Accounting Report: Financial Executive Summary of Liquidated Companies

This report provides a financial executive summary examining the liquidations of ABC Learning, HIH Insurance, and One.Tel, focusing on the factors contributing to their downfall. It delves into the roles of corporate governance failures, financial discrepancies, and ethical issues. The analysis of ABC Learning highlights issues with misrepresentation of financial statements, mismanagement of funds, and accounting ethics. HIH Insurance's collapse is attributed to poor decision-making, inadequate risk management, and failure to maintain compliance. One.Tel's liquidation is linked to discrepancies in financial reports, a lack of ethical and corporate governance, and non-compliance with accounting standards. The report concludes that the common threads among these failures include poor management, financial mismanagement, and a lack of focus on ethical and governance practices, underscoring the importance of these elements for business sustainability. The report aims to provide a comprehensive overview of these failures, offering insights into the complexities of financial management and corporate governance.

Accounting Financial

Executive Summary
There are many reasons which could lead to the liquidation of the company, some of the key
factors being the failing of making any strategic decision, Insolvency, falsification of the books.
All these factors lead to the downfall of the organization. Corporate governance, Financial
discrepancies, change in laws, regulations and ethical issues would be broader term for such
failure. If the financial statements are over stated or under stated by the organization, it could
lead to mis representation, when if disclosed might result in the fall of the share price which will
result in the fall of the market share.
If the debt taken over by the company is more than the amount to repay it, might lead to a short
fall in cash. If the management is late in realizing the issue, this might lead to loss of confidence
of the shareholders on the organization.
Ethics of a company is very important for its management and success. It provides guidance to
the business, understand the right and wrong for the company and all the person associated with
it. Ethical issues can be of various nature, accounting ethics, employee rights, or professional
ethics.
Corporate Governance is considered to be one of major attributes which lead to the shaping of an
organization. This governance constitutes of both internal and external factor such as
organizational policies, laws, regulations, change in policy. The Board of directors should also
ensure that these corporate governances are properly followed.
Effective Corporate governance would include the following:
 Individual director’s contribution and their personal liability
 Performance of the board and its effectiveness.
 Relationship the organization has with its stakeholders.
In Australia, the view is that a good corporate governance leads to better performance of the
company as well the confidence of the shareholders remains intact.
The introduction of the advisory vote for the remuneration of the directors is effective as it leads
to disclosure of remuneration to be paid and management accountability as well. The reports for
these disclosures is very lengthy which is of less comprehension to the general shareholders.
The three company on which we will be providing the reason for liquidation and due to issue
with the corporate governance or that it could not meet with the financial stress.

Content
ABC Learning 4
HIH Insurance 6
One.Tel Company 7
Conclusion 8
Bibliography 9

ABC Learning
Once upon a time ABC Learning of Australia was considered to be one of the largest childhood
education service provider. It had the market capital of $2.5 billion in March 2006. It rapidly
expanded from few childhood centers to 697 centres in Australia and New Zealand. During its
life span it acquired and merged with many other company. It purchased Learning Care Group
Inc. and Busy Bees Group, Ltd., through this it entered the United States and United Kingdom
market. ABC Learning provided services like child care services, training and supervision for
preschool children as well those suffering from any disability. (Daycare, n.d.) The company
recorded a profit of $52.4 million on total revenue of $292.7 million.
Reason for the fall of the Company:
A combination of many issues was the reason for the downfall of ABC Learning, it began before
the management realized that it was going to hit the bottom. The quality was hampering due
large number of day care centers. The method the were following previously could not keep up
with the increasing number of day care centers which lead to fall in the quality of service. The
number of staff was not adequate to keep up with the students also the staffs required for
disabled students were not enough.
The increase in the market share was not the main reason for the fall of ABC Learning,
misrepresentation of financial statement and mismanagement of funds was also one of the
factors. The financial Statement showed high amount of debts and acquisition. The asset side of
the balance sheet constituted of huge amount of intangible asset which mainly had operating
lease as the main component. These operating Lease was of main concern. ABC claimed it of
high value which in actual had no value, the committee of ASIC was set to understand the value
of those operating lease. (ABC Learning Centers, 2009)
Revaluation of intangible asset as per the previous law was permitted, while as per the new law it
was permitted only under certain circumstances, these were applied only where it has a material
impact, ASIC concluded that revaluation of license done by ABC Learning was not material at
that time. This confirmed the malpractice followed by the company to manipulate the books
which is more like accounting ethical issues.
Over statement of the lease lead to increase in share price, which fell badly when the above
actions were taken. The founders of the company had to resign in September 2008.
Management group approval, the group looking for the center purchase done by the ABC was
not very uptight as stated by Matthew Horton. Valuation done by KPMG for the purchase price
of 123 Careers, was overstated, later on Matthew Horton cancelled the deal once he became a
director of ABC. (Key Corporate Governance systems, 2010)
Related Party Transaction done in ABC Learning was also one of the reason for the fall. The
transaction of related party during the leadership of Mr. Grooves which were not following the
corporate governance rule, as to be followed by the company. Basketball team owned by Mr.
Grooves was sponsored by ABC Learning, Quinsland Maintenance Service, whose director is the

