ABC Learning Ltd Collapse: A Case Study of Ethics and Governance

This case study provides a detailed analysis of the collapse of ABC Learning Ltd, a major childcare provider in Australia. It identifies poor strategic planning, inorganic expansion, inadequate operations, and failure of corporate governance as key reasons for the collapse. The report examines the impact on major stakeholders, including shareholders, creditors, and employees, and highlights ethical issues related to misleading financial information, insider trading, and unfulfilled corporate social responsibility. The role of auditors and the lessons learned from this collapse are also discussed, emphasizing the importance of ethical conduct, transparent financial reporting, and robust corporate governance for sustained business success. Desklib offers similar solved assignments and past papers for students.

COMPARATIVE BUSINESS ETHICS & SOCIAL RESPONSIBILITY
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Executive summary
The report consists of a clear analysis made on the collapse of ABC Learning limited. All the
factors that may have resulted in the fall of the organization have been clearly analyzed.
Comments have also been made on the corporate social responsibility of the organization.
Further, the report also includes the lessons that have been learned by other companies after
the collapse of ABC learning.
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Contents
Executive summary................................................................................................................2
Introduction............................................................................................................................4
Major reasons behind the collapse.........................................................................................5
Major stakeholders.................................................................................................................6
Ethical issues and the CSR.....................................................................................................7
Ethical issues in the corporate governance.............................................................................8
Auditors and the reports.........................................................................................................9
Lessons learned....................................................................................................................10
Conclusion............................................................................................................................11
Bibliography.............................................................................................................................12
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Introduction
ABC Learning limited was one of the largest childcare centres in Australia. It was listed in
the Australian security Exchange with market capital of over AD$2.5 billion as of March
2006. Severe problems were faced by the company when the country was facing the
recession period which caused the debt repayments to overwhelm the organization. A
voluntary liquidation process was carried out in the year 2008 and the company was later sold
in the year 2009 (Calderon, Song, & Wang, 2016). Various reasons like the lack of
transparency, damages while performing liquidation, poor management of the organization
and ethical issues in relation to the corporate governance structure of the organization were
the main cause of the collapse of ABC Learning limited. The report further analyses more
factors that may have collapsed the company by leading it to bankruptcy.
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Major reasons behind the collapse
Poor strategic planning and inorganic expansion of the organization was becoming a huge
risk because of which leverage was observed in the business of ABC Learning limited. The
company constantly tried to expand because of which it applied for huge bank loans which
exceeded the capacity of repayment (Cochran, 2017).
Inadequate operations were carried out by the organization which was not profitable
economically. The management and the board of the company were also not having the
capability to expand beyond the national boundaries because of which they were not able to
fulfil the needs of the childcare industry.
It is one of the major duties of the organization to train and develop the workers in the
childcare so that the best services can be provided to the customers. The company was not at
all competent towards training its employees because of which quality of the service was
damaged (Dash, 2016).
The most important and the biggest reason for the collapse of ABC Learning limited voice
the failure of the corporate governance structure and the ethical issues. All the information
portrayed in the financial accounts was false because of which the decision-making process
of the shareholders was obstructed. The damage was also faced by the organization while the
liquidation processes were carried out by the company. It was said to damage more than 123
Global Group of Companies.
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Major stakeholders
ABC Learning limited was one of the best learning centres situated in Australia. A huge part
of the population was connected with the organization for the services provided by it. After
the collapse of the organization, a lot of problems were faced by the public in terms of the
education services (Johnstone, 2014). The creditors of the organization were also very afraid
because of the liquidation process that took place in the organization. A market capital of
AD$4.1billion was invested by the shareholders which changed to $296 million after the
shares were suspended from trading at 54c. Hence, it can also be stated that a useless was
suffered by the shareholders and investors of the organization because of the collapse of the
organization. Also, the company was reported to have more than 16000 staff employed that
was left unemployed after the collapse (Loughran, 2010). The Organisation was also said to
have bank loans which amounted to more than AD$1.6 billion which was not repaid because
of the collapse.
