Accounting Theory and Contemporary Issues

This case study discusses the background of Dick Smith Holdings Limited, strategic errors made by the company, accounting policies, and government issues that led to its collapse. It also highlights the lessons to be learned from this scandal.

Running head : ACCOUNTING THEORY AND CONTEMPORARTY ISSUES
Accounting theory and contemporary issues
Name of the student
Name of the university
Author’s note

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ACCOUNTING THEORY AND CONTEMPORARTY ISSUES
Table of Contents
Introduction:....................................................................................................................................2
Discussion:.......................................................................................................................................2
Part b............................................................................................................................................2
Background of Dick Smith holding s limited:.........................................................................2
Strategic errors of company management:..............................................................................4
Accounting policies of dick smith:..........................................................................................6
Government issues:..................................................................................................................8
Lessons to be taken:.................................................................................................................9
Keywords of business decisions:...............................................................................................10
Conclusion:....................................................................................................................................12
Recommendation:..........................................................................................................................12
Appendix:......................................................................................................................................13
References:....................................................................................................................................15

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ACCOUNTING THEORY AND CONTEMPORARTY ISSUES
Introduction:
This part of the case study contains the back ground of dick smith holdings limited along
with the strategic errors that was made by the company which had costed them to lose their
business and the customer. Apart from that the study also focuses on the key government
decisions made by the company regarding the strategic changes and the key decisions to be
learnt from this scandal.
Discussion:
Part b
Background of Dick Smith holding s limited:
Dick smith holdings limited was an Australian company which is focused on retail stores
that sold consumer goods, hobbyist electronic components and electric project kits. The chain
however expanded successfully into New Zealand and other several countries. The company was
founded in Sydney by dick smith in the year 1968 by the founder of the company Dick smith and
it was owned by him and his wife until they sold he same in 2014. The company sold 60% of the
shares to wool worth limited in 1980, and the remaining 40% was sold after the two years. The
company closed in the year 2016 of its acquisition by anchors capital limited. The business of the
company started their business in the year 1968 in a small rented premises of $15 dollar per
week. The company had a total capital of AUD$610. Initially the company focused on installing
and servicing car radio. However the company had shifted their interest towards some other new
things. After the total modulation of the entire electronics business landscape 25% of the tariff
cuts are made across the year 1973. Hence there was a loss of 138000 manufacturing jobs Mr
Smith moved with the market condition and in order to know about the demand of the customers

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and working according to it. Hence the company management organized a survey and found that
the there is a lack of manufacturers of electricity related products and services. This is how the
company build up a strong influence over the needs of electronics consumable goods. However
the business owner catered to the needs of electronic merchandises which was bought from the
large manufacturing companies. However the company introduced self-service shopping, a
breakaway from the longstanding counter sales setup in component sales at time and produced
annual mail order catalogue with a substantial data section. He In the late 1990’s the company
have established a power plant named dick smith powerhouse super stores across the east coast
of Australia . the power plant have was opened in new south wales in the year 1996 which was
several times bigger than the regulatory stores at 2000 square metre. However the department
had contained the different categories and supermarket style checkouts. However the company
had carried wide range of products smaller than the DSE stores in audio visual and amateur
range areas. All these policies required computer repairmen and upgrading. In the year 2002 and
2003 the concept had focused on a broader consumer market and less toward electronics the
electric kits were transferred to the smaller stores and the company had focused more on
producing small appliances like kettles, coffee makers, toasters and fypans. The company had
also introduced a concept called “power squad” in which they focus on making the and computer
systems and providing the training on smaller items such as wireless networking and mp3
players. In the year 2007 the power house plans were transferred to many small components,
tools, leads and connections in small stores which continued to distance in super stores and from
the companies electronic enthusiast costs. In the year 2008 the company had faced some major
changes in consumer electronic division. The company had renovated the flagship store in New
South Wales as a concept made under dick smith technology. The storedesign and product were

