ACC701 - Financial Accounting: Liquidation Causes and Ethical Issues

This report examines the liquidation of three Australian companies: ABC Learning, HIH Insurance, and One Tel Phone Company. It identifies key events leading to their financial collapse, including risky investments, poor corporate governance, and unethical accounting practices. The analysis covers the failure of HIH Insurance due to acquiring FAI Insurance with risky investments and film financing losses, One Tel's reporting of profits while delaying expenses and eventual cash shortages, and ABC Learning's inaccurate accounting of intangible assets and debt accumulation. The report also discusses ethical strains, referencing APES 110 Code of Ethics for Professional Accountants and highlighting failures in integrity, objectivity, and professional behavior within these companies. Ultimately, the report suggests that poor corporate governance, inadequate risk management, and ethical lapses were significant factors contributing to the liquidation of these organizations. Desklib offers a range of solved assignments and study resources for students.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
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Executive summary
The liquidation process refers to the winding up process of the enterprise that is attached with the
procedure in which all the affairs of the business operates. The different companies operate as
per the Board of directors, who forms the main element of the management of the company.
From the above analysis it can be portrayed that the primary reason for company winding up for
the above mentioned organisation was poor corporate governance and inaccurate risk
identification in extending the operation. These organizations even were unsuccessful to receive
reasonable and a genuine practices of accounting to adopt the areas of financial position and risk.

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Table of Contents
Introduction......................................................................................................................................2
Company overview..........................................................................................................................2
The various events contributing to the failure and wind up of the corporate governance:.............4
Ethical Strain:..................................................................................................................................7
Recommendations............................................................................................................................8
Conclusion.......................................................................................................................................9
List of References............................................................................................................................9

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Introduction
The process of winding up refers to the liquidation process of the enterprise that is
attached with the procedure in which all the affairs of the business operates. The assets and the
liabilities distributed and there is settlement of the creditors’ claims completely pr partially that
has been warranted. The different companies operate as per the Board of directors, who forms
the main element of the management of the company. The board of directors also has the power
of taking the various decisions of the company. The decision is taken considering the various
interest of the shareholders or the stakeholders of the organization (Clarke and Dean, 2014). It is
the process of decision making is a tool that is effective for the determination of the prolonged
existence of the enterprise since it is the key essence of survival for the company.
The various effective company operations are in general regarded as the corporate
governance. This defines the performance effectiveness that is based on the guidelines, principles
and the various provisions of the laws and statue that is being prevailing in the particular nation.
In case a company fails in binding the mentioned principles or rules it can reflect that the
company is incapable of complying with the various principles that guides the governance
procedure. The present discussion deals with the process of determination of the liquidation of
the three organisations namely HIH Insurance, ABC Learning and One Tel Phone Company. In
the report the focus has also been put on the reason for which the chosen companies have wound
up their business. The study also highlights the process of corporate governance and ethical
principles.

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Company overview
ABC Learning:
The company ABC learning in its prior years is one of the biggest organization in
Australia that serves in the educational areas. The organization was recorded on the Stock
Exchange of Australia having a market capitalisation of the around $2.5 billion (Dodo, 2017).
However, the organization had to face a downfall due to mortgage crisis in the repayments of
debt to revive associations. The assessors were unsuccessful to approve the financial data by
referring to the necessity of verifying the prior year’s profits.
The organization located in Queensland was framed in 1988. Since as the initiation of the
organization it was effective in building up in excess of nine hundred centres overall New
Zealand and Australia by 2006. At the time of 2006 the company declared that it would secure
second biggest supplier of childcare situated in United States for a amount of 330 million US
dollars together with the obtaining of the company Busy Bees Group that is the fifth biggest
supplier in UK. After this acquirement the organization extended into the market of US and UK
with a 1% market share.
One Tel Phone:
One Tel is the association of Australian telecommunication broadcast organizations
which was set up in 1995 not long after the industry deregulations of the Australian media
communications with the greater part of them presently under the external administration by the
liquidators chosen by the court (Drury‐Grogan, 2017). The fundamental business motive behind
the organization was that, that they will give stress on the providing efficient service to meet the
needs and wants of the clients. One Tel objected to build up an image that is youth oriented to

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offer One.Net network access and cell phones. Before the company collapse they turned into the
fourth largest media communications organization. The organization significantly put stress on
residential market and the common crowd that s quite unlikely of the commercial business. The
organization wanted that their buyers to gain the access of the whole range phone items that
eventually resulted in high organization promotion.
HIH Insurance:
The Company of HIH Insurance is the huge Australian insurance agency. During that
time of 1998 and 1997 HIH Winterthur obtained countless organisation both globally and
Australia. It can be identified that in 1992, HIH was recorded on the Stock Exchange ofd
Australia and in 1995, the organization sells the stake to the insurer situated in Switzerland and
at last changed the name of the organization to HIH Winterthur. This consisted of the Colonial
Ltd General Insurance activities in New Zealand and Australia.
The assessment that have been done by the liquidators, that the HIH has total loss amount
of $5.3 billion. Examinations concerning the reason for the downfall of the organization have
brought about the conviction and imprisonment of huge number of individuals from HIH
administration on various fraud related charges. The fall of HIH is viewed as the Australia’s
largest company downfall.
The various events contributing to the failure and wind up of the corporate governance:
HIH Insurance: The stated below incidents have led to the company in to winding up:

