ABC Learning's Audit Issues Report
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Added on 2020-04-07
ABC Learning's Audit Issues Report
Added on 2020-04-07
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ABC Learning Executive summaryThe failure of the giant corporate in the past has raised enormous question on the integrity of the auditors and the audit firms. Thereby, new and improved updates have come to the forefront so that any pitfalls can be easily negated. The main purpose of this report is to shed light on the failure of ABC learning. The auditing issues that led to the collapse is mainly discussed in this current report. The reason for the development of ASA 701 and the application of it is projected.2
ABC Learning ContentsIntroduction.................................................................................................................................................3Major absence of relevant issues and negligence that must be considered during drafting of financial statements of the company..........................................................................................................................3Major instruments coming into movement..................................................................................................3ASA 707 that relates to the communication of major audit concerns in the independent audit report.........5Auditing matters that swamps the disintegration of ABC learning..............................................................5Hiding of misstated leverage ratio of the firm.............................................................................................5Failure to disclose the evidence...................................................................................................................6Nondisclosure of wrong transactions in notes to financial statements and audit report...............................6Approval of the transactions in order to influence the financials.................................................................6Approval of financial statements that has problem with the transactions....................................................6Classification of inappropriate resources.....................................................................................................7Recommendation.........................................................................................................................................8Conclusion...................................................................................................................................................9References.................................................................................................................................................103
ABC Learning IntroductionIn the year 1988, the formation of ABC Learning was done and by the end of the year 2000, the company gained massive coverage of more than thirty centers. Further, the company attained its listing status in 2001 and diversified itself to more than 650 centers all across United Kingdom, Australia, and the United States. However, the collapse of the company can be attributed to the management’s over-ambitious strategies and failure on the part of auditors. Further, the emergence of debt in 2007 wherein negotiation with the bankers was necessary also resulted in a bigger concern (CPA, 2012). As a result, some long-term liabilities of the company were not paid and this affected the company’s cash flow negatively. Besides, this also resulted in a declineof the share price of the company. In short, the incident led to the total fall and the reason that can be cited is the collective failure of the management and the auditor. Even after having the top-notch audit firm, there was a scenario of collective failure. Nonetheless, if the auditors had implemented strong choices, then this situation could have been prevented. Moreover, the ineffective choices of the auditors would not have been caught in the company had not attained profits from the usual course of activities. In other words, it was a big question as to how any childcare division could function in such a rapid way (IFAC, 2015). On a whole, the ways adopted by ABC Learning in order to attain bigger heights is surely noticeable and once must rethink how it enhanced its operations so rapidly.Major absence of relevant issues and negligence that must be considered during drafting offinancial statements of the companyAn unqualified judgment was offered by the external auditors of ABC since the appointment in the year 2003. However, Ernst and Young took over the authority of being an auditor in the year 2007 and made an altogether distinct analysis of the profits that was done previously. Further, KPMG was engaged as a third party of the company in order to settle the differences. Nonetheless, both these enormous giant firms also failed to track any falsifications on the part of the management. This gives rise to the fact that both the auditors have offered a distinct opinion upon the company’s financials and therefore, it must be taken into consideration that the unqualified judgment by the auditors played a key role in the disintegration of ABC Learning. In simple words, even after having major firms in the company’s affairs, loopholes or mismanagement occurred that ultimately crumbled the company.Major instruments coming into movementImproper utilization of related party transactions played a key role in creating major problems forthe firm. The major reason behind such decision was to portray an effective and shiny image of the firm so that the investors and financial institutions could be easily fooled in order to get moreborrowings from them. In addition to this, the obligations and losses of the firm were also addressed by such borrowings and keeping the securities as collateral. Nonetheless, such related party transactions played a vital part in decreasing the securities by highlighting the transactions as a registered sale for securities. Further, the auditing department also assisted the management in concealing such replication of securities in the financials so that their vulnerabilities were not exposed. In addition, the loans obtained by the firm were also depicted as ‘Sale Proceeds of Investment Securities’ and this never formed part of the balance sheet (CPA, 2012). The major 4
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