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Case Study on ABC Learning Collapse

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Added on  2019-11-29

Case Study on ABC Learning Collapse

   Added on 2019-11-29

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Contents1.Executive summary.................................................................. 2 History of ABC Controversy Accounting issuesGovernment response2.ASA 701 auditor’s report................................................................................ 5IntroductionReason ScopeOperative date3.ASA 701 auditor’s report related With ABC learning collapse...................................................................................... 7 4.Lesson learnt from ABC collapse................................................................................. 95.Conclusion............................................................................. 96.References ............................................................................ 10 1
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Executive summaryThis study based on ABC learning collapse. Focusing on issues, crises, change in government policy and the negligence issues face by ABC learning. This study further stated about ASA 701-and appointing an independent auditor, and how ASA 701 regulates if it applied to time.About ABCIt formed in 1988 by Edmund (Eddy) Groves and his wife Le Neve Groves in Ashgrove, Brisbane, Queensland and now it operated all around the Australia, the New Zealand and the United States[ CITATION Tee12 \l 1033 ]. It is Australia's largest corporate child care provider. In 1996 it managed 18 child care Centre's. In 1999 it owned 30 Centre's. After listing on the ASX in2001, it had experienced a fast growth; by the end of 2005, it has 660 Centre in Australia. After two years it has 2,238 Centre’s in Australia, New Zealand and the United States. In 2008 ABC was autocratically defrayed and purchased by Goodstart childcare in December 2009. Now it was known by “Goodstart Early Learning” this organisation is now registered charity as owned by the Brotherhood of St Laurence, Mission Australia. The Benevolent Society and Social venture Australia[ CITATION Rus06 \l 1033 ]. ABC learning was a highly profitable company in the financial year 2004-2005. Net profit after tax recorded $52.3 million out of total revenue $292.7 million.2
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ControversyIn the wake of posting in Australian Stock Exchange, ABC learning has encountered massive development. At the season of posting its market capitalisation was $25 million. In March 2006, its market capitalisation came to $2.5 billion, and in 2007 it revealed profit after tax $143.1 million and income $1.7 billion. ABC was anxious by repayment of debt and had to sell its 60% of United States and entire United Kingdom subsidiary. Then it was delisted from Australian Stock Exchange.Accounting issuesThe financial year 2006-2007, goodwill was recorded $37.4 million, and childcare licenses were $647.6 million. This goodwill and licenses were rose by the end of the fiscal year 2007-2008. Intangible assets become useless when the company runs into trouble. According to the University of Sydney, "ABC learning profit increases rapidly through acquisition that give rise to the question about the underlying value of assets – especially its 70%assets were intangible". This unexpected drop in profit 42% triggered a decline in the company’s market share. Most of the directors were forced to dump millions of shares after receiving the marginal call. ABC Learning suspended in August 2008.1.Financial data as on 30 June[ CITATION Mce09 \l 1033 ]:Year 2001200220032004200520062007 Assets28.555.9157.0314.11165.52323.34067.1Debt10.320.655.6103.4200.1260.41758.8ShareholderFunds13.227.489.1202.6845.51837.71901.6Profit after tax3.36.812.121.452.381.0143.1Return on equity24.7%24.9%13.5%10.5%6.2%4.4%7.5%3
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2.Return to shareholders: For the year end2001200220032004200520062007Net profit after tax/Total revenue25.6%28.9%29.8%26.1%21.0%13.3%8.6%ROE (adjustment)24.7%24.9%13.5%14.1%6.6%4.4%7.5%2001200220032004200520062007100.00%1000.00%10000.00%25.628.929.826.62113.38.6profit after taxprofit after taxThis chart shows the decline in profit after tax from $25.6million in 2001 to $8.6 million in 2007[ CITATION Rus06 \l 1033 ].Revenue and Profit:4
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