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 The company of HIH obtained the FAI Insurance business that consists of greater amount
of investment that is risky in the insurance business. Due to this reason, the organisation
had faced a significant damage amount.
 The other hazardous incident that has led to the collapse of the company of HIH was the
entry of the films financing that led ultimately to in a greater loss amount that amounted
to hundred million dollar throughout the year (Molyneux, Schaeck and Zhou, 2014).
 The HIH Company faced a large monetary loss when the company had faced a huge
natural disaster struck at Florida that resulted ultimately in a debt of huge amount that
was a great loss for the HIH company.
 The other substantial reason for the collapse of the HIH was the sudden change in the
compensation policy payment that was gave payment to the employees engaged in the
industry of California. This contributed ultimately to a large financial loss and a potential
loss for the HIH.
 The provisional auditors have made the estimation that the company of HIH has made a
loss of $800 million in the time period of six months and this has led to a faster
expansion, authorities’ delegation that is unsupervised and reinsurance structure that is
complicated.
One Tel: The mentioned below incidents have led to the company in to winding up:
 The company of One Tel constantly has been reporting a large amount of profit and
delayed the expenses over a three years time span (Collett, 2015). The various adopted
practices in financial reporting were against accounting policies and standards that is
generally taken in hand by enterprises all over the globe.

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 The rise of the issues started from the period of 2000 when the company of One Tel had
informed a loss of $291 million. The incident has led to the share price to fall less than
$1.
 The organisation began to run out of cash by April end in the period of 2001 with the
director Rodney Adler after selling the amount of 5 million shares for $2.5 million.
 The winding up has led to a report that led to the compensation of $92 million from the
director of One Tel as the company did not give its authority with respect to suitable due
diligence and care (Veldman and Willmott, 2016).
 The other reason that led to the in the One Tel downfall is that the enterprise charged a
price of One seventh from the clients in considerations that the enterprise will in future
make progress in the purchase however this did not happen (Schmidt, 2015). Presently
the organisation stared to face issues of low cash, that in due course led to the winding up
of the company (Cartwright and Cooper, 2014).
ABC learning: The mentioned below incidents have led to the company in to winding up:
 The company ABC learning has unexpectedly encountered a decrease in profit of 42 per
at the time of 2007 that amounted to $37.1 million and its liability of service has resulted
to a debt of $1.8 billion that ultimately led to the fall in the company share price (Lohrke,
Frownfelter-Lohrke and Ketchen Jr, 2016).
 The collaborated falling effect share price resulted to the fall by 43 per cent to $2.15 after
trading with a low of $1.15. By period end of selling the founder of ABC learning had to
sell virtually all the $20 million shares and $6 million shares respectively for the amount
of 2.7 million (Friedman et al., 2016). This eventually resulted in the trade suspension for

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the company of ABC learning after the failure of the company to release its earnings for
the time period of 2007-08 ( Howson, 2017).
 Irrespective of selling all the company assets led to the downfall of receivership at the
time of 2008 that follows a major rise in the in the obligations of debt service and the
auditors were unsuccessful to sign the accounts off.
 The organisation followed the inaccurate accounting mode of its assets that is intangible
such as Goodwill. The ABC learning made valuation of the goodwill that amounted to
$2.4 billion of the licenses and the various other assets that are intangible but only
charged amount of $8.4 million as impairment (Bena and Li, 2014). This resulted to
future cash flow amount that was considered intangibles valuations were found to be
wrong that as a result led to the loss in the profits amounts by 42 %. This can be
considered as one of the main reasons of ABC learning downfall.
Ethical Strain:
According to the APES 110 Code of Ethics for Professional Accountants, the 5 codes of ethics
include:
 Integrity: Integrity refers to the ethical code that deals with being honest and straight
forward in the business relationships
 Objectivity: it refers to not being bias, avoid conflict and take undue influence of others
 Professional Competence and Due Care: the accountant of the company must maintain a
professional knowledge and skill and work in compliance with the various current
developments.

