Finance Accounting Analysis and Evaluation

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
The purpose of this study is the investigation of the reasons for the corporate collapses f ABC Learning,
HIH Insurance and One Tel Phone. The main events for the collapsed are described in the first section.
The ethical reasons are shows in the second section. The last section shows the role of increased
liabilities in these collapsed.

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Table of Contents
Introduction.................................................................................................................................................3
Introduction of the Companies....................................................................................................................3
ABC Learning...........................................................................................................................................3
One Tel Phone.........................................................................................................................................3
HIH Insurance..........................................................................................................................................3
Reasons for Liquidation...............................................................................................................................3
HIH Insurance..........................................................................................................................................3
One Tel Phone.........................................................................................................................................4
ABC Learning...........................................................................................................................................4
Ethics and Corporate Governance...............................................................................................................5
HIH Insurance..........................................................................................................................................5
One Tel Phone.........................................................................................................................................5
ABC Learning...........................................................................................................................................5
Role of the Liabilities...................................................................................................................................6
Conclusion...................................................................................................................................................6
References...................................................................................................................................................7

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Introduction
The main objective of this report involves in the analysis and evaluation of the main events
responsible for the liquidation of the three of the major companies of Australia; they are ABC Learning,
HIH Insurance and One Tel Phone. The process of liquidation refers to the procedures involved in the
winding up the operations of the companies. It needs to be mentioned that it is the responsibility of the
liquidators to conduct the operations of liquidation; they are identification of the assets, liabilities and
rights of the business organizations along with the payment of the dues of the creditors and others.
Every liquidation has some reasons behind them that can be held responsible for the process of
liquidation and there is not any exception of this fact in case of these three companies (Iwona, 2014).
Introduction of the Companies
The following discussion shows the description of these three companies:
ABC Learning
ABC Learning was one of the major business organizations operated in the educational
institution industry of Australia and the company was developed in the year of 1988 in Queensland. ABC
Learning was enlisted in the Australian Security Exchange (ASX) and the market capitalization of the
organization was $AUD$2.5 billion. The company had more than 900 centers throughout the Australia.
In the year 2006, with the aim to expand the business operations all over the United States and United
Kingdom, ABC Learning invested US$330 million for the acquisition of Busy Bee Group (Kruger, 2012).
One Tel Phone
One Tel Phone was one of the major Australian business organizations having operation in the
telecommunication industry. The company was established in the year 1995. One Tel Phone started
their business operation with the strategy to cater to the needs of their customers with the help of
superior quality of telecommunication products and services. The company was able in gaining the
position of the fourth largest telecommunication company in Australia with the help of their superior
business strategy. Developing a youth-oriented business organization by selling mobile phones along
with internet services used to be the main aim of the company (Carnegie and O’Connell, 2014).
HIH Insurance
HIH Insurance was the largest company operating in the Australian insurance industry. The
company was established in the year of 1968. With the help of effective business strategy, HIH Insurance
was majorly successful in the global as well as Australian expansion during the years of 1997 and 1998.
The company was enlisted in ASX. As per the liquidators , at the time of the liquidation, the total amount
of loss of the company was $5.3 billion and it is also considered as a major reason for the collapse of HIH
Insurance. The liquidation of HIH Insurance contributed to the conviction of many of the senior level
employees. For all these reasons, the collapse of HIH Insurance is considered as the largest collapse in
the world (Betta, 2016).
Reasons for Liquidation
The following discussion shows the major reason for the collapse of these three companies:

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HIH Insurance
I. Certain major reasons were reasonable for the collapse of HIH Insurance and the acquisition of
FAI Insurance by the company can be considered as a major reasons. The company had to make
a large investment for this acquisition that was harmful for the company. This deal caused major
damage for the business of HIH Insurance (Shukla, 2015).
II. This same thing happened when the company took the decision to enter into the business of
financing the movies. This risky investment caused HIH Insurance more than hundred million of
loss.
III. The natural disaster in Florida was another major reason for the fall of HIH Insurance. Due to the
occurrence of this situation, the company had to incur huge amount of debt to revive the
business that led to the major business loss of HIH Insurance.
IV. It can be seen that HIH Insurance made a sudden change in the accounting policy for the
payment of the compensation for the employees of California. This aggressive accounting policy
is considered as another major reason for the collapse of HIH Insurance ( Ahmed and Ndayisaba,
2016).
V. According to the estimation of the liquidator, within a period of six months, HIH Insurance lost
almost $800 million due to some of the major reasons like quick expansion, complex business
structure, unsupervised delegation of authorities and others.
One Tel Phone
I. In case of One Tel Phone, it can be seen that the strategy of the company was show increased
amount of profit in the financial statements by deferring the business expenses for three years.
It needs to be mentioned that this aspect led to the violation of the accounting standard and
rules (Kang et al., 2013).
II. As a result of the adoption of this wrong accounting policy, One Tel Phone had to face a loss of
$291 million in the year 2000 due to the violation in the required accounting policies. This
aspect affected the share price of the company as the share price fall under the price of $1.
III. In the year 2001, the management of One Tel Phone felt the shortage in fund for conducting the
business operations; and for this reason, the director of One Tel Phone sold million shares of the
company at a price of 2.5 million. The administrator report of the company states that the
company had to lay off 1400 employees in order to reduce the major business expenses.
IV. For all these reasons, the investors and shareholders lost money and One Tel Phone had to
make the payment of $92 milling as compensations (Meidl, 2014).
ABC Learning
I. There are some of the major reasons for the collapse of ABC Learning. It needs to be mentioned
that the company had to incur a debt of $1.8 billion as a result of some of the wrong business
decisions. For this reason, in the year 2007, the profit margin of ABC Learning fall by 42%
amounted to $37.1 million (Connell, 2013).
II. This aspect affected the share prices of the company due to a 43% fall in the share prices at
$2.15 after a low staring of $1.15. Due to the presence of the mounting debts, the management
of ABC Learning was forced to sell the stakes of $20 million and $6 million for the amount of
$2.7 million. As the company faced failed in disclosing their earnings in for the years 2007 and
2008, the received a trade suspension from the authority.
III. In the year 2008, ABC Learning interfered into managerial receivership due to the major
increase in the debts.
IV. In ABC Learning, major fault can be seen in the accounting for intangible assets. The value for
goodwill related to license and other intangible assets was $2.4 billion, but the company only

