Dick Smith Holdings Case Study Analysis

This assignment analyzes the case study of Dick Smith Holdings Limited, focusing on the company's collapse due to unethical practices and financial mismanagement. Students are expected to evaluate the directors' and managers' actions, including falsifying accounting information to attract investors. The analysis should delve into the ethical dilemma surrounding these practices, their impact on stakeholders such as employees, customers, and investors, and the broader lessons learned for corporate governance and financial reporting.

RUNNING HEAD: Ethical issues and dilemmas from the financial statement of Dick smith 1
Name of the student-
Topic-Ethical issues and dilemmas from the financial statement of Dick smith
University name-

Ethical issues and dilemmas from the financial statement of Dick smith
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Table of Contents
Introduction.................................................................................................................................................2
Present description of company..............................................................................................................2
Critically evaluation of Dick Smith Company in handling Earning Management and related issue of real
activities management.................................................................................................................................3
Conclusion...................................................................................................................................................5
References...................................................................................................................................................7

Ethical issues and dilemmas from the financial statement of Dick smith
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Introduction
With the increasing ramification of economic changes and complex business structure,
Dick smith holding, a major electronic retailer has closed down its business due to several ethical
and legal compliance issues. It is evaluated that Dick smith holding company has failed to
comply with the international and financial reporting standards. In this report, study has been
prepared on the financial and non-financial aspects of Dick smith holding company and ethical
and legal compliance issues which have resulted to closure of the business (Mills and Woodford,
2015).
Present description of company
Dick smith holding company is major retailer company which was acquired by
Anchorage capital partner. This company was part of Woolworth Company which sold Dick
smith holding company to by Anchorage capital partner for AUD$ 115 million. After that Dick
Smith holding company got listed and sold its shares in market. However, due to the sluggish
market conditions, Dick Smith Company had to face liquidation in its business process and
closed down its business. (Anchorage capital, 2017). The main ethical dilemma which was faced
by Dick Smith Company was related to its less efficient financial reporting compliance program
and disclosure of wrong information to its stakeholders. This resulted to sudden increase of
overall market share of company and also increased its market capitalization of company by
AUD $ 520 million. Market making process of directors and mangers of Dick Smith Company
reflects the sudden increase in overall share price of company and investors inclination towards
buying company’s share (Adelopo, 2016). After collecting data from the secondary sources, it is
considered that Dick smith company was sold by Woolworth to Anchorage capital partner for the

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initial amount of cash payment of AUD$ 20 million and eventually Anchorage Capital
investment company had to pay AUD$ 115 million for the acquisition of Dick Smith company.
Nonetheless, at the time of listing of company an due to the market making of company’s
directors and mangers of company, the market capitalization of company resulted to value of
AUD$ 520 million. The main ethical dilemma arise when Anchorage capital partner did not
disclose the information about the functioning of Dick Smith company and adopted the falsified
accounting in the financial statement of Dick Smith company. (Bahadir, DeKinder & Kohli,
2015) The Anchorage company caught in the ethical dilemma regarding whether to disclose the
Dick Smith company’s information to its stakeholders or not. It was clear if Anchorage
Investment Company failed to disclose information to stakeholders then it would put negative
impact on the share value of Dick Smith or may result to closure down of its business (Malley,
2016). Another ethical issue was related to misguide the investors by showing falsified market
making process (Knapp, 2016).
Critically evaluation of Dick Smith Company in handling Earning Management and
related issue of real activities management
A real activity management of company is related to application of management
functioning to manipulate financial information to shareholders. It is considered that dick smith
holding was acquired by Anchorage capital partner by paying USD$ 115 million to Woolworth.
It is evaluated that by showing falsified statement to showcase high earning to its stakeholders
company increased its market capitalization to AUD$ 520 million (Adelopo, 2016). After
evaluating the annual report of Dick Smith Company, it is determined that company issued share

