Financial Accounting Report: Corporate Governance Failures Analysis

This report provides a detailed analysis of corporate governance failures, focusing on the financial accounting aspects of the collapses of HIH Insurance, OneTel Ltd, and ABC Learning. It examines the role of ineffective risk management strategies, aggressive business practices, and unethical conduct in contributing to these failures. The report delves into the specific issues faced by each company, including the dominance of key individuals, misrepresentation of financial statements, and rising liabilities. It highlights the importance of ethical conduct, proper financial reporting, and effective corporate governance in preventing such failures. The analysis includes a review of the companies' financial statements and the impact of auditors' reports, offering valuable insights into the causes and consequences of poor financial management and governance.

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FINANCIAL ACCOUNTING

OneTel, HIH & ABC
Executive summary
In the recent environment it has been clearly noticed that the corporate governments
management is not the only resource that is needed by the management in order to work
properly, the management also need to take an approach to risk management strategies as it
will the be helpful in the ascertainment of the future threats and opportunities that will be
leading th,e firm to earn revenue or losses. It has also been observed tha at companies that are
not looked after the risk management strategies have to face the problem of liquidation in the
coming future. The companies have started to take into account ABC form of learning. Some
of the firms like HIH insurance and Onetel Limited who are not taken into account the use of
risk management strategies have faced and ultimate loss which was very hard to recover. The
downfall of the forms has been resulted because of the entries in the liabilities and decrease
and assets to increase the Debt obligations and making the firm to become hostile. So, after
the assessment of all the reports and ethics of corporate governance, it has been clearly issued
that the companies will be helped in the discussion facility if they are taking into account the
factors relating to the governance does letting them earn huge profits.
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OneTel, HIH & ABC
Contents
Introduction...........................................................................................................................................3
Introduction and reasons for the collapse of HIH..................................................................................3
Introduction and reasons for the collapse of OneTel Ltd......................................................................4
Introduction and reasons for the collapse of ABC Learning...................................................................5
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8
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OneTel, HIH & ABC
Introduction
Onetel limited, HIH insurance and ABC learning are some of the companies which have
observed Twinkle cream use your face because of the ineffective management Strategies and
the risk management approaches which have related to incurring use loss.es. The practices of
this from have let them increase their obligations of liability and Debt and thus they are
unable to control their operations. It has been clearly stated in the company would have to use
the risk management Strategies and proper manaa gement skills then they will not be
suffering from losses and the situation they are present in now. This also States that the firm
needs to keep up with the debts and also collect the payments in time so that there will be no
problems faced by it in future. The companies were said to have a proper safeguarding skill
but because of the inefficient management, the difficulties increased.
Introduction and reasons for the collapse of HIH
HIH Insurance was founded by Ray Williams in the year 1968. The company expanded in no
less time and within 10 years owned a minimum of 200 subsidiaries. Owing to the adoption
of aggressive business strategies, the company soon started facing many difficulties that
began piling up one on another which later accounted for the company’s failure. The
managers did not bother to make provisions for meeting future obligations and despite the
reserve problems considered under pricing so as to garner more consumers. The company
also got engulfed in few bribery cases (Westfield, 2003). The reports of the auditors were
also put into question because of the reports related party transactions with the external
auditors. The reasons pertaining to the downfall of the company are-
a) Failure in risk management- HIH being an insurance company, the occurrence of risks
are high and it is why there is a higher involvement of risk management in the company. The
company suffered three serious failures in investment owing to the slow and feeble risk
management. The Directors too ignored the need for decision-making in order to overcome
the failures in investment. The management ignored the need for formulating required and
legitimate company policies which could have helped the company in adjusting to market
fluctuations (Westfield, 2003). Also, the company made investments in markets without pre-
planning and market research that accounted for investments failure.
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OneTel, HIH & ABC
b) The dominance of Ray Williams- The dominance of Ray Williams who was the CEO of
HIH Insurance overruled the Board which also accounted for the company’s failure. He was
of the opinion that the company was his personal belonging and the shareholders have no
right over the same. As the authority of CEO and his limits were not mentioned, the Board of
Directors had to give into his dominance. The stakeholders to lose their interest from the
