Audit Report: ABC Learning Centres

This report investigates the auditing issues that contributed to the collapse of ABC Learning Centres in Australia. It examines accounting matters, specifically the valuation of intangible assets (goodwill and licenses) and the impact of related-party transactions. The report highlights inconsistencies in audit opinions from different firms, suggesting inadequacies in existing auditing practices. It then analyzes the Auditing Standard ASA 701, focusing on the communication of key audit matters (KAMs) and its role in improving audit quality. The report concludes that the failure to adequately identify and report critical issues led to the company's downfall, emphasizing the importance of ASA 701 in enhancing transparency and preventing similar failures.

Running head: AUDIT
Audit
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
Auditing matters associated to the fall of ABC centres of Learning.........................................2
Matters that guide to the progress of novel standards of auditing ASA 701:............................5
The Audit issues that needs revelation as per ASA 701:...........................................................6
Recommendation:......................................................................................................................8
Assessment of the worth of ASA 701:.......................................................................................8
Reference..................................................................................................................................10

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Introduction:
The report is an attempt to confer the matter relating to failing of ABC learning centres in
Australia. This report concentrates on detecting the areas of audit that are linked to the failing
of the business enterprise. This report endeavours to recognize the matters that show the way
to growth of the novel code of auditing. The chief intend of the report is to discover main
matters of audit that is vital to be offered in the report equipped by the auditor have the ASA
701 that is implemented throughout that period. This report also analyses and assesses the
worth of the criterion ASA 701.
Auditing matters associated to the fall of ABC centres of Learning
Accounting matter:
The new decades have observed the fall of giant business houses caused for the
governance, auditing matters and accounting. In the year of 2008, the country of Australia
observed the fall of day care school ABC centres of Learning that was in the humanity for
very extensive period. The ABC centres of learning are an organization that established in the
year 1988 as a centre for the childcare (Carson et al. 2016). In the commencement of centre
of childcare was for the predominantly assisted by the government as a business enterprise
that is non-profit organization. The business organization in 1996 was managed 18 centres of
childcare and was a most important competitor in this field. In the year of 1997, the
government resolute to openly supplies subsides to the families. This offers the enormous
expansion chance in the field. The business organization has incarcerated the chance and
going ahead with the expansion in a rapid manner. The business organization has also in full
swing procuring solitary day care centres and the groups of childcare that are tiny. The
business organization had 2238 centres in the year of 2006 in various countries like Australia,
United States, New Zealand and United Kingdom (Xu et al. 2013). The business organization

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was rising in a hurry prior to the fall of the capitalization of the business was $ 2.5 Billion in
the year of 2006 and in the year of 2007, the business enterprise created a gains of $ 143.1
Million. Then the condition transformed the business organization was countenanced ruthless
debt settlement predicament. Therefore, the business organizations have to trade sixty percent
of the subsidiaries of United State and the entire United Kingdom subsidiaries was sold. The
matter for the most part associated to auditing that has directed to the fall of the ABC centres
of Learning are given below.
The business organization has procured various units and centres that guides to the
acknowledgement of hefty quantity of goodwill and the childcare centres operations requires
license. These both are assets that are intangible and were kept in the balance sheet that is
done in fair value. The business organization in the commencement of 2006 had $ 37.4
Million worth goodwill and license of centres for childcare worth of $ 647.6 Million. In 2007
to 2008, that was the year of augmentation worth of goodwill to $ 271 Million and license
worth was $ 2.4 Million at the conclusion of the year. The business organisation has written
off impairment charges worth of $ 2 Million of Goodwill and license of $ 8.4 Million. This
has been observed that the assets is intangible frequently be converted into a insignificant as
the business gets into a mess (Sierra‐García et al. 2015). On the assessment, this might be
said that the revenue of ABC learning augmented because of acquisition. In this case, the
matter of assets that are been undervalued that is being raised by the auditor, the intangible
assets in a company is seventy percent of the whole assets. There was a major inherent
danger with the evaluation of assets that have been ignored by the auditor.
In the year of 2006, the assessment of the businesses license of childcare was anonymously
reported about the wrong assessment to the Australian Security and Investment commission.
The core squabble in protest was that the assessment was produced on an approximate net
flow of cash in future. On the other hand, there is improbability concerning its consciousness