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made an impairment of $8.4 million. This aspect led to the 42% fall in profit along with the
wrong valuation of cash flows (Fin and McRobert, 2013).
Ethics and Corporate Governance
Business ethics is considered as one of the major factors for the success of the companies as it
helps the management in the identification of the rights and the wrongs for their business. For this
reason, ethics has a major part to play in the development of positive organizational culture that
influence e the decision making process of the companies. In the presence of business ethics, the
management can select the right course of action for achieving the business objective. Sometime, the
businesses have to reject the short cut road for short-term profit in order to be ethical ( Tricker and
Tricker, 2015). At the same time, the importance of corporate governance cannot be ignored as in the
presence of effective corporate governance strategies, companies can monitor all of their business
operations in order to eradicate fraud and errors from the business activities. In the presence of
business ethics and effective corporate governance, business entities can increase their revenue as well
as profitability by increasing the customer base. In the absence of ethics and corporate governance,
companies can face different types of difficulties to continue their business operations ( Tricker and
Tricker, 2015).
The main ethical as well as corporate governance issues that led to the collapses of these three
companies can be seen from the following discussion:
HIH Insurance
I. The approval from the board of directors is an essential element for the completion of any
business acquisitions. However, HIH Insurance did not take the approval from their board of
directors for the acquisition of FAI Insurance. Moreover, after the disposal of the shares, the
directors of the company abruptly resigned. This whole aspect is the proof of poor corporate
governance in the organization (DesJardins and McCall, 2014).
II. The company neither consults nor takes the approval from the board of directors for entering
into the business of film financing that was a highly risky business for HIH Insurance. This aspect
indicates towards the poor decision making process in the company along with lack of corporate
governance.
III. The senior management of HIH Insurance did not properly discharge their duties for due care
and diligence. This aspect shows lack of ethics in the business operations (DesJardins and
McCall, 2014).
IV. The prospectus released by the board of directors had some major material omission. In
addition, the company overstated the profit for the years 1998 an 1999. These aspects are proof
of the lack of ethics in HIH Insurance.
One Tel Phone
I. The non-compliance with the accounting standards and principles was the major unethical
function of One Tel Phone that also shoes the lack of effective corporate governance ( Weiss,
2014).
II. The administration team of the company did not discharge their duties related to monitor the
financial performance of the company. At the same time, the management of One Tel Phone
overlooked the risky business areas for their personal benefits. These aspects show lack of ethics
in One Tel Phone.
III. The failure of the company in the adoption of strong pricing strategy was the result of the poor
corporate governance mechanism in the organization (Weiss, 2014).

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ABC Learning
I. For the liquidation of the business of ABC Learning, the wrong adoption of the accounting
policies can be majorly held responsible as it led to the occurrence of fraudulent as well as
manipulative activities with the financial aspects of the company. Thus, this whole aspect
indicates towards the lack of ethical practice as well as poor corporate governance in the
company (Tricker and Tricker, 2015).
Role of the Liabilities
Mounting amount of liabilities can be held responsible for the collapses of these three
companies. In the year 2007, ABC Learning was required to do the reclassification of some of the current
as well as non-current liabilities and the amount was $1.1 billion. This aspect led to the refinancing for
the company and the profit for the company decreased by 42%. In addition, liabilities in ABC Learning
increased due to the payment of $1.2 billion by ABC Learning for the violation in debt covenant (Clarke
and Dean, 2014).
HIH Insurance was not the exception as the capital structure of the company was highly
leveraged with long-term loans that increased the burden of liability for the company. In addition, the
company had to face a loss of $200 million from the acquisition of FAI for $300 million as the actual
price of the deal was $100 million (Miglani, Ahmed and Henry, 2015).
Due to the continuously rising amount of liabilities, the management of One Tel Phone was
involved in hiding the amount off liabilities from the financial statements. In addition, the payment of
compensation for $92 million increased the liability of the company that ultimately led to liquidation
(Barnes, 2013).
Conclusion
From the above discussion, it can be observed that there are three types of issues that lead to
the liquidation of the business organizations. They are ethical and corporate governance related events,
increase in liabilities and poor decision making related events. In case of the three companies, it can be
observed that the managements of these three companies took some of the major wrong business and
investment related decisions that contributed to business liquidations. Apart from this, poor corporate
governance as well as lack of ethics can also be held responsible. Lastly, the burden of continuously
increased liabilities ended up in the liquidation of the businesses.

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