Accounting-Liquidation of Companies-Free-Samples for Students

ABC Learnings Ltd was involved in the business of offering early childhood education services. Eddy Groves was the person behind the business that has a few business units and starting acquiring its business rivals aggressively. The company also started to open new centres in order to grow at a rapid rate. In consideration to the same, the company spent a great amount of money that was generally funded by all investors along with the banks (Dibra 2016). Conversely, decreasing profit in the last half of 2017 has indicated that the organization was not in a situation to address all the obligations as well as company that went into receivership.

The management of this company has been observed to experience and main a poor governance for the reason that misinterpretation of the company’s financial statements took place. This also resulted the shareholders believe within the false positive image generated by Mr Groves that is the founder as well as CEO of ABC Company misguided all its shareholders through not informing them regarding the real financial situation of the organization. This was also focussed on neglecting all the warnings from the team that was used for measuring the position of the organization (Du Plessis, Hargovan and Harris 2018). The person is extremely keen to expand the business of this company through acquiring new branches along with increasing the debt. It is also evidenced that the management of this company was relied on the government subsidy and indicated them to be the future profit within the financial statements of ABC Learning Company.

HIH Insurance Company

Being emerged in the year 1968 by Ray Williams along with Michael Payne that is termed as M W Payne Underwriting Agency, the company as acquired by CE Health PLC along with the former partner was appointed within the boards. In the year1996 the company changed its name to HIH Winterthur. The organization attempted to maintain an aggressive initiative towards growth along with acquiring a lot of companies in Australia as ell as all over the globe. Conversely, in the year 1999 it acquired its largest business rival that is FAI Insurance along with Winterthur Swiss that sold most of its shares to the public and the organization attained its current name HIH Insurance (Sullivan 2015).

In the March 2001, the organisation failed in operating its business and it was not anymore considered as among the most reliable insurance companies. The anticipated asset base of the organisation was observed to be late but on additional analysis of the company’s internal reports, it was gathered that increased liabilities resulted into drastic insolvency. This turned out to be a great opportunity for the stakeholders of the company those were remained stuck having unpaid claims. There are several claims on HIH Insurance that in the intention of attaining high growth have acquired risky business at elevated prices. In addition, it is also evidenced that the organization tapped within the overcrowded market through priding services at decreased prices at decreased prices. It is also gathered through analysis of the company’s strategic and financial position that HIH Insurance Company stepped within the industry without having knowledge regarding it to a great extent (Vyas, Ambadkar and Bhargava? 2015). Considering the situation of this company, it was gathered that ethical considerations were compromised in order to attain confidence of its stakeholders through reflecting a false financial statement. In addition to that, the assets of the company were overstated along with the liabilities that was understated in order to indicate a positive image of the company among its stakeholders. The company experienced a lot of major issues and was even alleged ith negligence for the reason that its actuarial advisor offered a warning to the management regarding it before its business failure.

OneTel Company

OneTel Company was originated in the year 1995 that was involved in an agreement with the second largest telecom organization within Australia, Optus that was using its network services in order to serve its own consumers. On the other hand, the organization additionally considered to provide cheap call rates for increasing the target consumer base. Such initiative taken by OneTel Company resulted n the dispute with its service provider Optus (Tricker and Tricker 2015). Moreover, in the year 1997, the company went int another agreement with the organization GlobalOne for resuming the goth of the business that was previously intended by the company. It also took an initiative of launching global strategy in order to expand its network all through the world. In addition, in the year 1998, the company acquired spectrums from most of the geographical regions of Australia for advancing the services of the company.

Ethics and Governance in Order to Explain Financial Stress

Among the most vital factors of the company is the company’s business ethics that centres on the norms along with guidelines which is an organization requires to following dealing with the stakeholders (Dodo 2017). It is also deemed that among the major support of the governance system of an organization that also made sure of the stability in the long run. It generally encourages transparency in the system that also facilitates monitoring of financial statements. The personal view of an individual can be considered as individual ethics and on the other had ethics followed by companies are guided by perception of individuals those have importance within the organization. Moreover, all the members of the company are bound to follow such ethics (Markham 2015). For the reason that ethics varies from one culture to another but with an effective governance system is highly vital for all the profession. A poor ethical background might be important to the company for the reason that it can result in the unprofessionalism within the company is resulting in fraudulent activities. The board members along with other vital people within the company might also get involved in certain unethical conducts in case there is weal corporate governance.