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so the assessment may not be right and the benefits kept in the course of reassessment of the
license if this is not proper (Azim 2013).
The ABC learning has a external auditor has supplied with an unqualified opinion as they
were chosen in the year of 2003 as an auditor. In the year 2007, the resignation of the
preceding audit firm and a novel firm for audit is Ernest & Young have taken a severely
unlike outlook on the income that has been assured in the ABC learning’s accounts. The
members of the board of the company have selected to appoint a third party auditing firm
KPMG to straighten out the difference of opinion between the two firms of audit (Huggins et
al. 2015). This means now there is three audit firms and that consist of two huge firms of
audit being inspected the ABC learning’s accounts. The KPMG have futile in discovering of
the errors in the two contradictory opinions that is being given by the diverse auditors.
Among the two, one of the audit firms was accurate or correct to detect the grave situation of
the business enterprise’s accounting yield. There are dissimilar opinions on the financial
statement of the organization by diverse auditors (Ruhnke et al. 2014). The pre-existing rules
is established on the system of accounting of reporting of finance offers the business
organisations the chance of administering the system of accounting established around the
fair value and stay on the report of unqualified opinion of the auditors. This must be kept in
mind that the unqualified opinion in audit report supplied by the main firm of audit has been
obstacles after any important corporate scandals that have been exposed. This point towards
the pre-existing report of audit and the method is not ample to organize the accounting or
financial collapse and irregularity of the business organization (Goodwin and Wu 2016).
Matters linked to the transactions with related parties:
The transaction of related party is one of the causes that lead to the fall of the ABC learning
business. The business organisation has main related party dealings. This has futile to tag

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along the rules of corporate governance. The founder Eddy Groves is the one who is in
charge of expansion of the company had various transactions of related party. In the year of
2006, Austock is a broking firm that has substantial share owned by Grooves entering into
dealing with the ABC learning business enterprise (Prasad and Chand 2017). The Austock is
the broking business organization that received sum of $ 27 Million as the dealing charges
form the ABC centre of learning. In totalling to this ABC centres of learning compensated
Queensland Maintenance for the ABC centres work. This transaction involves related parties,
as Mr. Grooves is the brother in law and is the company’s director. The business organisation
ABC learning has supported the Brisbane bullet team of basketball that is owned by Mr.
Grooves who is the brother in law. The dealings of related party are the consequences of bad
corporate governance methods. This has directed to the decline of the belief of investors and
ultimately the result was failing of the company (Siriwardane et al. 2013). The auditor has
futile to adequately detect the matters of failure to elevate the matter in the report of audit.
This breakdown on the branch of the auditor is one of the causes for the fall of the ABC
Centres of Learning.
Matters that guide to the progress of novel standards of auditing ASA 701:
The standards of auditing ASA 701 is given by the AASB (Auditing and Assurance Standard
Board) for the reason of Communication of the most important matters of audit in the report
of the auditors who are independent in harmony with the legislative or parliamentary
situations and intended dictate that are given below.
The AUASB (Auditing and Assurance Standard Board) is an independent legislative or legal
body that was created under the agenda given in the section 227 A of the ASIC Act 2001
(Australian Securities and Investment Commission Act) by the Australian government. The
Auditing and assurance standard board have the official command or power to form Auditing

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Standards for corporation’s legislation functions as described in the Section 336 of
Corporation Act 2001. As per the regulations of the Legislative Instruments Act 2003, this
auditing standard is viewed as an instrument of law (Manoel and Quel, 2017).
As per the sensible directions as the Financial Reporting Council gave to Auditing and
Assurance Standard Board. This describes that it is very necessary and essential for the
Auditing and Assurance Standard Board to expand a standards of auditing that are of
paramount quality and that have to lucidity and should have centre of attention as far as the
attention of the civics is disturbed (Livne 2016).
The agenda stated in ISA 701 in the conditions of Communication of the important
matters of audit is being followed by the standards of auditing in the report of auditors who
are independent that are given by International Auditing and Assurance Standards Board.
The Audit issues that needs revelation as per ASA 701:
The most important issues of audit can be described as those information’s or
components that comprises of a great deal of significance that an auditor should comprise in
the qualified judgement by the auditor associating to the audit of the present year’s statement
of finance. The most important issues of audit are determined from those issues that are
exchanged with the persons who are mixed up in the power however, these issues are not
anticipated to suggest the issues that were discusses with the persons (Houqe 2017).
Additionally, this should be recorded in the brain that the view or opinion of the auditors on
the subject of financial statement should not be modified or transformed in relation to one of
the most important issues of audit described in the report of audit. This is too of related
weight that an auditor should put across her or his opinions or views devoid of allowing of
these main issues.

