Accounting Theory and Contemporary Issues

This report provides an analysis of the collapse of Dick Smith Holdings Limited, focusing on the background of the company, accounting practices, and governmental issues. It also offers key lessons for other companies to prevent similar scandals. The report highlights the strategic errors and factors that led to the downfall of the company.

Running head: ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Accounting theory and contemporary issues
Name of the student
Name of the university
Authors note

1
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
ABC Consulting Firm
Mr Karman T,
Deputy Manager,
Dick Smith Holdings Limited
Melbourne, Australia
21.05.2019
Dear Karman T,
(Accounting & Contemporary Issues)
I am very pleased to inform you that I am submitting my report on the as per your request on
the topic of accounting theory and contemporary issues as on May 12, 2019 which is related
to the Dick Smith Holdings Limited. The details of this report includes the background of the
company, the governmental measures related to the collapse of this company, other major
areas which have been responsible for this collapse and the governmental measures prevent
this from occurring second time.
In the preparation of this report all the requirements and rules have been strictly followed and
it has highlighted the marking skill of this company.
Finally I would like to thank for giving me the opportunity to express my view on this report
and familiarizing myself with the company details.
Yours sincerely,
Adam Smith
Accountant and Financial Consultant

2
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Part 2: Final Business Report
“Report on Accounting Theory and Contemporary Issues
And its impact on Dick Smith Holdings Limited
THURSDAY MAY 15, 2019
COMPANY: DICK SMITH HOLDINGS LIMITED

3
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Table of Contents
Executive Summary...................................................................................................................4
1.0 Introduction:.....................................................................................................................5
1.1 Research topic..................................................................................................................5
1.2 Background of Report:.....................................................................................................5
1.3 Strategic Errors:...............................................................................................................7
Market Change...................................................................................................................7
High Cost Social Network.................................................................................................7
Downward Market Share & Sales Falling.........................................................................8
Too Fast..............................................................................................................................8
Too Much on Shelves.........................................................................................................8
Low Sales...........................................................................................................................8
High Cost of Finance.........................................................................................................9
2.0 Accounting practices to the collapse of Dick Smith........................................................9
3.0 Governmental issues for collapse of dick smith:...........................................................11
4.0 Conflicts of interest and soft landings for directors of failed companies......................11
5.0 Key lessons to learn:......................................................................................................13
6.0 Conclusion......................................................................................................................14
References:...............................................................................................................................15
Appendices:..............................................................................................................................18

4
ACCOUNTING THEORY AND CONTEMPORARY ISSUES

5
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Executive Summary
The report mainly focuses to conduct an accounting analysis of the Dick and Smith Holding
Company. The above case study deals with then background of the Dick Smith holdings
limited and the governmental issues related to the collapse of the company. The study also
depicts the possible measures which are be taken care of by the governments regarding the
case ad further ensuring that no such case do repeat in the future.

6
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
1.0 Introduction:
1.1 Research topic
The study deals with the background of the Dick Smith Holdings Limited which is an
electronics company and deals with the electronics merchandise and the accounting errors
which have been associated by the company management and further the reason behind such
destruction of the company. Apart from this the study also describes the accounting practises
about the collapse of the company and the governmental issues relating to changes and the
collapse of the company. Lastly, the main lessons which can be learned by the other
companies in order to ensure that no such second scandal occurs by the other companies
(Dick Smith Holdings Ltd - AnnualReports.com. 2019).
1.2 Background of Report:
Dick smith holdings limited was an Australian company of Australian chain of retail
resources, which have been sold in the retail stores that sold the consumer electronics goods,
hobbyist and electronic components and electronic projects kits. New Zealand is the country
where the chain expanded and in the other areas the chain remained unsuccessful. The
business have been originated into Sydney in the year 1968 by dick smith, which have been
owned by his family till they sold 605 of the company to Woolworth limited in the years
1980 and remaining of the works 40% in the two years later (Schaltegger and Burritt 2017).
Hence the company closed the business in the year 2016 within most of the years of
attainment by the waterfront capital limited partners. In the year 1968, the incorporation of
the business of $15 as rent per week premises and in case of the natural bay it is the Sydney
suburb. However the entire electronics business has been remoulded by the government
across the board by the company 255 of the tariff have been cut by the company for a loss of
138000 manufacturing jobs. Smith have been moved in the market competition with a re
emphasis of the imported electronics related goods. Together with the car radio business has

