INSTRUCTION: YOU ARE TO USE CASE STUDY ANSWER BOOKLET FOR THIS PAPER

PRE-SEEN

This material is issued prior to the examination date to enable you familiarise yourself with the case scenario so that you can undertake any research and analysis that you may deem fit. This pre-seen part of the Case Study examination is also published on the Institute’s website: www.ican.org/ican/students.

You MUST NOT bring this material with you to the Examination Hall. Upon receipt of this material, you are required to spend the next few days to the examination date to familiarise yourself with the information provided, carry out any additional research and/or analysis about the industry, together with the relevant developments and analyse the financial results provided in preparation for the examination. You should note that the use of pre-seen part of the Case Study will not significantly help you in answering all the questions during the examination. It is essential that you carry out sufficient analysis on your own so that you can leverage the pre-seen part of the case scenario as appropriate during the examination.

At the start of the examination, you will receive the complete case scenario which will include both the pre-seen and the unseen which includes the questions to be answered. You must use the answer booklet provided by ICAN in the Examination Hall. Any solution presented on other papers WILL NOT be marked.

Assessment of the Case Study The marks in the Case Study examination are awarded for professional skills and are approximately allocated as follows:

 Assimilating and using information 20%

 Structuring problems and solutions 20%

 Applying judgement 20%

 Drawing conclusions and making recommendations 20%

 Demonstrating integrative and multidisciplinary skills 10%

 Presenting appropriate appendices 10%

Of the total marks available, 20% will be assigned to the executive summary section of your response and approximately 10% will be assigned to your proper consideration of ethical issues within your answer to the requirements. Although ethical issue is not specific requirements of this paper, as they have been tested in other subjects of the ICAN professional examination, They will be test within a requirement which may include any of the following areas:

 Lack of professional independence or objectivity;

 Conflicts of interest among stakeholders;

 Doubtful accounting and or creative accounting practice;

 Unethical business/commercial practice; and

 Inappropriate pressure to achieve a reported result.

You should note that marks are not awarded for simply restating facts from the case scenario, but marks are awarded for demonstrating professional skills and technical depth. Therefore, to succeed, you are required to:

 Show sufficient evidence of knowledge of the case scenario;

 Be able to carry out appropriate analysis of the issues involved and suggest

feasible solutions to the problems identified;

 Demonstrate ability to make informed judgement on the basis of analysis carried

out; and

 Generate reasoned conclusions upon which relevant recommendations are made.

Omission of any of the above will diminish your chance of success in the examination.

Case Study: Defcon Manufacturing Limited (Defcon)

List of exhibits

Exhibit 1: About you (Matthew Idemudia)

Exhibit 2: The Nigerian economy

Exhibit 3: The Nigerian diaper and sanitary pad industry

Exhibit 4: Defcon Manufacturing Limited

Exhibit 5: Defcon’s response to environmental and sustainability concerns

Exhibit 1

About you (Matthew Idemudia)

You are Matthew Idemudia, an accounting graduate, writing the Professional level of ICAN examination. You are employed as Finance and Business Analyst by Defcon

Manufacturing Limited. You report to Tarfa Gambari, the company’s Director of Finance.

Your responsibilities include:

 Preparing detailed financial analyses and reports on the performance of the company;

 Analysing company’s financial statements to identify areas of weaknesses and proffering likely solutions to correct the anomalies;

 Assessing operational and strategic business proposals to see how each aligns with the company’s strategic objectives and impact on business and financial risks;

 Assessing the company’s financial and business forecasts together with the assumptions upon which they are based to form judgements, conclusions and recommendations in form of report to the board;

 Analysing the company’s internal and external business environments and advising the board on the company’s strengths and weaknesses compared to its competitors, and opportunities and threats prevalent in the environment;

 Advising the board and management on sustainability issues and assisting in the preparation of the company’s annual sustainability report to stakeholders; and

 Drafting reports for your boss, based on the operational and strategic business analyses you have carried out.

Carrying out these responsibilities effectively demands that you keep yourself abreast with the developments in the accounting and taxation space, and the business environment, both nationally and internationally.