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Ethical issues and the CSR
The main person behind the collapse of ABC Learning limited was Eddy Groves. He was not
able to maintain the ethicality of the accounts of the organization which is the main reason
behind the collapse of ABC Learning limited (Mat Zain, Zaman, & Mohamed, 2015). It was
observed that the organization was indulged in a lot of third party related transactions which
included sponsorship to basketball teams and funds provided to the brother of CEO for the
maintenance of the ABC centres. The accounts of the organization were also not appropriate
and were said to contain a lot of false information which may have to lead the investors to
invest in their equity capital. This was a very crowded act of the company which was not at
all ethical in nature. A lot of insider trading and the misleading financial information were
being reported by the organisation because of which the company was not able to earn
considerable revenue (Pincus, Tian, Wellmeyer, & Xu, 2017). Further, the Organisation was
also not able to fulfil the Corporate Social Responsibility (CSR). Therefore, the ethical issues
and the unfulfilled social activities were stated to be the reasons behind the collapse of the
organization.
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Ethical issues in the corporate governance
A lot of misleading facts in the organization's accounting data was observed because of
which the shareholders were not able to conduct the decision-making process in a proper
manner (Piper, 2015). The management of the organization was also not working in a proper
manner because of which the revenue of the organization declined in the last few years of the
organization. No measures of risk management strategies were adopted in order to safeguard
the firm from any kind of problems that can be faced by it and future. Hence, a lot of
vulnerabilities were present in the corporate governance structure which is also one of the
major reasons for the fall of ABC Learning limited.
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Auditors and the reports
After the assessment of the audit report, it can be clearly stated that the auditors for not acting
ethically while assessing the financial accounts of the organization. A lot of fundamental
flaws were observed in the financial accounts of the firm which have stated the revenues,
profits and other figures to be false. When the accounts of the organization were handed over
to the new auditing firm known as Ernst and young, information was disclosed that the
accounts of the organization were highly manipulated. This made necessary for the
organization to give importance to the financial statements so that they can be reconstructed
(Robinson, 2014). Hence, if the audit process was carried out in a disciplined manner, the
organization wouldn't have suffered many problems.
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Lessons learned
After the clear analysis of all the mistakes made by the organization which has led to
becoming non-existent in the market, it can be clearly noted that the companies should work
ethically in order to gain competence over the market. All the financial statements of the
organization should be maintained in the best possible manner so that it can be used by the
shareholders and investors for the purpose of decision making (Simpson, 2012). The debt to
equity ratio should also be uncertain from time to time so that the expansion projects of the
company can be evaluated on the basis of the revenue earned by it. A proper corporate
governance structure should also be established in an organization so that risk management
strategies can be utilized and future plans can be constructed.
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Conclusion
After the clear analysis of the report, it can be stated that even well-established firms may
face downfall if the problems are not treated in the correct time and with correct measures.
Also, it should always be kept in mind that necessary ethical and corporate governance values
should be utilized by the organization while carrying out managerial activities. Hence, the
organization should always work in accordance with the fundamental principles while
conducting its day to day processes.
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Bibliography
Calderon, T., Song, H., & Wang, L. (2016). Audit deficiencies related to internal control: An
analysis of PCAOB inspection reports. The CPA journal , 86(2), 32.
Cochran, C. (2017). Internal auditing in plain English. Chico, California: Paton Professional.
Dash, S. S. (2016). INSTITUTIONAL THEORY AND CSR. Retrieved from www.anzam.org:
https://www.anzam.org/wp-content/uploads/pdf-manager/2844_ANZAM-2016-407-
FILE001.PDF
Johnstone, K. (2014). Auditing. Mason, OH: Cengage.
Loughran, M. (2010). Auditing For Dummies? Hoboken, NJ: John Wiley & Sons.
Mat Zain, M., Zaman, M., & Mohamed, Z. (2015). The effect of internal audit function
quality and internal audit contribution to external audit on audit fees. Internal Jouranl on
Auditing , 19(3), 134-147.
Pincus, M., Tian, F., Wellmeyer, P., & Xu, S. (2017). Do clients enterprise systems affect
audit quality and efficiency? Contemporary Accounting Research , 34(4), 1975-2021.
Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.
Robinson, T. (2014). Business accounting. New York, NY: Prentice Hall.
Simpson, M. (2012). Financial accounting. Basingstoke: Macmillan Press.
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