Corporate Governance & Ethics: The ABC Learning Centre Case Study

This case study analyzes the collapse of ABC Learning Centre, focusing on the lack of corporate governance and ethical practices that led to its downfall. The company provided childcare services but compromised quality through cost-cutting measures and falsified accounting reports, misleading shareholders and violating corporate laws. Key issues included poor child-to-staff ratios, inadequate resource allocation, and a failure to address financial risks. The case highlights the importance of ethical decision-making, transparent accounting practices, and robust risk management strategies for sustainable business operations. The study also emphasizes the role of auditors in identifying and addressing financial irregularities to prevent corporate failures. Desklib provides access to similar solved assignments and past papers for students.

A Portfolio
On
Good Corporate Social
Responsibilities

Introduction: Reason behind collapse
ABC Learning centre lacked key corporate governance
system, which led to the collapse of its business
operation.
The shareholders were given false information about the
accounting report of the company (Finsia.com, 2009).
The company also violated the laws mentioned under
section 181 of the Corporations Act 2001, Australia, has
failed to ensure a return to the stakeholders without
informing the mishaps in the existing accounts (Cooper,
2012).

CSR and Business Ethics
 By providing day care services for the early childhood
education and care (ECEC), the company had a wider influence
on the lifestyle of the parents and the society on the whole.
 As the groups expanded by acquiring individual care
providers, the quality of food, equipment, and standard of
cleaning of the care centres deteriorated as they employed
cost-cutting.
 The malpractices followed in the accounting of the firm,
inflated the underlying operating performance and publicly
reported ABC Learning’s profitability (Yuen Teen, 2012).

Ethical issues relating to corporate governance
 Zhao et al. (2016) mentions that corporate
governance encompasses set of rules, process, and
practices that are to control the corporate actions
to balance the interest of the involved
stakeholders.
 Studies conducted by The Australia Institute during
2005 showed poor child to staff ratio at the various
care centres of the company (D'Aquila and Bean,
2011).
 The ratio indicates negligence in the budget
planning and supervision to provide adequate
resources and staffs to operate the care centres
(Cela.org.au, 2012).

 Initially, Pitcher Partners had evaluated the financial
reports of the company until 2006. By this time, the
share prices were already very high based on falsified
accounting and profit projection based on intangible
assets.
 With the overseas expansion and the significant loss
statements in the 2007 financial reports due to debt
repayment, ABC Learning underwent an audit under
Ernst and Young (E&Y). The firm pointed out the
mistreatment of the child care corporation’s revenue and
earnings.
Role of Auditors

Lessons Learnt
 The ethical issue rose due to the failure of
accounting and regulatory practices. It has been
noted that despite changes in the corporation law,
the company was not abiding by the norms and
legal clauses.
 Another lesson learnt is the accountability of risk
identification and mitigation strategy to manage
the future sustainability.
 In nutshell, the lesson is the degree and complexity
of the inherent financial risk and the hidden
communication with the stakeholders, which raised
a red flag and finally resulted in destruction of the
firm.

References
Mcrobert, A. (2009). ABC Learning Centres Limited –did the annual reports give enough warning?. [online] Finsia.com.
Available at: https://www.finsia.com/docs/default-source/jassa-new/jassa-2009/14_17.pdf?sfvrsn=88dbde93_6 [Accessed 21
Sep. 2018]
Cooper, R. (2012). Making the case for ethical decision-making models. Nurse Prescribing, 10(12), pp.607-611
Li, Y., Armstrong, A. and Clarke, A. (2014). The relationship between corporate governance and financial performance of small
corporations in Australia. Journal of Business Systems, Governance and Ethics, 9(2), pp.23-31
Yuen Teen, M. (2012). The ABC of a corporate collapse. [online] Governance For Stakeholders. Available at:
https://governanceforstakeholders.com/2012/12/28/the-abc-of-a-corporate-collapse/ [Accessed 21 Sep. 2018].
Sama, L. and Casselman, R. (2014). Ethical Foresight in Business: Interpreting Societal Cues for Better Ethical
Management. Proceedings of the International Association for Business and Society, 25(3), pp.71-81
Zhao, X., Chen, S. and Xiong, C. (2016). Organizational attention to corporate social responsibility and corporate social
performance: the moderating effects of corporate governance. Business Ethics: A European Review, 25(4), pp.386-399.
D'Aquila, J. and Bean, D. (2011). Does A Tone At The Top That Fosters Ethical Decisions Impact Financial Reporting Decisions:
An
Welsh, L. (2010). Key corporate governance systems 'missing' from ABC. [online] Couriermail.com.au. Available at:
https://www.couriermail.com.au/news/key-corporate-governance-systems-missing-from-abc/news-story/
f601d3e4242f16efbc70610f9707de05?sv=96f188f44e8845619b7d48fa7cf73f91 [Accessed 21 Sep. 2018].
 Experimental Analysis. International Business & Economics Research Journal (IBER), 2(8), pp.11-19
Sumison, J. (2012). ABC Learning and Australian early education and care: a retrospective ethical audit of a radical experiment.
[online] Cela.org.au. Available at: https://www.cela.org.au/wp-content/uploads/2017/06/AttachmentChildcareMarkets.pdf
[Accessed 21 Sep. 2018].