Exhibit 2

The Nigerian economy

One key development since the 2023 national elections is the challenging economic situation in Nigeria. The challenges, in turn, have adversely affected the country’s

socio-economic landscape and macroeconomic performance. However, the new government started immediately with the implementation of various economic policies, such as floatation of the Naira, removal of petroleum subsidy, etc, to address the socio-economic challenges, optimise the country’s potentials, and attain crucial developmental objectives. These reforms seem to have temporarily constrained the performance of the real sector, thus suppressing overall economic outcomes.

Furthermore, the Russia-Ukraine crisis and the resulting disruptions in the global supply chain, alongside energy and food crises, accentuated economic vulnerability

throughout the year. The hikes in the global policy rate in 2023 also had consequential impacts on investment and productivity in Nigeria; thus, impeding economic growth.

As a result of the above, Nigeria’s economic growth remained fragile in 2023, marked by escalating inflationary pressures, exchange rate depreciation, and fiscal

constraints. These factors hindered productivity, curtailed performance of the real sector, and diminished the positive impact of growth outcomes on the quality of life of Nigerians.

Though Nigeria has the potential to enhance local food and livestock production, the nation still relied heavily on imported agricultural goods to fulfill growing domestic demands, as a result of insecurity and terrorist activities that is impeding farming activities. This dependence not only strained available foreign exchange reserves but also contributed to an escalation of imported inflation due to the depreciation of the local currency. Imported food inflation has been stated to average 20.4 percent in 2023, up from 17.8 percent in 2022.

Also, as a result of the supply chain disruptions and impeded farming activities, food inflation has increased to 33.9 percent in 2023. The elimination of petrol subsidies also had direct effects on fuel and transportation costs, thus increasing both food and non- food prices, as evidenced by the upward trajectory of inflation indices.

In conjunction with global energy prices, the removal of petrol subsidies significantly increased production expenses for majority of Micro, Small, and Medium Enterprises (MSMEs) that heavily depend on petrol as a primary input. In prior periods, the expansion of the Central Bank of Nigeria’s (CBN) Ways and Means mechanism contributed to inflation by enlarging the money supply, thereby intensifying pressure on the Naira’s value and eroding the purchasing power of the populace.

Challenges in the economy

Unemployment: One of the most pressing concerns for Nigeria’s economy is the high level of unemployment. The youth unemployment rate remains high,

contributing to social unrest and instability. The government has made efforts to address this issue through various youth empowerment programmes and initiatives aimed at creating jobs.

Inflation: Inflation is another challenge to Nigeria’s economy. Rising food stabilisation prices have put a strain on household budgets and contributed to social unrest in some parts of the country. The government has taken steps to address this issue by implementing monetary policies aimed at stabilising prices.

Exchange rate volatility: While inflation has been on the rise, eroding the purchasing power of Nigerians and making it difficult for businesses to plan and invest, the exchange rate has also been volatile, leading to uncertainty in the business environment. Addressing these issues will be crucial in restoring confidence in the economy.

Infrastructure: Infrastructure remains another key area of concern for Nigeria’s economy. Decades of underinvestment have left the country with poor road networks, inadequate power supply, and limited access to clean water. This hampers economic growth and deters investment from both domestic and foreign sources.

Opportunities in the economy

Agriculture: The agricultural sector has shown resilience despite challenges such as climate change and insecurity in rural areas. There has been an increase in

investment in agribusinesses and modern farming techniques which is expected to improve food security and boost economic growth.

Industrial development: Nigeria’s tech industry continues to show great potential for driving economic growth. Startups are emerging across various

sectors including fintech, e-commerce, healthtech and digital services that can drive innovation and improve efficiency, among others, which are attracting significant investment both locally and internationally.

Renewable energy: With abundant sunlight and wind resources, investing in solar and wind can boost power generation and reduce dependency on fossil fuels

Mining and solid minerals: Nigeria has untapped mineral resources. Developing the mining sector can contribute to economic diversification.