brother in law of Mr. Grooves was paid $74 million on the works on the center and some more of
such transactions. These were referred as of no interest to the company. Which in fact was very
much material.

HIH Insurance
HIH Insurance company was considered to be the 2nd largest insurance company of Australia, it
was founded on 1968 by Ray Williams and Michael Payne. Till 1998 HIH insurance acquired
many company throughout the world such as CIC Insurance Ltd., Colonial Mutual and General
Insurance Ltd. And FAI Insurance Ltd. These acquisitions changed the business profile of the
company.
Reason for the fall of the HIH Insurance:
There were many factors which lead to the fall of HIH Insurance, one of the many facts were
related to the bad decision making and absences of proper management. The managements failed
to act and consider the shareholders interest on many instants. For Example, the acquisition of
FAI Insurance Ltd., the takeover was mostly followed on the basis information obtained by the
management publicly. Out of the 12 board members, only 7 were present for the meeting as the
notice was received late by the rest of the members. Since the information related to FAI
Insurance were not much available they failed to notice that FAI had a problem regarding the
excessive reserve deficit. The cost paid by the HIH Insurance was over and above for the
acquisition of FAI Insurance. (HIH Insurance The failure, 2015)
On the liability side of general insurer’s financial statement, Outstanding Claim Provision is one
of the important components. The main business of HIH insurance happens to be general
insurance, which showed an OCP of half of its liability. OCP level is to ensure that the insurance
company will be able to meet with policy holders claim in future. Due to increase in acquisition
the business was rapidly increasing as well. For such increase the company was showing under
provision, which lead to poor growth of the organization. The management failed to notice such
problems and controlling them. The board relied on the external reports provided by the
specialist. They failed notice certain important aspects such as discount rates and claim handling
cost, which are related to actuarial reserves. The company being and insurance company failed to
notice such issues. (HIH Insurance Group Collapse, n.d.)
The model presented in the annual report of HIH Insurance, the examination of the given model
was not done frequently by the board members.

One.Tel Company
One.Tel Company is a telecommunication company of Australia; the founder of the company
was Jodee Rich and Brad Keeling. Its main dealing was related to creating a mobile phone which
was more youth friendly and provide internet service. It was considered to be 4th largest company
in the telecommunication industry. It was reaching globally across Australia, London, Paris,
Zurich, Amsterdam and Hong Kong. It was growing rapidly in Europe. It had directors of high
profile and was known for its ways of advertisement. The growth of the company was rapid in
nature. In 2001 a meeting was held which confirmed that the company was out of funds, to
manage the crisis the board formed a plan of $132, which was later cancelled and lead to
complete shutdown of the company.
Reason for the fall of the One.Tel Company:
The representation of Financial reports of the company decides the quality of the financial
statement and the reliability of the share holders on the management, also the management are
supposed to look at the reports generated and the all other underlying documents which lead to
the formation of such reports. Apparently, the Founder of the company relied on other directors
to look over the matter related to financial statement, as well as the finance director.
Discrepancies were found in the documents related to financial statement such as trial balance,
accounts receivable, outstanding balance of accounts receivable. It made changes in two of its
accounting policies which lead to an increase in its operating profit before tax. It is more like
absence of ethical and corporate governance.
The disclosure on Management and Disclosure Analysis, focused mainly on earnings before
interest, depreciation, amortization and taxes rather the one that should be focused as per GAAP.
Earnings before interest, depreciation, amortization and taxes is focused by start ups which are
going through a time of loss.
The audit Committee of One.Tel failed to ensure the compliance of accounting standard as the
non-compliance was made in 1998-1999 financial statement. The members of the board were not
always presided for the meeting. Full disclosure of the corporate affairs was not made by the
company, for instance the flash reports failed to provide the details on cash, it generally held
only data related to revenue, net profit. The bi-monthly reports provided the cash balance, but it
failed to provide the exact number of cheques outstanding.
Non-executive director of One.Tel, if properly checked would not even qualified for the position
as they had invested in the company substantially. Such non-compliance lead to failed expertise
required for proper decision making. (OneTel..one big debacle, 2010)