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 Confidentiality: the information of the company must be kept confidential and they must
not be disclosed to te various third parties
 Professional Behavior: The relevant laws and regulations must be followed in the
company operations.
However, in the current discussion the companies that are chosen has not followed there code
of conducts that has led to their bankruptcy.
HIH Insurance:
 The company of HIH insurance had taken the FAI Insurance without getting the approval
of the Board of Directors and immediately Winterthur sold off his shares and resigned
simultaneously from the enterprise (Bailey, 2014). Therefore, it can be said that the
enterprise faced due to inaccurate corporate governance.
 Before winding up, it can be mentioned that the enterprise had faced a decision making
that is poor since it entered into the business that included greater risk like film financing,
natural disaster and marine (Du Plessis, Hargovan and Harris, 2018).
 Mr William who was charged for company management that is improper, issue of
prospectus that contains material omission and overstatement of the profits in the
company accounts for the financial year of 1998-99.
One Tel:
 The company of One Tel had impacted the ethics compliance since they have violated
the accounting rules and practices`

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 The management of HIH was not successful in monitoring the financial operations of the
enterprise since they have ignored the investment areas that consisted of high risk
(Angwin, 2015).
 The company has faced a failure in adopting a strong strategy fir pricing by the directors
that can be considered as major reason for winding up (Hossari, 2014). Hence, the
conclusion can be made that the directors were unsuccessful in acting ethically to its
obligations.
ABC Learning:
 In case of the company of ABC Learning the major reason that led to the liquidation is
the wrong accounting policies adoption that led to fraudulent practices ultimately.
Therefore, the ABC Learning’s ethically displayed a accounting practice that is weak tht
can be alerted as per the needs of the business (Green, 2016).
 The other ethical issue that led to the winding up of ABC Learning was its customer
service. The government and the customers concerning the unethical and inappropriate
service went against the enterprise and its reputation.
Recommendations
As clear from the above discussion, it can be comprehended that poor corporate
structures have constrained these organizations to endure losses. Not just only finacial factor
added to the liquidation of the organization but also issues related to ethics, for example,
inappropriate mangement have added to their destruction. It is to be recommended that there
must be a satisfactory practices of management by giving due acknowledgment to the
shareholders and stakeholders interest.

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Conclusion
To end the discussion with, from the above analysis it can be portrayed that the primary
reason for comoany winding up for the above mentioned organisation was poor corporate
governance and inaccurate risk identification in extending the operation. These organizations
even were unsuccessful to receive reasonable and a genuine practices of accounting to adopt the
areas of financial position and risk. From now on, these organizations must focus on the
legitimate interest of the various stakeholders and shareholders who impacts the decision making
of the management.

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List of References
Angwin, D., 2015. Mergers and acquisitions. Wiley Encyclopedia of Management, pp.1-3.
Bailey, M.P., 2014. Mergers and acquisitions. Chemical Engineering, 121(8), pp.71-72.
Bena, J. and Li, K., 2014. Corporate innovations and mergers and acquisitions. The Journal of
Finance, 69(5), pp.1923-1960.
Cartwright, S. and Cooper, C.L., 2014. Mergers and acquisitions: The human factor.
Butterworth-Heinemann.
Clarke, F. and Dean, G., 2014. Corporate Collapse: Regulatory, Accounting and Ethical Failure.
In Accounting and Regulation (pp. 9-29). Springer, New York, NY.
Collett, N., 2015. Mergers and acquisitions. Wiley Encyclopedia of Management, pp.1-7.
Dodo, A.A., 2017. Corporate collapse and the role of audit committees: A case study of Lehman
Brothers. World Journal of social sciences, 7(1), pp.19-29.
Drury‐Grogan, M.L., 2017. Mergers and Acquisitions. The International Encyclopedia of
Organizational Communication, pp.1-11.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Friedman, Y., Carmeli, A., Tishler, A. and Shimizu, K., 2016. Untangling micro-behavioral
sources of failure in mergers and acquisitions: a theoretical integration and extension. The
International Journal of Human Resource Management, 27(20), pp.2339-2369.

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Green, M.B., 2016. Mergers and acquisitions. International Encyclopedia of Geography: People,
the Earth, Environment and Technology: People, the Earth, Environment and Technology, pp.1-
8.
Hossari, G., 2014. Multiple classification schemes for signalling corporate collapse. International
Journal of Accounting and Information Management, 22(2), pp.146-156.
Howson, P., 2017. Due diligence: The critical stage in mergers and acquisitions. Routledge.
Lohrke, F.T., Frownfelter-Lohrke, C. and Ketchen Jr, D.J., 2016. The role of information
technology systems in the performance of mergers and acquisitions. Business Horizons, 59(1),
pp.7-12.
Molyneux, P., Schaeck, K. and Zhou, T.M., 2014. ‘Too systemically important to fail’in
banking–Evidence from bank mergers and acquisitions. Journal of International Money and
Finance, 49, pp.258-282.
Schmidt, B., 2015. Costs and benefits of friendly boards during mergers and acquisitions. Journal
of Financial Economics, 117(2), pp.424-447.
Veldman, J. and Willmott, H., 2016. The cultural grammar of governance: The UK Code of
Corporate Governance, reflexivity, and the limits of ‘soft’regulation. human relations, 69(3),
pp.581-603.