Auditing and Major Accounting Issues in the Collapse of ABC Learning Centres

AUDITING

TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................................................................2
Overview of ABC Learning Centres................................................................................................3
Major accounting issues contributed to the collapse of ABC Learning Centres.............................3
Did Auditor of ABC Learning Centre reflect appropriately on the state of financial affairs of the
company?.........................................................................................................................................4
Role of auditors in collapse of ABC learning centres and consequences faced by them................5
Regulatory and legislative reforms ensued the collapse of the company........................................5
REFERENCES................................................................................................................................7

Overview of ABC Learning Centres
ABC learning was an Australian based corporation specializes in providing childhood
care and education services. It provides services such as long day, before school and after school
care services. Their vision is to ensure love, education and nurturing for children to provide them
with the best possible chance to grow and develop in their life. To achieve their aim, company
has created four building blocks that is, learning curriculum, physical and nutritional
development, Centre staff training and development, environment and facilities. The company
was one of the world’s largest provider of early childhood educational services that started their
business in 1988. The company is rapidly expanded year by year with having 2238 former
centres in the year 2006 including Australia, US, UK, New Zealand etc. (Richards, Garvis and
Phillipson, 2018). Previous the company was considered as non-profit organization but in the
year 2001 the company was listed in Australian Stock Exchange (ASX).
The major inherent and business risk faces by the company was overwhelmed by debt
repayments. The impact of which they need to sell its entire UK as well as 60% of US subsidiary
and then delisted from ASX. It is because the company is doubling its operation each year and
for which they require funds from market. Then, the company went into receivership because in
the year 2001 when company listed, its market capitalization was only A$25 million which
increased up to A$2.5 billion in the year 2006 (Press and et.al., 2018). The company generally
uses quite poor business model known as “a Black Box” which involve aggressive acquisition,
capital expenditure, leverage and weak accounting & operating cash flow. Thus in the year 2009,
the company was fully liquidated and acquired by GoodStart Early Learning.
Major accounting issues contributed to the collapse of ABC Learning Centres
The major accounting issues that contributed to the collapse of ABC Learning Centres are as
follows:
 Aggressive and continuous acquisition: In order to expand business all around the
world, the company acquire companies of various countries. Such an acquisition result
into the recognition of license of childcare and huge amount of goodwill. In the year
2006/7, the company have only A$37.4 million in goodwill and A$647.6 million in