7
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
also been implemented by the company, which have catered by the company into the
electronic hobbyists and the founder had meet the needs of the business. However in this case
the company had dealt with the commercial customers. However after touring outsides places
the company had let to store the modern engineering machineries and tools. However the
company management had been introducing some new counter sales set up and increased the
sales volume at the time and produced the annual mail order catalogue with a substantial data
section. However the company had promoted themselves in a good style and made their own
publicity stunts. The company had profiled from the CB radio boom in the year 1970 and by
the end of the decade they had closed all the stores. However many CB stores were closed
due to coming of internet facility and in the late 70’s the company thrived on exploding the
PC sales and electronic components and kit lines. Hence, in order to ensure almost every
enthusiast in the electronic departments if Australia the catalogue includes the essential
involvement of the professional references of the hobbies (Ji 2017). Apart from this the
company had also introduced private branding on a large set of products and many DSE
based brands were re branded versions of the same or similar products which were
manufactured by the company. Dick Smith Company also had their own branded computer
which had been very successful at that period of time. Apart from this the company had also
some sub branded computers models which were also very popular in the market at that
period of time. However the company and also expanded he products range especially in the
year 1970 and 1980 (Zhang, Ullrich. and van Dick 2015). And the stock items like heath kit
electronic kits, TV receiving stations, beeple pager and the dick smith computer games.
Hence the company was an earlier seller of telephone equipment including the answering
machines, cordless and novelty phone. However the company started losing their market and
lastly sold 60% of their shares to wools worth company and the transfer pricing to the
company was costed at $125 million. The company continued to add the small main street

8
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
products into the markets of Australia. The company had witnessed some major changes in
the business of power plant projects which had been branded under the name of dick smith.
The products were replaced by a large amount of windows computer, mackintosh computers
which had been basically taken into account of the power house stores. Hence, the company
had decided to push forward and reworked on the old concept to form a new one (Ya’acob
2016).
1.3 Strategic Errors:
Following the announcement that the operations of the electronic retailer dick smith to
lose down their operations and over 360 stores on the world are going to be closed many
were left wondering what had happened. However the news became reality when the
company wrapped up their business and it was announced that the company had went to
liquidation and the administrators who were appointed to serve had been forced to resign
from their post while the conditions in the real estate sectors were in a bad stake. Hence it
was assumed that the poor decision making and wrong strategy implementation had been
caused as a main factor behind the stopping of the business. However the collapses are likely
to mean the shortfall of the creditors to more than $260 million. The banks will get the money
back and there is no prospect of the unsecured creditors. Therefore, the reports said that there
are below factors, which have cost the collapses in the dick smith company (Englund and
Gerdin 2014).
Market Change
The consumer market is highly competitive in nature with the rapid changes in the
business as well as in the consumer demand patterns.

9
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
High Cost Social Network
The company had a store network which was large than the competitors as well as
comes up with a higher cost base. Thus the considerable exposure to reliance to and reliance
on the fast moving office and the consumer market had played a major role in the breakdown
of the company.
Downward Market Share & Sales Falling
Since most of the company revenue is based on the company business perspectives,
hence the company profitability had been fully dependent on the company valuation. Thus in
case of dick smith company the loss generated by the business in the financial years had cost
them to lose the company market share and similarly the loss in sales had affected the
revenue generation largely (Parker and Northcott 2016).
Too Fast
The company had made severe expansion plan of the business without knowing the
consequences of the business. However too much investment in the business had caused
many business issues to the company, which was another factor or logic behind the closure of
the business.
Too Much on Shelves
The investment decisions which had been made by the company was regarded as a
weak decision since these were not made as per the customer demand. Apart from that
company had not been able to provide a good amount of dividend to the shareholders owing
to the loss of the business. Hence, it was another reason on why the company had to close
down the business forever (Ailon 2015).

