Corporate Failures in Australia: Analysis of One Tel, HIH Insurance and ABC Learning

FINANCIAL ACCOUNTING
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Executive Summary
The investors in Australia have borne huge losses on account of the corporate failures that
have happened over the last two decades. For the purpose of this report, the focus has been on
three key bankruptcies namely One Tel, HIH Insurance and ABC Leaning. The focus of the
report is to highlight the key reasons which led to the failure of these companies. During this
analysis, the role of liabilities as a cause requires special attention since it is often stated.
However, the analysis into the failure of these companies clearly highlights the liabilities was
only the trigger but the reasons for failure were deep rooted in blatant violation of sound
corporate governance practices by fraud managements in collusion with external auditors so
as to conceal the effect of their malpractices till bankruptcy became inevitable. Further, the
report also highlights the various measures taken to strengthen the corporate governance
since with special emphasis on APES 110 code of ethics and the ASX corporate governance
principles which have been included as part of the listing agreement.
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Table of Contents
Introduction...........................................................................................................................................3
Available Guidelines for Ethical Conduct.............................................................................................3
Corporate Failure Analysis....................................................................................................................4
Unsound Corporate Governance Framework.......................................................................................7
Recommendation...................................................................................................................................7
References.............................................................................................................................................9
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Introduction
At the turn of the 21st century, Australia has seen some of the largest corporate failures in
history. These failures have raised concerns about the faulty corporate governance practices
and the underlying role that they played in leading to these corporate failures. These instances
of bankruptcies had their immediate cause as burgeoning liabilities but a critical analysis of
these is required so as to highlight the actual contributing factors. The fact that various
measures have been taken by regulators and professional organisations to improve the
corporate governance framework implies that the lack of this might have been a culprit for
these disasters. The objective of this report is to critically analysis there cases of corporate
failures in order to identify the role played by liabilities. Also, a brief overview of the
corporate governance principles by ASX along with code of ethics for accountants in the
form of APES 110 has been provided.
Available Guidelines for Ethical Conduct
For improving the corporate governance framework and reducing the incidence of corporate
frauds, a key measure has been taken in the form of insertion of corporate governance
principles in the listing agreement which makes it mandatory for listed companies to abide by
the same. These principles are briefly explained as follows (ASX, nd).
 “Solid foundation for management and oversight” – It is imperative to enhance
accountability and transparency by sharing the roles and responsibilities of the various
members of the board.
 “Value addition through board structuring” – It is imperative that the members of the
board should possess the necessary skills so as to add value. Also, in order to maintain
the independence of the board, majority of the members must be non-executive
directors.
 “Decision making driven by ethics and responsibility”- Any conflict of interest must
be disclosed by the members so that they can use their power with requisite due
diligence, objectively and responsibility.
 “Safeguard financial reporting integrity”- Requisite measures must be taken by the
board to maintain the independence of not only the external auditors but also the
internal audit committee.
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