Financial Accounting Report: HIH, One Tel, ABC Learning

This report, prepared for the Financial Accounting (ACC701) course at King's Own Institute, examines the liquidation of three prominent Australian companies: ABC Learning, HIH Insurance, and One Tel. It delves into the reasons behind their downfall, including accounting irregularities, corp...Read More

King’s Own Institute
Individual Assignment-I
Financial Accounting (ACC701)
Submitted by- Suraj Raj Joshi
Student number- 11701361
Submitted to- Patricia Vakafua
Date- 15th May, 2018

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Table of Contents
Introduction:...............................................................................................................................2
Introduction of the enterprises:..................................................................................................3
Reasons for Liquidation:............................................................................................................4
Ethics and Corporate Governance:.............................................................................................6
Role of Liabilities:......................................................................................................................8
Conclusion:................................................................................................................................9
Reference..................................................................................................................................11

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Introduction:
Liquidation is referred to as a process of inventory selling of an enterprise at a huge
discount for the making of cash. The rights and liabilities are actualised in the course of the
stage of liquidation and the creditors’ claims are fulfilled either partially or fully. It is
important to point out that distinct causes are inherent for contributing in the directions of the
liquidation of the business enterprise (Dhamija 2015). The chief reasons involves of the
execution of aggressive framework and rules for accounting, crooked practices, corporate
governance loopholes and others. The present report lays emphasis on the various key issues
that led to the downfall of the three significant companies of Australia, namely, HIH
insurance, One Tel and ABC Learning.
Introduction of the enterprises:
ABC Learning:
The enterprise of ABC Learning used to be one among the leading institutes in
Australia that used to function in the sector of education in Australia. This enterprise was
listed in ASX (Australian Securities Exchange) that had a market capitalisation of about $ 2.5
Billion. On the other hand, the mortgage crisis had a direct influence on the enterprise, as this
had procured a huge sum of debt that is coupled with the shift in the direction of managerial
receivership (Penman 2016). The enterprise was set up in Queensland, Australia in 1988 and
this had more than 900 centres across the country. The enterprise was diversified its
operations in the business in US and UK by procuring the Busy Bees Group for an amount of
$ 330 Million in 2006.

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HIH Insurance:
HIH Insurance is also known popularly as one of the biggest enterprise in the field of
insurance. Since the year of 1997, the enterprise had procured different enterprises in
Australia as well as in other countries. Because of the progress of the enterprise in rapid
manner had made the enterprise to get the listing in 1992 on ASX. Additionally, in 1995, the
enterprise had made a clear decision of selling its holdings to a company of Swiss origin.
This led to the change of the name of the company too (Clor-Proell et al. 2015). At the time
of the liquidation of HIH Insurance, it had incurred a loss that amounted to $5.3 billion.
Many of the Board members of the company were found guilty for contravention of the
violations of the law and consequently were sent to jail too. For the specific reasons, the
collapse of the insurance company is still known as the largest collapse of an enterprise in
Australia’s corporate world.
One Tel:
One Tel is one among the most popular telecommunication enterprise that was set up
in Australia on 1995. The key focus of the enterprise was to give good quality service and
products to its valued customers in a manner to satisfy all the needs and wants by fulfilling
the customer’s desires and requirements (Razak and Stainbank 2018). Additionally, before
this got liquidated it was ranked as fourth largest firm in telecommunication functioning in
Australia. The motive of the enterprise was to enhance a youth centred image by selling the
mobile and the various related telecommunication services within the country.
Reasons for Liquidation:
There are certain significant occurrences that may eventually leads to a downfall of
the companies above stated enterprises that are discussed briefly as below:

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ABC Learning:
In the year of 2007, the third quarter the company had faced a fall in the range of 42%
in the profit margins that was totalled to be around $37.1 million. Further, the enterprise had
procured a sum that amounted to $1.8 million in same year that ultimately results in the
decline and fall in the market of Australia. On the other hand, the other reasons involve a
decline in the prices in respect of the shares of the company, the incapacity of the auditor and
the fault in the accounting treatment transacted by the company. The fall in the price of the
stock of the enterprise might be observed to be around $2.15 that boils down to 43% after the
shares were traded at lower price of $ 1.15. Because of the bad performance of then stocks,
the proprietors of the enterprise was forced sell the holdings of a sum of $ 6 Million and $ 20
Million for an amount of $ 2.7 Million. As an outcome, this had to face the suspension from
trading because of its incapability of declaring its earnings for the years 2008 and 2007.
Receivership condition was faced in the year 2008 due to huge increase in the burden
of liability for the company and this auditor was not able of signing off the accounts. At last it
was determined that the accounting treatment that was recognised by the company in respect
of the intangible assets of the company was wrong. As per the annual reports of the
enterprise, the valuation of the goodwill is associated to the licenses as well as other
intangible assets for an amount of $ 2.4 Billion. On the other hand, $8.4 million worth of
impairment charges were also being recorded. Inefficient valuation of the future cash flows
was he result of this type of recognition and led to the reduction of around 42% in the profit
margin of the company. All the above factors had lead to an substantial amount of fall of the
company.
HIH Insurance:

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This has been found that the company has procured FAI Insurance that was not taken
as a good decision in respect of the enterprise. This is because as the sums of investments are
huge, this might be detrimental because of the occurrences. The enterprise had initiated
another bad decision by initiating into the funding business that had lead the enterprise to loss
of hundreds and millions of dollars. The disaster that occurred in Florida had further
increased the loss that the company had to bear. Accruing to the occurrence of this
transaction the entity was forced to procure a huge debt that finally culminated into the
incurment of the loss by the entity. This is considered to be one of the most important reason
for starting the process of liquidation in respect of the company.
The enterprise had made an unanticipated modification that was not expected by the
management of the entity for the purpose of transacting the payment of the compensation to
the staff in California. This is taken as another important event resulting into a collapse of
HIH Insurance. As per the forecast of liquidator, there was a loss that amounted to $800
million that lasted for a period of half year as a reason of fast diversification, unsupervised
authority allocation, complicated base and the reinsurance.
One Tel:
The enterprise of One Tel had an objective to reveal a greater sums of profits by
deferring the important expenses for the business over a period of three years. The accounting
policy that the enterprise One Tel had adopted was illegal, as they breached the standards and
policies of accounting. A outflow was reported of amount $ 291 Million by One Tel due to
the enforcement of unlawful standards and policies of accounting that had affected the price
in respect of the shares of the company had fell down to below $1. In the year of 2001 it was
a paucity in the business funds to function as result Rodney Adler who being the director of
the company sold $5 million worth of shares of the company for only $2.5 million. The report

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that had been presented by the administration, One Tel had turned into a company that is not
solvent because of this 1400 employees were thrown out of their jobs. Because of this
liquidation process, One Tel was also accountable and mandated to compensate a sum that
amounted to $92 million due to the lack of due care and diligence shown by the management
of the company.
Ethics and Corporate Governance:
From the standpoint of the firms operations, ethics is associated to the judgement of
business relating to the practices and policies. The enterprise culture has a direct influence on
the decisions of the businesses that are undertaken as a component in the process of
management. This is essential to maintain an ethical integrity while undertaing the decisions
of the business and thus, this is anticipated from the administration of the enterprise to choose
the right manner of taking actions (Huang 2017). On the other hand, maintenance of ethical
integrity imposes the avoidance of the way of making a bigger short time profits. Along with
this, the effective policies might be effectively being enforced associating to corporate
governance results into controlling and directing the ethical course of the business. The
enterprises might be hugely benefitted, if they are assured a good ethical behaviour and
corporate governance (Haw et al. 2015). This is due to increasing customers base might
attract in the direction of buying its services and products that might raise its overall levels of
profit and the base of revenue. Further, the attrition rate of employees might be reduced with
the aid of ethical behaviour and therefore, improvement in productivity in the enterprise
might be assured. Additionally, the positive image of the brand is enhanced that makes the
enterprise to draw more employees for the purpose of corporate governance.

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The below discussion might reveal the complete failure in the corporate governance
and ethics of the enterprise that eventually led to a fall of three enterprises in the corporate
world of Australia.
ABC Learning:
The enterprise of ABC Learning, had initiated a wrong policy in the treatment of
accounting. This was determined as the sole reason for the winding up of the enterprise. In
addition to this, it had made a direct contribution in direction of conducting practices that are
fraudulent in nature and are related to accounting in the enterprise. Additionally, illicit
manner of practice of bookkeeping were detected in ABC Learning as well. The services that
were being given to the government and the general public and the unethical nature of the
same were detected as another illicit matter that eventually led to the winding up of the
business of the concerned enterprise (Radhakrishnan et al. 2017).
HIH Insurance:
No permission was being received from the directors and the board of the company
HIH Insurance in association to the matter of the procurement of FAI Insurance.
Astonishingly, resignation was being received by the director from the position after the
shares were being disposed. The scenario objectively indicates the lack of good corporate
governance within the enterprise. Additionally, the HIH Insurance’s administration undertook
a bad decision by making an investment in the film business, as this involves an immense
amount of risks due to the different factors that are present in the environment (Mao 2016).
The decision that were ineffective and detrimental to corporate oversight might be assessed
from this step. Along with this, the due care and diligence was not executed in proper manner
in the enterprise. Mr Williams had performed an improper administration activities by

