VECTUS BIOSYSTEMS LIMITED ASSESSMENT

Document Type:Thesis

Subject Area:Accounting

Document 1

Authorization 5 3. Licensing 6 4 Significant business risk factors 6 4. Compliance 6 4. Profitability and liquidity 7 4. Health, safety and environment 7 4. Operational excellence 8 5 Accounts/areas of concern 9 5. Loss incurrence 9 5. External borrowing 9 5. Estimation 9 5. Depreciation 10 6 Potential reliance on the overall control environment 11 6. Commitment to competence 11 6. Active participation in governance 11 6. Assignment of responsibility and roles 12 6. Ethical consideration and effective communication systems 12 7 Audit undertaking 13 8 References 14 Vectus Biosystems Limited (Vectus) Assessment 1 Executive summary Every business entity is aimed at profit maximization but this does not come at the expense of the consumers’ satisfaction. A corporation has a responsibility to all the various stakeholders involved in the business’ supply chain. It is utmost essential for businesses like Vectus to ensure that they have an understanding of their clients’ needs and ensure that they manufacture or produce goods and services that not only meet consumer requirements, but also meet the set standards by relevant authorities in the niche that they operate. A good understanding of how a business should conduct itself involves carrying out an assessment of itself as well as its clients. This is true for Vectus Biosystems Limited which operates in the pharmaceutical sector that largely requires compliance to ensure the safety of the consumers who happen to be the general population. Balancing the business and consumers’ interests can be a hurdle that requires audits to promote and enhance transparency and accountability. Overview of the client’s operations and industry One of Vectus’ stout clients is Regional Health Care Group (RHCG) which is into the pharmaceuticals distribution business. The company is both publicly and privately owned and has been in the distribution sector for more than 40 years.

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It has gained a reputation in its field as it services several clinical facilities in Australia. Among the products that Regional Health Care Group (RHCG) deals with are medical equipment, medical consumables and pharmaceuticals. RHGC provides its services to both public and private institutions like medical groups, hospitals, stand-alone practices and radiology supergroups. The company is ISO 9001:2015 certified and possesses several licenses that allow it to supply pharmaceuticals in Australia. In Australia, the Therapeutic Goods Act (TGA) sets the rules for medical products that can be sold. Listing and pricing The Pharmaceutical Benefits Scheme is responsible for supplying most of the drugs sold in the country. However, it should be noted that only drugs that have been approved by TGA are allowed to be sold. To ensure that drugs are affordable to the general population, the government takes the initiative of subsidizing the price of the drugs.

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Before the sponsor of the drug who can either be a supplier or manufacturer lists the same for sale, the drug must first be approved by the TGA. Authorization Before a drug can be marketed in Australia, it must first be authorized and approved by the TGA which is an arm of the Australian Government Department of Health. There are conditions that have to be met before a pharmaceutical drug is approved in Australia. Approved drugs must have met the requirements of the TG Act. Some of these requirements are those by Therapeutic Goods Order, British Pharmacopoeia, European Pharmacopoeia and the US Pharmacopoeia-National Formulary. However, there are exceptions that have been put in place whereby a patient can access drugs that have not been approved by the TGA. Vectus is liable to investigations and claims that may be brought about by tax litigations, laws regarding competition in the market, pricing, activities concerning the marketing of products and employment litigations.

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The firm is also liable to intellectual property rights risks whereby third parties may launch generic versions of Vectus’ products. The third parties may also impose allegations infringement allegations concerning competing products. There are increasing price controls by governments which may affect the pricing of products. In addition, there is increased healthcare regulatory requirements that may pressurize the firm to conduct more clinical trials and possibilities of unethical conduct such as law violations, fraud and legislation across borders. Some products might actually be a liability to the firm rather than being profitable. Such liability may result from unfortunate events such as legal suits due to unethical conduct or malpractice. As a result, the firm’s brand might be tarnished and therefore ruin the reputation of the company. Vectus is faced with increased reliance on third parties which poses and outsourcing risk especially in the research and development department and the manufacturing section (Friedli et al.

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Due to the research nature of the company, the firm is liable to incur losses if some projects and initiatives fail to achieve the desired results. Due to the loss, the company only recorded a net asset balance of $116,563 (VBS, 2017). External borrowing Following the loss recorded in the 2017 financial year, Vectus’ management intends to make the initiative of engaging in dialogue with potential investors, brokers and other sources of funding. The main aim of this initiative is to attempt to secure an alternative source of funding (VBS, 2017). However, this could pose a risk to the success of the firm because there is no guarantee that such a move will bear fruits because there are chances that the plan could fail and leave the firm in more financial crisis than before. Also, engagement of more investors could interpret to the company giving up some of its benefits through reduced shareholder power.

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As a result, such equipment might not be useful to the company if the products being developed fail to reach the Australian market. With time, such equipment is liable to depreciation and may not have a resale value that could help in recovering the money used in their purchase and therefore increase the firm’s chances of operating at a loss. I feel that these factors are a risk given that the pharmaceutical industry has many stakeholders and therefore the firm should look into ways of mitigating such risks. I think that the recorded loss might have been caused by large operating costs with respect to other research and development facilities that might be developing generic products which retail at considerably lower prices. It is also my opinion that the firm’s decision to seek $2,000,000 funding might leave Vectus’ worse off.

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Active participation in governance The directors of any given firm are the drivers of the organization towards achieving organizational objectives. The governance has a responsibility to the different stakeholders of the firm. Vectus’ management is responsible for ensuring that the company is accountable to stakeholders such as the government, customers, suppliers, community and distributors. In many jurisdictions such as Australia, the directors are responsible for preparing and presenting financial statements. Active participation by the directors in the company’s day to day activities will have a significant impact on the performance of Vectus’ internal control. Purchases made on credit leaves room for fraudulent activities and therefore Vectus’ must ensure that there is an accountable and reliable system for pursuing sales that have been made on credit and supervision of credit services must be on a regular basis.

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Audit undertaking Given the size of Vectus and its clients such as Regional Health Care Group, I would conduct an audit on the firm to provide the management with useful information that might assist the directors in appropriate decision making. Both firms operate in a sector that has challenges such as technological advancement and improving the health status of the community. From last year’s Vectus report, the pharmaceutical company recorded a loss totaling $3,794,254 which could have serious implications on product and service delivery. Carrying out an audit will be helpful to the firm since it will assist the company in identifying key areas that are not benefiting the firm. d. Retrieved from https://industry. gov. au/industry/IndustrySectors/PharmaceuticalsandHealthTechnologies/Pharmaceuticals/Pages/RegulationandPricingInthePharmaceuticalsIndustry. aspx Brock, W. Bellm, D. Werani, J. Leading pharmaceutical operational excellence.

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 Leading Pharmaceutical Operational Excellence Outstanding Practices and Cases, 411-418. Łanda, K. Retrieved from http://rhcg. com. au/about-regional/ Smith, A. Pharmaceutical Risks 2016. Retrieved from https://home.

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