the crimes related with organize crime will be money laundering, mail and wire fraud, conspiracy and racketeering. With an internal control weakness employees would always look for opportunities to commit fraud or use company assets without permission. Within this case, we will see multiples internal control weaknesses that allowed Pavlo to perpetrate the fraud and how he used the tricks to mask the whole scam. We also are going to think on what was Wanserski position when Pavlo was performing the fraud. We will explore the investigation process and what type of procedures the auditor/investigator needs to follow in order to gather all the evidence. We will have the opportunity as readers to determine if MCI also had a fault by permitting or putting the pressure on his employees to comply with some guidelines instead of looking for ways to help employees to improve their work areas. Internal control is the method intended to ensure dependable financial reporting, effective and efficient department operations, and business compliance with related laws and regulations. Not having an effective internal control process will allow fraudsters like...
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