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prospectus issuance had an omissions in the material and overstatement of the earnings that
were being recorded in the year 2008.
One Tel:
In the matter of One Tel, there was a clear signal that was being directed towards the
non- compliance with the various ethical code of conduct for the breach that had been
conducted by the standards and principles of accounting. Major failure might be witnessed
from the administrator team in respect of supervising the activities of the company in the
field of finance. Additionally, sufficient attention was not given to those sectors of the
investments composed of high risk and therefore, decent corporate governance.(Zhong and Li
2017).
Role of Liabilities:
The discussion is focussed on highlighting the key reasons that constituted the fall of
three enterprises along with ethical and corporate governance. On the other hand, this needs
to be taken into consideration that liabilities had an substantial role in the collapse involving
the three enterprises.
ABC Learning:
Even if the amount of liabilities was steady in 2007, $1.1 billion worth of borrowings was
reclassified from the non-current and due to the current liabilities as a result of the current
liabilities. In 2007, profit declined by 42%, as there were increments in the amount of the
liability of the company and also it had to cough out a sum of $1.2 billion in respect of breach
in the debt covenant(Mao 2016).
HIH Insurance

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The scenario of HIH Insurance is to some extent identical to the ABC Learining. With the
referring to the internal reports, the enterprise had faced an insurance liability that is huge and
leverage of the debt finally resulted into the insolvency of the enterprise.
One Tel:
In the enterprise of One Tel, the administration of the enterprise for all the enterprises
was mainly forced to pay a compensation amount of $9.2 million due to the negligence
shown by them in adhering to the principles of corporate governance and ethical
considerations that led to the collapse. From the discussions, this is observed that the role of
liabilities was substantial that lead to the collapse of these three important organisations in
Australia.
Therefore, this might be easily be observed that for all the enterprises that are
discussed had made various bad decisions in the business that resulted into improved amount
of liabilities and existence of these liabilities had been important causes behind its fall
(Radhakrishnan et al. 2017).
Conclusion:
As the discussion on the matter is carefully analysed and observed. This might be
detected that there are different transactions and events that resulted in downfall of the three
enterprises namely One Tel, ABC Learning and HIH Insurance. One usual reason detected
behind the fall of the enterprises was incapability of the administration to undertake proper
decision. These improper decisions that consisted of faulty policies that resulted in the
manipulation of the financial statements. Additionally the absence of the proper infrastructure
or the culture of corporate governance and ethical principles can be the reason for the
liquidation of the company. Besides, the increase in the amount that is being incurred by the
company in respect of the liabilities can be adjudged as one of the reasons for liquidation.

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The discussion that has been done in respect of the liquidations have been utilised for the
purpose of drawing the conclusion

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Reference
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hybrid financial instruments?.
Dhamija, S., 2015. Financial Accounting for Managers, 2/e. Pearson Education India.
Florin, D. and Corina, D., 2016. The Accounting Result Between The Return Information
And The Liquiditi Information Of The Entity. Management Strategies Journal, 31(1), pp.68-
71.
Haw, I.M.G., Ho, S.S., Li, Y. and Zhang, F., 2015. Product market competition, legal
institutions, and accounting conservatism. Journal of International Accounting
Research, 14(2), pp.1-39.
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Accounting Standards based on the Fair Value Model. Boletín Técnico, ISSN: 0376-
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Fixed Asset Liquidation. Economic Development and Cultural Change, 64(4), pp.795-821.
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literature-based analysis. Journal of Financial Reporting and Accounting, 14(1), pp.49-71.
Penman, S., 2016. Conservatism as a defining principle for accounting. The Japanese
Accounting Review, 6(2016), pp.1-16.

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Radhakrishnan, S., Wang, K. and Wang, Z., 2017. Stakeholder Orientation and Accounting
Conservatism: Evidence from a Natural Experiment.
Razak, M.H.Y. and Stainbank, L.J., 2018. Fair value accounting by listed South African
companies in the non-financial sector. South African Journal of Accounting Research, 32(1),
pp.1-24.
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Accounting Review, 27(2), pp.195-213.