Ethics to be followed by the accountants of ABC Leaning is deemed to be increasingly important at the time of financial reporting as they are anticipated to reveal he fair value of the organization to all its stakeholders (Roy 2017). The financial situation of the organization serves as a factor relied on which investors take vital decisions and is reliable for the accountants those prepared it. Authentic financial figures are expected from the accountant who requires to develop it in an unbiased and effective manner. In other words, in case an accountant lacks ethics than the financial reports developed by that individual might indicate an unrealistic image of the company and might harm the stakeholders financially. The accounting standards of ABC Learning offers aa guideline for its accountants to follow but the individual ethics issue might result in leading him to manipulate its financial information. This might also have loopholes within the company’s accounting standards for earnings management (Sharma 2015). The accountants of OneTel Company were also involved in such ethical concern for attaining individual profit that might even get impacted by the management that are against ethics but is commonly practiced internationally. The accountant of ABC Learning can also offer quality report in case an individual’s ethical values includes the characterises that is posed by people.

The financial report of these companies is prepared that is not just important to the investor or management but also others as it contributes to the organizations economy. For this reason, the accountants of these organisations are advised to follow the ethical accounting standards that might be helpful for them in developing a financial report of better quality along with keeping the individuals aware of such material misstatement (Soltani 2014). With ethics attaining an increased importance at the time it is implemented within the company, it generates a corporate governance that sets rules for all the members of the company to follow. A poor corporate governance within HIH Insurance company resulted in the collapse of this company. It is also revealed that this offers the accountant with better responsibility to safeguard the interest of the shareholders along with keeping the investors away from such unnecessary risks. Conversely, at the time the organizations mentioned within the report are considered, then none of these businesses maintained their ethical integrity as they were involved in unethical practice of maintaining a dark side of managing earnings. Such practice resulted in collapse of these companies through liquidation (Sorensen and Miller 2017).

Role of the liabilities:

It is to be borne in mind that the liabilities had played a significant role in the corporate collapses of the three above-stated organizations, which are discussed briefly as follows:

ABC Learning:

In the beginning period of 2007, the liquidity position of ABC Learning was observed to be stable. However, there had been a change in the situation later on in the year. This is because the organization was encountered with a re-categorization of liabilities. Such liabilities include both short-term liabilities and long-term liabilities amounting to $1.1 billion for the organization (Appelbaum, et al., 2016). This has mandated the need of arranging funds for the organization. It has been found that during the period 2007-2008, ABC Learning had to incur $1.2 billion because of breaching the debt covenant. This had direct effect on the profit of the organization, as the profit fell by 42% (Abid and Ahmed, 2014).

 HIH Insurance:

For this particular organization, the debt structure was leveraged highly having term debts. This could be identified as one of the primary causes that had made the organization insolvent. In addition, deficiency could be observed in decision-making power of the management of HIH Insurance in terms of acquisition. It had undertaken an incorrect decision by acquiring FAI for an amount of $300 million. However, in reality, the actual cost of acquisition was $100 million (Bhasin, 2015). Thus, it could be inferred that the organization had understated its acquisition cost so that it could enjoy tax benefits and the amount saved could be invested in further acquisitions in future.

One Tel:

For this specific firm, it had incurred huge amount of liabilities and the management of the organization was primarily responsible in hiding such liabilities. The liabilities were hidden by the organization by adopting unscrupulous and illicit ways. Moreover, another reason that could be identified behind the significant increase in its liability base was the payment of $92 million in the form of compensation (Davies, 2016). In order to hide such liabilities, the management of the organization had adopted illicit accounting policy by breaching the prevailing standards of accounting. As a result, it had encountered massive loss amounting to $291 million in 2000. Due to this, there was significant backdrop in the cash availability of the organization in order to conduct day-to-day operations for which the director of the organization was compelled to sell 5 million shares for an amount of $2.5 million. Another reason could be the improper pricing strategy of the organization by representing higher profit against deferring the main business expenses for three years. Hence, it could be stated that the role of the liabilities was significant for the collapse of One Tel.

Conclusion

The objective of the paper put great focus on the selected Australian organizations that resulted in liquidation because of poor governance along with deceased ethical values. It was revealed from the paper that ABC Learning, HIH Insurance along with OneTel Company that has obtained a great privilege of positioning as among the highly valued organizations within Australia had to deal with liquidation on poor ethical grounds. It was also gathered that the accounting standards of these companies offers a guideline for its accountants to follow but the individual ethics issue might result in leading him to manipulate its financial information. This might also have loopholes within the company’s accounting standards for earnings management. Thus, it could be inferred that the organization had understated its acquisition cost so that it could enjoy tax benefits and the amount saved could be invested in further acquisitions in future.

References

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