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reworked incorporating a more modern feel like removing all the electronic componentry and the
existing tools. Hence these products were replaced with some larger variety of products like
window computers, gaming, televisions and Macintosh computers which have been previously
sold in the powerhouse plant. Hence this is how the company have stepped their foot into the
market.
Strategic errors of company management:
In order to lead the company in a successful term the company management had to take a
good amount of responsibility in making good strategic decisions. The strategic decisions are
most important part of company management. Hence it is important for the company
management to set up a proper strategic decisions which will be helpful to the company growth
in the future as well as for the company shareholders as a whole. In case of dick smiths collapse
the main reason behind is the poor strategic decision making by the company management.
However all these faultiness affected the internal management system of the company which
lead to disaster. Some of the bad decisions that the company management had made were like
aggressively expansion of stores, purchase of more inventory, strained supplier relationship and
not generating sustainable profit for the company management. Hence these were some of the
false decisions which lead to the collapse of the company as per the report. However much of the
company revenue was built upon the store network growth and extra added facilities to the
expansion. However the rapidly growing inventory placed a considerable increase on the
supplier commitment which strained a loss of relationship with the customers. The inventory
purchasing decisions and the rate of technological changes meant that the stores were not stocked
to the product according to the customer demand and as per the commitments were made. The
company retailers generate 40 % of revenue from office products in the financial year 2015 and

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including apple products. However the company extended retail credit to the customers availed a
financial facility from Macquire bank the investing in specifically apple products. However in
the year 2015 the cash resources and borrowings were directed towards capital investment which
have been incurred for store openings and increase in inventory and dividend payment. However
the retailers issue and favourable credit policies impacted the company stock level, product mix
and store presentation. Hence the company inventory have written down at about $60 million in
the month of November. However Dick Smith Company restricted some trading terms with
many of its suppliers due to late payment and insufficient. As positive cash flow to purchase high
margin desirable stock. As per the company report the retailer borrowings have increased to
$127 million from $71 million. However the changes in the payment structure and inventory
growth, capex commitments and dividend payment to the company shareholders. However all
those poor polices and decisions have impacted in the company management policies and finally
they have decided to wrap up the business. However the after impact of the business decisions
was bad as the company have closed more than 360 stores worldwide. Hence the company
administrators were appointed after the unsuccessful sale periods and hence the company went in
liquidation. However increase in the online retail stores were also a big factor behind the collapse
of the company as per report published. However Mr Smith blamed the ongoing financial issues
which lead to the collapse of their business. And the company still came with an expansion
strategy since came under new ownership in the year 2012. However the company from the time
if shifting to the electronics business which is viable with shops. But the company had no capital
as well as capability in opening 300 shops which was ultimately a bad decision for the company.
Hence the company had taken some unfortunate decisions which led to the collapse of the
company. Apart from that the wrong business decisions and empowering more competitors in the

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same business level had also played a huge role in the collapse of the company. Hence the wring
business decisions were highly suffering in case on the collapse of the company.
Accounting policies of dick smith:
The reason behind the collapses of the company is the wrong accounting policies and
procedures followed up by the company. The study researches about the collapses of dick smith
holding s limited in the short period of time. Apart from that the company stakeholders were not
properly satisfied to the company rules and regulations (Smith, 2016). Lastly the accounting
theories were also a big factor behind the collapse of the company. As per the company report
the problems which are associated to the company management includes enormous inventory
buying failures that are united with the ill thought expansive expansion (Meinzen-Dick, et
al.,2016.). Apart from that there were some issues regarding to the company regulation and
operation.Thus it has been identified as per the accounting report of the firm that the firm had
incurred a loss of $116.7 million in the financial year. Since the expense of sustainable growth of
the organization had increased, hence the business have been suffering to meet both ends.
However it is found that the expansion plans of dick smith holdings limited ate up the surplus
earnings and thus it needs a significant borrowings at the similar period of time had a huge
impact on the company behaviour and preferences. Hence the company began to lose its market
share. The expansion plans of the company have been unchanged and most of the business
decisions if inventory purchasing in the mid of the year 2015. Apart from that the most of the
stocks hold by the company was nit marketable and was overestimated. However the cash
receipts were also in sufficient in order to meet the company expected commitments. Anchorage
purchased dick smith of $20 million from Woolworth and made $500 million after floating the
amount of the stock exchange after nine months (Drian et al.,2018). Hence the company