10
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Low Sales
Dick smith was a successful brand in the manufacturing and selling of electronic
products and services. However, over the years due to the changes in the business decisions
and the involvement of the competitors’ brands, the sale of the products of this company had
been decreased over the years and the company did not properly meet up the customer
requirements, which had cost the company to stop the business. Therefore, fewer sales in the
business bought less profit to the company (Clemente and Gabbioneta 2017).
High Cost of Finance
The company finances are the most import6ant part of the business. However the
company looks a heavy amount of loan from the bank in order to meet up the business
requirements, business expansion and other cases. However, the Company did not made good
amount of profit in the financial year. Therefore, it did not let them to pay off the debts to the
banks, which had forced them to liquidate the business (Yu, Zhang and Zheng 2015).
2.0 Accounting practices to the collapse of Dick Smith
It is significant to understand the failure of the company for classifying hr life
business cycle implement plan and in the place which can recover the commercial. In the way
to understand the reasons as to why companies fail as others succeed, examination of the
business performance is important. It is considered as one of the iconic electronic retailer as
Dick Smith is a renowned retailer in Australia. Due to the impact of the external and internal
factors the business of the company failed. The main reason behind the failure of this
company had been held responsible were management motivation and the accounting issues,
which had led to the collapse of the company (Soltani 2014). In the finanacial yaer 2013, it is
identified that successful listing of the stock market has further enjoyed the rapid
improvement in the sales in the case of the new lines of business along with the development
plans associated with it. In case of the difficult situation, the management of the organization

11
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
tries to enhance the revenues of the company. The main aim of the company is further related
to the business growth where the organization is struggling to keep their performance
(Salvioni, Astori and Cassano 2015).
The expansion strategy of the firm is costly and further the management of the
company dealt with the failures of the inventory purchasing. Such kind of earnings of the
employees forced the business to get the significant deals according to the extension plan of
the company. However suck kind of the expansions plan are not checked by the retailers
where there are too much stocks which were overvalued (Soltani 2014).
The retailers could have accomplished the effective margin and further the clearance
regarding the sales which was significant. The recipients of the cash in that case were not
enough to meet the commitment of the business. Further the poor sales and the lease
provision of the margin, the impairment of the inventory is implemented in the same (Jory et
al. 2015).
The growth which raised from the revenue growth which depends on the sales from
commercial and growth store which is comparatively at a very diminishing margin. From the
above point the repercussion it is observed that the comparable sales degraded. The plan
which is related with the financial condition of the company required commitment from the
supplier and also the bank borrowing. It is observed that Dick Smith has a big store network
than the competitors in the market. In respect to obtain the electronic credit terms has a great
impact on the product mix, presentation of the store and also the stock levels which is related
with the business. It is seen that the management was not able to take any considerable
decision regarding the inventory decision within the competitive environment. The company
was left with the stock which is not required and it also required immediate write-down.
(Crête 2016).