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value of USD$ 7682980 in the market and shareholders invested in these shares on the basis of
falsified statement and wrong profit earning result of company. This reflects the real activities
management of company to depict the falsified information to attract more investors to buy
company’s share and create value of company in the market (Malley, 2016). Management
department and directors of Dick Smith Company manipulated all the data and produce fake
documents to increase.
Ethical dilemma of management department of Dick Smith
Dick Smith Company had reflected high amount of profit and increased value of its total
assets and showcased less amount of profit earned (Tomasi, Bottomley and McQueen, 2002).
This level of manipulation in the profit of company was made by implementing real activities
management plan and reflecting high earning of the company. (Ferraro, 2017). In addition to
this, Dick Smith Company also decreases its capital assets by selling its myopic software’s to
other organizations and decrease the overall cost of capital to increase the overall profit of
company. This act was done by company to manipulate the real profit of company and increase
the overall profit of company to misguide the shareholders to increase the value of share in
capital market (Tomasic, Bottomed, and McQueen, 2002). However, ethical dilemma could be
defined as concern when organization caught in a situation where both situation has right and
right option or wrong or wrong options.Another falsification of information was done by
company by reflecting negative results of overproductions in which company manipulated all the
inventory details and increased overall production and profit of company (Leow, 2009). This
falsification of inventory details and overproduction of goods has reflected unimaginable profit
in that particular year which not only increased its share value in the market but also Increase

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Company’s value in shareholders mind. It is further evaluated that market making process and
real activities management initially increased the overall profit reflection of company but
eventually resulted to negative (AASB 102. 2009). This real activities management of company
could increase the overall profit but eventually it will showcase negative result in the end. The
biggest scam of Dick smith was related to showcase manipulation of profit by adding the
consideration of USD$ 50 million in the net profit to misguide the shareholders. This act
manipulated shareholders to invest more money in the share capital of Dick Smith and resulted
to falsified market capitalization. Another dilemma of Dick Smith Company was related to
offering high amount of discounts and offers to clients in the market. However, this practice of
company was valid to increase the overall sales of company but resulted to destruction of
consumer electronic market (Bahadir, DeKinder and Kohli, 2015). This level of discount
offering increased overall sales of company but showcase negative implication of business.
Inflation of sales by offering various lucrative offers to client was just an illusion of company.
The ethical dilemma is related to the management functioning and their practice to falsified
company’s financial information in the best interest of company in determined approach
(Drazba, 2015).
Conclusion
After evaluating all the details of Dick Smith case and other information of the case, it
could be considered that directors and managers falsified all the details and earning of company
with a view to attract more investors in the market. In addition to this, manipulation in the profit
of company was made by implementing real activities management plan and reflecting high
earning of the company so that investors could invest their capital in Dick Smith company with a

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view to attract more investors to invest in its capital. Now in the end, it could be inferred that
Management of company has acted in fiduciary position to the company but ethically they
should not indulged in falsification of accounting and financial information’s in determined
approach.

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References
AASB 102. 2009. Inventories. [Online]. Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-04_COMPjun09_01-09.pdf
[Accessed on: 31st August 2017].
Adelopo, I. 2016. Auditor Independence: Auditing, Corporate Governance and Market
Confidence. Routledge.
Anchoragecapital. 2017. Dick Smith Holdings Limited. [Online]. Available at:
http://www.anchoragecapital.com.au/case-study-dick-smith/ [Accessed on: 31st August 2017].
Bahadir, S. C., DeKinder, J. S.,and Kohli, A. K. 2015 Marketing an IPO issuer in early stages of
the IPO process. Journal of the Academy of Marketing Science, 43(1), 14-31.
Drazba, E., 2015. Value Creation in European Private Equity Investments: Theoretical
Framework and Case Study of PE Primary and Secondary Investment in Poundland-UK-based
company.
Ferraro, O., 2017. Business valuation: premiums and discounts in international professional
practice. In Financial Environment and Business Development (pp. 79-88). Springer
International Publishing.
Knapp, M.C. 2016. Contemporary Auditing. Cengage Learning.
Leow, J. 2009. Australian Master Superannuation Guide 2010/11. CCH Australia Limited.

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Malley, A. 2016. Dick Smith collapse raises more questions for accounting profession. [Online].
Available at: http://www.smh.com.au/business/retail/dick-smith-collapse-raises-more-questions-
for-accounting-profession-20160721-gqagz5.html [Accessed on: 02 July 2017].
Mills, A. and Woodford, W. 2015. Company Accounting. Pearson Higher Education AU.
Tomasic, R., Bottomley, S., and McQueen, R. 2002. Corporations Law in Australia. Federation
Press.