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collapsed in debts of $390 million. In addition to this the revenue growth of the company based
on store growth and commercial sales at low margins. The firm was unable to generate sufficient
sales in the financial year in order to improve the cash pressure. Further the company was unable
to achieve favourable credit terms which affected the stick market, store presentation and product
mix. Additionally the cash flow of the firm will put pressure on the banking covenants by
breaching which might not be remedied. As per the AASB conceptual framework the particular
concept which underline the presentation and preparation of the financial statement for the
external users. Hence the company objective of this framework is to assist the AASB in the
promotion of the harmonization of the regulations, accounting policies and procedures in order to
represent the financial statements. The other goal this framework is to assist the development of
the future accounting standards of Australia and review the also present accounting standards.
Hence moreover the particular also helps the financial statements conform or not with the
accounting policies and procedures of Australia. Moreover the particular framework also helps in
supporting the financial statements regarding to the conformity of Australia. Hence it is
important that the accounting standards ad auditor might have verified to the financial statements
as well as they could also conform the factor that whether the accounting department has been
following the standards or not (Bellarby et al.,2014.). This might have saved the firm from
getting collapsed as the framework which identifies the objective to determine the usefulness of
the information and also to illuminate the concepts of capital maintenance. Apart from that the
materiality s considered to the elements of the fundamental qualitative features. Hence misstating
the decisions made by the user is based on the financial information regarding to the specified
reporting entity. Hence it could be considered as the entity specific aspect of the relevance that is
prepared on the basis of magnitude or nature or both of the items in the financial report and

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entity. Hence the company auditors and accountants of the organization the company dick smith
could focus on the particular statement of financial qualitative features in the materiality. Then
the company might helped to the company auditors and misstated or omitted information in the
financial reports of the firms and this might have saved to the firm from getting collapsed.
Government issues:
The SDA has over 200000 members, these members work in the retail industry along
with the fast food, hairdressing, beauty, modelling, community pharmacy and warehouse
industries. In February Dick smith electronics stopped their business and almost 2500 workers
had lost their jobs. It had cost thousands of customers to loose and it happened to be a big
collapse in the market. However the changes in the government policies and procedures had also
played an important role in the collapse of the business. However in the year 2012 anchorage
capital had purchased dick Smith Company for $20 million. After two years the company was
floated in the stock exchange for $520 million. Hence the share price of the company had also
reduced. The company also reported of $37 million profit for the financial year (Lau, 2016).
However $40million placed toward the administration expenses (Schauten et al.,2013). Hence
collaboration with anchorage capital was a wring business decision. Hence the current
government have a fixation of corporate governance which was involving by superannuation
funds and industry skills councils perhaps it could turn in attention to the private equity fund
(Styhre et al., 2013). Hence these have been considered as an important factor in the change in
government policies. Hence this was the major issue in collapse (Khair et al.,2015).
Lessons to be taken:
The lessons to be learnt from the collapse are as follows-

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1. Good stock market requirements: Good inventory management is a fine balancing job
which ties up to the stock and suffer poor cash flows. Thus too little stock may not be
able d to meet the demand and it may result in need to purchase the emergency stock at
high price and hence they are losing the customers. Hence the company must have sound
investment decision, adaptation of acceptable the maximum and minimum levels and
determining the re order points (Busack et al.,2014.). Tracking the inventory
management through stocktakes and inventory management software, supplier payment
terms should also be taken over.
2. Importance of due diligence: Due diligence is essential in order to improve the risks
evolved along with the realistic picture of the anticipated returns. Hence some
considerations for due diligence of business takeover include like keeping track of
financial performance including the analysis of financial statements, accounts payable
and receivables , expense disclosures , profit history and checking the relevance in the
products and services according to the current market (Frantisek, 2015). Apart from that
the legal tax matters including the GST and purchase tax matters of the business. The
company can also try to maintain the business operation competitive pricing, location,
remuneration packages, and whether there is any chance in expanding the business
further. Apart from that the plant and equipment, stock valuation, addition of reasonable
depreciation and lastly the most important thing is efficiently managing the stocks and
management policies (Lincoln, 2016).
Hence it is a lesson for the new companies as well as the existing companies that they
should maintain the above highlighted aspects if they want to maintain everything well managed.
Otherwise another same scandal like Dick Smith Company could occur.