12
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
The company also faced a huge pressure regarding the cash flow which led to the
breaching the banking covenants. The clearance sale provided a great financial pressure on
the company.
3.0 Governmental issues for collapse of Dick Smith:
Last month Senate proposed an enquiry with different terms of reference which cover.
The senators has to scrutinize a lot for the failure and float of Dick Smith. According to the
economic theory the failure of Dick Smith to be considered as the consistent with a constant
economy. Companies who fails to utilize economic resources efficiently in respect to the
competitors in the market, it is inevitable that the company will decline in accordance with
the financial structure. The failure of the company is associated with the series of the
misshapen which cost the company a lot (Lee and Fan 2014).
 It is considered as the good opportunity for the Senate to dig down the issues which is
making Australia a vulnerable market for investment. This includes:
 All the financial disclosures and the financial information regarding the investment
 Due to the overarching power of the creditors the external administrator performs
uneconomically
 Delays made by the external administration and crooked information led to
insolvency which is conducted by the external administrators
4.0 Conflicts of interest and soft landings for directors of failed companies.
Anchorage Capital acquired the business of Dick Smith business from Woolworths on
26 November 2012 which costs them A$115 million. It is observed that Dick Smith floated
with the market capitalization for $520 million on 4 December 2013. It can be termed as the
unethical as the float of the chain’s founder Dick Smith are not involved in 1982. (Chen
2016).

13
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
The financial information surrounds that Woolworth’s sale of Dick Smith to
Anchorage. It is observed that primarily parties was not agree with the inventory at the time
of the sale transaction. It is also observed that the party’s holds irreconcilable accounting for
the purpose of the transactions. Woolworths claimed that they made a small gain after the
devaluations and provisions. As per Anchorage claims that they made a profit of $146 million
due to the purchasing of the significant discount of the fair value of the net assets. (Ettredge,
Xu and Yi 2014).
Inventory related financial information further have been regarded as not timely. On
30 November 2015, the company declared that the inventory have been written down to the
amount of about $60 million for the period three months. Further the financial statement were
audited on 28 June 2015 where there are negative finding as per the conducted study. In case
of the retailing business, the key risk for the auditors are associated in the inventory
management system. The inventory problem have been formulated over a particular period of
time which was not recorded by the auditors of the company (Ya’acob 2016).
The administrators and receivers further have been appointed by the company on 5
January 2016. The customers were actually honoured who purchased the gift cards of Dick
Smith in the financial year 2015. The receivership of the timing have been determined by the
secured creditors of the company and were ranked before the other creditors. By the method
of buying the Christmas gifts and traded in the market through the banks which are highly
unfortunate.
In case of the demand pattern of the consumers, the electronic market is very
competitive which is involved with significant changes. In order to meet the goals of the
organization, extreme changes in the strategic marketing and sales plan are required in that

14
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
case. Hence the main factors have been contributed regarding the destruction of the company
(Ya’acob 2016).
5.0 Key lessons to learn:
The key lessons to learn from this collapse are as follows-
1. Beware of the equity share floats-
The unimaginable amount of the equity share float was the main reason behind the
collapse of this company. Since the company did not have sufficient amount of profit in the
financial year. However, they still had gone for equity share payment to the shareholders,
which backfired (Mena et al. 2016).
2. Homework must be done
The accounting procedures of the company have been driven by the certain values of
the company’s business as it is analysed by the experts related to that case.
The pickers of the stock further rated the company to buy the loopholes in the
research related activity. Also it is needed to invest most of the time in indulgent the assets of
the company and the history related to it (DiStaso and Scandura 2014).
3. Assets must be differentiated
The investments of the company is the best possible way to reduce the overall risk of
the business in that case. Investment is a kind of gamble where money is put into the bad and
the good ones. It is needed to invest in the fixed interest, infrastructure and further it is
differentiated (Grove and Clouse 2017).
4. be ready to reward a falling ship

15
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
In case of the Dick Smith, there are many shareholders who have invested and lost
many money for further hoping in the reversal. The potential investors are not afraid of the
situation of the company’s changes and further needed to make the change (Mena et al.
2016).
5. Never give up
Whatever may be the situation in the stock market, it is not allowed to give up on the
investment in the share market and further it is needed to make effective investment where
Dick Smith have been successful in the areas of Domino’s Pizza Enterprise which have
generated 1000 returns in the recent years (DiStaso and Scandura 2014).
6.0 Conclusion
From the above discussion it can be concluded that the company has been so
successful in the recent years and further is considered as the leading industry in the
electronic department. The company has lost the portion due to such wrong decision made by
the company. The expansion of the business due to not meeting the needs and the required
demands of the customers. It is rather significant for the companies to take the appropriate
decisions which would further be helpful for the potential shareholders in the market as well
as from the perspective of the company. It is a significant role which must be played by the
management level of the company regarding the major issue that the company is facing
recently.