Business environment

There are many government policies that affect the manufacturing sector, including the diaper and sanitary pad industry. These policies include import tariffs, tax incentives, and regulations that impact production and distribution. In addition, Government regulations regarding environmental pollution, emissions and waste disposal are becoming stricter and there is growing emphasis on sustainable and eco-friendly products. Therefore, manufacturers are increasingly adopting environmentally friendly practices and materials. Manufacturers are also required to comply with other laws and regulations, such as labour laws, health and safety regulations and standards.

The political landscape in Nigeria has been relatively stable, with seamless transition from one civilian government to another. This relative stability, together with growth in population, leads to investor confidence in the economy and friendly business environment.

However, the business environment has been challenged by a number of factors such as:

 Erosion in consumer purchasing power which results in low demand for manufactured products;

 High exchange rate resulting in high cost of manufacturing input;

 Interest rate has gone up astronomically which has led to low investment in the manufacturing sector;

 Removal of petroleum products‟ subsidy leading to high inflation and further reduction in demand for products;

 The insecurity due to terrorists‟ activities and clashes between herders and farmers leading to drop in the production of food items and a further worsening of inflation;

 The high unemployment rate and erosion of purchasing power occasioned by high inflation being experienced in the country;

 Inadequate energy supplies and high cost of diesel to power generators for continuous production of goods, which has led to some companies winding down their operations in the country and moving to other countries; and

 Deficit in infrastructure: Most of the roads are so bad that vehicles transporting goods from one location to another may spend days before arrival at their destinations. These, coupled with the risk of kidnapping by terrorists, have hampered business progress.

As a result of the preceding factors, manufacturers are finding it difficult to finance acquisition of modern technology to improve their manufacturing processes, like their counterparts in other climes. Therefore, innovation and sustainable production practices which can lead to more efficient production processes, new products, and higher-quality products continue to elude the sector.

[REMAINING 31 PAGES, including unseen exhibits 6-10, requirements a-d, as in the initial description]

The following exhibits are newly provided and did not form part of the material provided as Pre-seen:

Exhibit 6: Email from Tarfa Gambari to Matthew Idemudia

Exhibit 7: Defcon Manufacturing Limited: 2024 draft financial statements

Exhibit 8: Defcon Manufacturing Limited: Explanatory notes on 2024 draft financial statements

Exhibit 9: New products development

Exhibit 10: Letter from Federal Consumers Protection Agency

Exhibit 6

Email from Tarfa Gambari to Matthew Idemudia

From: Tarfa Gambari

Sent: 17 April 2025

To: Matthew Idemudia

Subject: Review of draft financial statements and products development

You are welcome back from your holiday, and I hope you found enough time to rest. As you know, we are now in our peak period in the office as we need to prepare for the board meeting coming up in May. The company’s draft financial statements have just been submitted to me and I will want you to carry out a review of the same, as this will form the basis of my report to the board. You will recollect that the company is currently on an expansion drive and have added some products to its line during the year. It has also taken some long- term loan to finance this expansion. I herewith supply you with few points that will be relevant when reviewing the financial statements. I have attached this as an appendix to the financial statements.

Also, as the company’s response to environmental concerns and the green revolution, it is proposing to introduce two eco-friendly products, Biodiap and Biopad. The marketing director has provided details about this project which I am also attaching to this email. You are to evaluate the products and provide report on whether they have a positive contribution to the company’s bottom line, after considering all relevant costs. I want you to submit to me a report on the assignment in two weeks, ahead of the board meeting. Your report should include:

a. A stance for inclusion in an advocacy paper, for the Board’s review and subsequent approval, soliciting government’s expansion of the National Development Policy to accommodate the sector, given its considerable potential contribution to the national economy, and while identifying the incentives that will bring about a realisation of the gains from the sector.

b. A review of the draft financial statements, covering management’s performance on profitability, liquidity and financial management, and operational efficiency. You are to take into consideration the explanatory notes on the financial statements attached to the draft financial statements.

c. Evaluation of the two proposed products to show possible contributions towards the company’s bottom line after taking cognisance of all relevant costs.

d. An extract to be included in the company’s annual sustainability report and your advice to the Board on how to address the potential challenges (considering Defcon’s response to environmental and sustaininability concerns together with the letter from the Federal Consumer Protection Agency) from the perspective of Defcon’s profitability and sustainability.