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Keywords of business decisions:
Evaluation of resources:
Main citation:
Smith, D.K., 2016. The cartographic imagination in early modern England: re-writing the world in
Marlowe, Spenser, Raleigh and Marvell. Routledge.
Authors credentials and details:
Ht topic deals with the world’s population rate which is seemed to be increased by 2020 and also provides
some detailed measurement on what would be the effect of daily food and water consumptions due to this
hike and whether the green house effect could cause the environment big problems. Similarly the
company needs to take decisions based on the environment.
Targeted audience:
The targeted audience for this report are the companies which are dealing with the environmental issue.
Authors credentials and details:
This part deals with the sustainability in the share market and whether the investors are ready to cope up
in the uncertain loss occurred with the market. Hence the investors must invest in long run. However the
challenges occurred in the share market could evolve the investor from inside and hence he can get an
idea on investing in what kind of stocks. However the company should try to make the investor invest in
ample amount of share so that a better portfolio is constructed.
Targeted audience:
The targeted audience for this job is the company share investors.

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Full citation:
Meinzen-Dick, R., Chaturvedi, R., Domènech, L., Ghate, R., Janssen, M., Rollins, N. and Sandeep, K.,
2016. Games for groundwater governance: Field experiments in Andhra Pradesh, India. Ecology and
Society, 21(3).
Authors credentials and details:
The topic deals with the ground water level which is a subject to depletion in many places and hence
caused irrigation and water demanding cash crops. Hence collective action is important to reduce the
problem from the root.
Targeted audience:
The targeted audience for this report are the farmers who grow crops and vegetables in the ground .
Conclusion:
Hence a conclusion could be learnt from the company by stating that the company had a
good business in electronic appliances manufacture. However the company lost their business
due to bad decisions making and wrong strategic implementation. Hence it is important that the
other companies followed proper precautions in order to stop the scandal from occurring.

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Recommendation:
Thus it can be recommended from this study is that in order to prevent themselves from
happening on what have been happened with the dick smith holdings limited, the other company
should try to enforce some rules and regulation within the organization in order to safeguard
themselves from the effect of closing business . it is reco0mmended that the other companies
could improve maintenance of the financial report and always keep them updating, the rules and
regulations should be properly maintained by the company. Thus the other companies could
safeguard themselves.
Appendix:

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ACCOUNTING THEORY AND CONTEMPORARTY ISSUES
References:
Lau, A., 2016. ASA stands up for shareholders. Equity, 30(4), p.10.
Lincoln, T., 2016. Your successful investing blueprint. Equity, 30(4), p.4.
Meinzen-Dick, R., Chaturvedi, R., Domènech, L., Ghate, R., Janssen, M., Rollins, N. and
Sandeep, K., 2016. Games for groundwater governance: Field experiments in Andhra Pradesh,
India. Ecology and Society, 21(3).
Schauten, M. B., Van Dijk, D., & van der Waal, J. P. (2013). Corporate governance and the
value of excess cash holdings of large European firms. European Financial Management, 19(5),
991-1016.
Smith, D.K., 2016. The cartographic imagination in early modern England: re-writing the world
in Marlowe, Spenser, Raleigh and Marvell. Routledge.
Styhre, A., Adelstein, R. P., ASchauten, M.B., Van Dijk, D. and van der Waal, J.P., 2013.
Corporate governance and the value of excess cash holdings of large European firms. European
Financial Management, 19(5), pp.991-1016.