16
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Reference
Ailon, G., 2015. From superstars to devils: The ethical discourse on managerial figures
involved in a corporate scandal. Organization, 22(1), 78-99.
Chen, L., 2016. Local institutions, audit quality, and corporate scandals of US-listed foreign
firms. Journal of business ethics, 133(2), 351-373.
Clemente, M., and Gabbioneta, C., 2017. How does the media frame corporate scandals? The
case of German newspapers and the Volkswagen diesel scandal. Journal of Management
Inquiry, 26(3), 287-302.
Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate
governance. European Journal of Risk Regulation, 7(1), 25-31.
Dick Smith Holdings Ltd - AnnualReports.com. 2019. Annualreports.com. Retrieved 26 May
2019, from http://www.annualreports.com/Company/dick-smith-holdings-ltd
DiStaso, M. W., and Scandura, T. A., 2014. Organizational legitimacy: Lessons learned from
financial scandals. In An integrated approach to communication theory and research(pp.
420-431). Routledge.
Englund, H., and Gerdin, J., 2014. Structuration theory in accounting research: Applications
and applicability. Critical Perspectives on Accounting, 25(2), 162-180.
Ettredge, M. L., Xu, Y., and Yi, H. S. 2014. Fair value measurements and audit fees:
Evidence from the banking industry. Auditing: A Journal of Practice & Theory, 33(3), 33-58.
Grove, H., and Clouse, M. 2017. Corporate governance principles and
sustainability. Corporate Governance and Sustainability Review, 1 (2), 13-19.
Ji, X. D., 2017. Development of accounting and auditing systems in China. Routledge.

17
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Jory, S. R., Ngo, T. N., Wang, D., and Saha, A., 2015. The market response to corporate
scandals involving CEOs. Applied Economics, 47(17), 1723-1738.
Lee, J. H., and Fan, W. M., 2014. Investors’ perception of corporate governance: a spillover
effect of Taiwan corporate scandals. Review of Quantitative Finance and Accounting, 43(1),
97-119.
Mena, S., Rintamäki, J., Fleming, P., and Spicer, A., 2016. On the forgetting of corporate
irresponsibility. Academy of Management Review, 41(4), 720-738.
Parker, L. D., and Northcott, D., 2016. Qualitative generalising in accounting research:
concepts and strategies. Accounting, Auditing & Accountability Journal, 29(6), 1100-1131.
Salvioni, D., Astori, R., and Cassano, R., 2015. Corporate sustainability and ethical codes
effectiveness. Available at SSRN 2577393.
Schaltegger, S., and Burritt, R., 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Soltani, B., 2014. The anatomy of corporate fraud: A comparative analysis of high profile
American and European corporate scandals. Journal of business ethics, 120(2), 251-274.
Ya’acob, N. S., 2016. CEO duality and compensation in the market for corporate control:
Evidence from Malaysia. Procedia Economics and Finance, 35, 309-318.
Yu, X., Zhang, P., and Zheng, Y., 2015. Corporate governance, political connections, and
intra‐industry effects: Evidence from corporate scandals in China. Financial
Management, 44(1), 49-80.
Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical
perspectives on accounting, 25(1), 17-26.

18
ACCOUNTING THEORY AND CONTEMPORARY ISSUES
Appendices:
Item Comments of the professor Changes
Letter of
transmittal
Letter of transmittal receiver name It is changed now
Letter of
transmittal
Heading of the letter It is now shown in the
letter
Table of content Must be professionally Ms word table of
content used
It is now used
Table of content Subheading s for the second part It is available now

19
ACCOUNTING THEORY AND CONTEMPORARY ISSUES