Case study

Resolving conflict and reaping rewards in a soybean business partnership

Nexia STT’s client is the owner of a soybean business in Hanoi, Vietnam with a sales volume of more than 10,000 tons of soybeans per year.

This business was invested by the owner in cooperation with another individual under a capital contribution ratio of 70:30. However, in February 2021, the business cooperation of these two individuals encountered problems and conflicts, leading to their decision to terminate the joint business and dispute on the profits distribution over the 3-year period of cooperation.

The client challenge

The owners of the soybean business had no knowledge of financial accounting and had never prepared financial reports for their business before. As a result:

At the time of receiving the capital contribution for the joint business, the owner of the soybean business did not record the capital contribution transaction, leading to the inability to determine the timing of the capital contribution as well as the exact amount of capital contribution of the partner.
In addition, during the joint business process, costs incurred related to the soybean business were not fully listed and recorded in the accounting books.
All transactions for purchasing and selling soybeans were recorded unclearly and inconsistently in handwritten books. Transactions were recorded according to the time occurred. However, some transactions were recorded using different calendar systems.
To distribute dividends from the soybean business, the owner resorted to periodic calculations based on sales at the time of payment, as there were no prepared financial statements to accurately determine profits.

The absence of standardised financial practices in the soybean business posed challenges in calculating capital contributions, ratios, and profits. Dividend distribution relied on sales without the support of detailed financial reports, fueling disputes upon business termination. Allegations were made against the owner for supposedly withholding profits, countered by the owner’s claim of having already met payment obligations. Both parties found themselves lacking in concrete financial data.

To address these issues, they sought the expertise of a capable and experienced auditing firm. This firm undertook the meticulous task of reviewing 64 handwritten notebooks containing comprehensive records of purchases, sales, and debtors within the soybean business. The objective was to compile a detailed financial report that would not only shed light on the profit/loss distribution but also calculate each trader’s entitlement or liability based on their capital contribution ratio.

The solution

They performed this service in compliance with Vietnamese Standards in Auditing No. 4410 – Financial information aggregation services.

They applied our professional skills in accounting, preparation and presentation of financial reports to assist the owners in preparing and presenting financial reports in accordance with Vietnamese accounting standards and applicable accounting regime. They complied with relevant professional ethical standards and regulations, including integrity, objectivity, professional competence and due care.

Through procedures of reviewing, interviews and based on professional judgments in accounting, preparation and presentation of financial reports, they provided their clients with completed financial statements including balance sheets, income statements, notes to financial statements for the 3-year period of the soybean business. At the same time, they also provided a report determining the profits of 2 traders based on the completed financial report data that they compiled.

Value

The client received dedicated support from a proficient team of experts, swiftly assembling an efficient lineup comprising an audit partner, a director, a team leader, and seven assistants. They immediately implemented team meetings and meticulous work allocation.

After six weeks of diligent work, involving data entry from handwritten records into Excel, customer interviews for data clarification, information synthesis, and data review, the team successfully delivered a financial report meeting the client’s specifications. Contrary to initial beliefs, the report revealed a loss in the soybean business instead of the expected profit. Furthermore, the distribution to shareholders exceeded the amount they initially anticipated bearing for the joint business.

Armed with the clear business results outlined in the financial statements, the two parties found a basis for their legal confrontation. The client expressed gratitude for the prompt and professional specialised services provided by Nexia STT.