I attach herewith Exhibits 7 to 10 in connection with the assignment. Also, if you check your files, you will see details about the economy and Nigerian business environment, the Nigerian diaper and sanitary pad industry together with the company’s response to environmental and sustainability concerns. All these should be able to assist you in drafting your report.

I look forward to receiving your report.

Tarfa

Exhibit 7

Defcon Manufacturing Limited

Draft financial statements

Statement of financial position as at December 31:

Statement of comprehensive income for the year ended December 31:

Exhibit 8

Explanatory notes to the draft financial statements

The following notes are background information regarding the draft

financial report for 2024:

1. In October 2023, Defcon introduced new range of diaper and sanitary pads that are relatively cheaper models of the existing ones. This has increased the company’s market share and created a more diversified customer base;
2. The board decided to outsource the company’s payroll administration as a way of reducing its escalating fixed overheads. This has led to a significant reduction in administrative expenses;
3. The company is presently experiencing liquidity squeeze, hence the board has decided not to pay cash dividends in the year ending December 2024 to its shareholders. In lieu of cash dividend, the board decided to give a share bonus of 1 share for 2 shares to the company’s shareholders in October 1, 2024; and

4. The management is contemplating a long-term borrowing to finance the company’s proposed project.

Exhibit 9

New products development

The board has just approved the proposal of the management to introduce two eco- friendly products into the market, „Biopad‟‟, a sanitary pad model and „Biodiap‟, a diaper model. Both the Biopad and the Biodiap are eco-friendly products made from bamboo. The Biopad is reusable. Products in this category are normally referred to as biodegradable because bamboo is naturally antibacterial and highly absorbent. Bamboo pads are soft, breathable, and an excellent eco-friendly option.

Using reusable sanitary pads have several benefits, both for customers and the environment, these include:

Cost-effectiveness: Although the initial investment is higher, reusable pads can be used several times, saving money in the long run compared to disposable pads;

Environmentally friendly: Reusable pads significantly reduce waste. The average woman uses thousands of disposable pads in her lifetime, which end up in landfills. Reusable pads help minimise this environmental impact;

Healthier option: Reusable pads will be made from natural materials like bamboo, which are free from the chemicals and synthetic materials found in many disposable pads. This will reduce the risk of skin irritation and allergic reactions;

Comfort: Reusable pads are more comfortable than disposables. They are often softer and more breathable, which can be especially beneficial during long periods of wear;

Support for Women in Need: Reusable pads support social causes, such as providing menstrual products to women and girls in need; and

Customisable: Reusable pads will come in various sizes and absorbency levels, allowing users to choose the best fit for their needs. They will also be more discreet and quieter to change.

The rising cost of living and inflation in Nigeria have significantly impacted the prices of sanitary products. Despite the higher initial cost, eco-friendly options can be more economical over time and are better for the environment.

Exhibit 10

Letter from Federal Consumers Protection Agency

Plot 5, Cardoso Street

Garki

Abuja

[Content: The letter notifies Defcon of complaints from consumers that two of its products are causing itches to users. The agency is demanding that the company pays compensation to the affected consumers, otherwise, the agency will take legal action against the company.]

You are to prepare a draft report, as set out in the email dated April 17, 2025 from Tarfa Gambari to you (Exhibit 6). Your report should comprise the

following:

a. An executive summary

b. Responses to the four detailed requirements set out in Exhibit 6, including appropriate appendices. State clearly any assumptions you have made. All workings should be shown in the appendices. The report will be assessed in accordance with the marking guide provided. Approximately 20% of the marks are available for the executive summary and approximately 10% for the relevant discussion of ethical issues within your answer to the requirements.

Ensure that you address the four requirements in your report or failure to address any requirement including not submitting an executive summary will diminish your chance of success in the examination.