Conclusion
The above three company ABC Learning, HIH insurance and One.Tel company were from three
different field. ABC Learning was from childhood day care sector, HIH insurance company was
from general insurance sector and One.Tel coming from telecommunication sector, all of them
went through liquidation for reason more or less related to failed corporate governance, financial
discrepancies and unable to meet the debtor’s expenses.
The given description of ABC Learning’s fall clearly states that the management was unable to
control the company. The lack of proper decision making and creating strength of the company
at the time of its rapid growth lead to the fall. Along with the financial discrepancies and change
in government policy lead to further collapse. It would have better if the company focused more
on the management side then on the expansion. It was more focused on taking over as much
child care service organization as possible. (Five Lesson, 2008)
HIH Insurance’s reason for the fall is mainly due to mismanagement and failed governance of
the management. They failed to keep up the compliance policy itself being an insurance
company. The company’s management regarding the risk, policies to be maintained. Senior
management had a great deal of influence on the directors which resulted in biased decision
making. Lack of due diligence was seen during the FAI acquisition. All these were also affecting
the other factors which lead to a further collapse. (HIH Insurance, n.d.)
The main reason behind the fall of One.Tel was more related to Jodee Rich who mislead some of
the situation of the company. Further, no controls were made to stop the problems, as well as the
board members never questioned any shortage on disclosure made or any cash flow problems.
Everyone was more concerned with the big picture, but the scene behind picture which lead to
such downfall.
Recommendation
In a way, all the above company was going through a failure of proper management. Had a
proper steps and controls were taken or made this would not have resulted in liquidation. Big
organization like the above-mentioned ones might not fail if they still remain focused on their
objectives, as well as if the higher management focus on the management as well. To achieve the
confidence of the share holders and customer it should focus more on maintaining the quality of
their service and providing a true picture of its financial statement then to falsify the accounts. It
should have board members with expertise as well as those who know the organization well so
that a mix of members would help control and initiate better management plans to the board.
They should also ensure that proper examination of boards effectiveness is done also whether all
the board members are participating in the decision making. Strong actions should be taken if
anyone is found not taking ethical actions.

Bibliography
 ABC Learning Centers, (2009). Parliament of Australia. Available at:
https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_Employ
ment_and_Workplace_Relations/Completed_inquiries/2008-10/child_care/report/index
[Accessed 8th May, 2018]
 Daycare, (n.d.). Answers.com. Available at: http://www.answers.com/topic/day-care
[Accessed 8th May, 2018]
 Five Lesson from the spectacular fall of Eddy Groves, (2008). Smartcompany, Available
at: https://www.smartcompany.com.au/finance/five-lessons-from-the-spectacular-fall-of-
eddy-groves/ [Accessed 8th May, 2018]
 HIH Insurance Group Collapse, (n.d.). Parliament of Australia. Available at:
https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/Publications_Archive/archive/hihinsurance [Accessed 8th May,
2018]
 HIH Insurance The failure in corporate governance, (2015). Essays. Available at:
https://essays.pw/essay/hih-insurance-the-failure-in-corporate-governance-6166
[Accessed 8th May, 2018]
 HIH Insurance, (n.d.). Big bad bookkeeper. Available at:
https://bigbadbookeeper.wordpress.com/whatreallyhappenedtohihinsurance/
[Accessed 8th May, 2018]
 Key Corporate Governance systems missing from ABC, (2010). Couriermail.com.
Available at: http://www.couriermail.com.au/news/key-corporate-governance-systems-
missing-from-abc/news-story/f601d3e4242f16efbc70610f9707de05?
sv=96f188f44e8845619b7d48fa7cf73f91 [Accessed 8th May, 2018]
 OneTel..one big debacle, (2010). Abc.net. Available at:
http://www.abc.net.au/news/2009-11-20/28324 [Accessed 8th May, 2018]