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The auditor requires getting into account of their reports of audit that these
components are taken to be the most important issues of audit below the augment
requirements of disclosures. As per the explanation given in the standards of auditing ASA
701, Communicating foremost issues of audit in the reports of the auditors who are
independent. Key Audit Matters (KAM) means the issues that the verdict of qualified report
by an auditor is of vital in the present year’s financial report of the company in the process of
auditing. Additionally, Key Audit Matters are selected from those issues that are by now
communicated through persons who are concerned with the governance (Robson et al. 2015).
All the main audit issues should be integrated and explained as per the section. If few
indications are established in the financial report then Key Audit Matters as stated should be
composed of pertinent indications in the link to those disclosures and should describe the
following:
 The cause for the ascertainment of that meticulous issue is to be of foremost
significance. Hence, bearing in the mind the issue to be an important issue of audit.
 The way of addressing and resolving the issue of process of auditing
The requirement of eradication of the auditor to create those disclosures where legislature or
a regulation removes the extent of community disclosure is very restricted.
As ASA 701 is defined as every other ruling out as “very uncommon state of affairs”, with
regard to the piece of evidence that whether divergent conditions to the company or to the
community offset the significance of the community gains of communicating the issues (Biro
and East, 2017). This is given in ASA 701 that the contact that takes place among the
management and auditors and those persons who are caught up in the power help in
modernising the verdict of the auditor devoid of taking the fact that whether the piece of

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evidence is appropriate to stimulate the administration to create community revelation linking
to those issues.
Recommendation:
The most important issues that are detected in the case of ABC centres of learning business
that must be revealed are given below are:
 The augmenting earnings were the effect of the hostile acquisition policy followed or
adopted by the business organization. This refers to the business enterprise was
following goals of receiving enormous proceeds. If the business organization will
have to follow logical and proper acquirement strategy then the business organization
may have survived (Al-Khaddash et al. 2013).
 This is apparent from the balance sheet of the business that the business upholds the
elevated quantity of elusive asset and the reality was not at all revealed in this
financial report. Therefore, the auditor was not competent to appreciate such
misstatement of substantial significance. This guided to the total fall of the business
organization (Arnold et al. 2016).
Assessment of the worth of ASA 701:
As per present history, coverage regarding the Key Audit issues is the very critical
component in a report of an auditor that is at the centre of call of the investors and any
erstwhile stakeholder of the financial statement that is inspected and who seeks to receive
extra trade centric and other suitable facts about the trade (Shaw 2014). Ciara Reintjes gave
contacting the most crucial issues of audit in the report of an independent auditor the novel
ISA 701 (International Standard of Auditing) (ASA 701). This criterion was one of the
awaited ISA’s that is usually known as the Reporting on audited financial statements. This
novel and modified Auditor Reporting standards and connected conforming changes that was

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given in January 2015 by the International Auditing and Assurance Standard Board (IAASB).
The enhancement and growth of ethics and importance of the report of an auditor is the chief
aim of the novel and revised auditor-reporting criterion (Boolaky and Quick 2016).
There are few determined issues that needs significant concentration of the auditor during
audit process are:
 Some issues that stands as an obstacle in the effort of an auditor during receiving the
adequate and accurate evidences.
 Some issues that stand as an obstacle in establishing a verdict by an auditor.
 Those issues that composed of judgment of auditor that were challenging and
complex
 The issues that were connected to the audit of the current year financial statement and
that were also incredibly vital.
Conclusion:
The account is intended to examine the cause for the fall of the ABC centres of
learning. The ABC learning centre’s prior to the fall was quickly emergent but the fall of the
company was principally because of the flaw in audit report and auditing. The argument
above displays that the auditors has futile to recognize and report the most important issues
that show the way to the fall of the business organization. Therefore, a want was felt that the
reports of audit must account the most crucial issues. This guided to the creation of the ASA
701 the major intend of the criterion was to make available the revelations in the report of an
audit. This is based upon the arguments that this may be concluded that the execution of ASA
701 has played a crucial function in highlighting the most important matters of an audit in a
report of an audit. This may be stated that this is a novel criterion has enhanced the eminence
of performed audit and report of an audit.

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