company as the dominance of Ray’s impacted the functioning of the corporate governance
model badly (Westfield, 2003).
c) Rise in Liabilities- HIH’s operations were also disturbed by the rise in liabilities. The
company suffered a serious setback because of the extreme madness and undying obsession
for expanding that called for a rise in liabilities. The company suffered a sudden breakdown
owing to its large takeovers and acquisitions. The company neglected to make adjustments to
the market fluctuations (Parker et. al, 2011). The company assumed the ratio of its
takeover to liabilities was close to insignificant which did not hold true in reality. The
company lacked adequate management and strategy making that further called for it to
collapse.
Introduction and reasons for the collapse of OneTel Ltd
OneTel Ltd had its business operations in about seven countries and had annual sales of
around AU$653 million during the time it collapsed. The actual practice of corporate
governance in the company was full of flaws and very disappointing. The Chairman had no
control over the state of affairs of the company as the Board of Directors were very much
under the influence of the CEO’s dominance. The company also ignored its non-executive
directors. The company’s audit reports were also unauthentic. The immoral approach of the
company and misrepresentation of financial statements were also the primary factors due to
which the company failed. It can be further elaborated below-
a) Immoral conduct and approaches- It is quite clear and evident that OneTel Ltd
management of business operations lacked ethics and proper code of conduct. This
encouraged the company to work in its self-interest to an extent that it even put the
requirements of the entire workforce at risk (Mock et. al, 2013). Also, the takeover policies
designed by the company were not followed legitimately which also called for its untimely
demise. OneTel Ltd performed unethically that called for its liabilities to further growth over
its assets. Instead of opting for the effective measures and authorized strategies to overcome
the losses the company opted for unethical standards and fraudulent measures to upgrade its
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OneTel, HIH & ABC
image in the market. The actual practice of corporate governance in the company was very
poor and inadequate (Vause, 2009). The company could have survived the setbacks if it had
adhered to the legitimate practice of corporate governance timely and rectified its business
operations. The financial statements were misleading as well (Kruger, 2009). The financial
reporting too did not reflect the true and fair view of company’s performance. The company
adopted immoral strategies and unethical standards so as to adjust to the ever-changing and
highly competitive market scenarios with the goal to sustain itself in the industry which
however did not turn out to be the way as expected and later call for the company to collapse
(Hoffelder, 2012).
b) Misrepresentation of financial statements- OneTel Ltd mishandled its financial
statements. The company missed out on making trial balance report, debtors aging statements
and some other necessary financial statements that further dug a hole for the company to fall.
The company also manipulated its financial statements by providing misleading and
fabricated financial information (Manoharan, 2011). The financial reporting also failed to
portray the true and fair view of company’s financial performance. Lack of proper disclosure
of financials to the investors also accounted for its significant failure as the investors slowly
started losing interest from the company and drifted apart. The company made 2 important
alterations in its policies related to its financials. The significant alteration in the deferred
expenditure policy of the company in every 2 years is the first one while the second one was
related to the intangibles of the company that were not accounted for by the company. The
involvement of the management of the company in fabricating financial information and
manipulating financial statements for their self-interest is quite evident. It comes as a big
shock to see the auditor’s report failed to recognize and report a single fraud even after such
numerous fraudulent activities were taking place in the company (English et. al, 2010). This
further highlight the involvement of the auditor in concealing such frauds in his report and
therefore is liable to legal punishment. Therefore, the company on the account of all these
problems finally collapsed.
Introduction and reasons for the collapse of ABC Learning
ABC Learning came into existence in the year 1988 and by the year 2000, it had not less than
30 branches. It grew from a seedling to a huge tree after its enlistment in the year 2001. It had
around 2238 centers in all over the United Kingdom, United States, and Australia while 660
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OneTel, HIH & ABC
centers in Australia. The company’s failure was major because of its craziness for extension
and accession. There were accounting issues and the opinions of the auditors also coincided
with one other. The company suffered a setback when it encountered insolvency in the year
2007 and after which suffered huge losses (CPA, 2012). The losses incurred surpassed the
figures that were expected. This later accounted for the liabilities to grow over assets. The
auditors motivated costs that too of $1.68 billion and an enormous loss that was close to $364
million in the financial statements of the company for the year 2008 that further attributed in
the company’s failure. Huge debts and heavy losses further allowed the resources to shrink.
The net assets dropped from $2.22 billion to $284.5 million (CPA, 2012). The actual practice
of corporate governance in the company was full of flaws and very disappointing. Related
party transactions were also practiced in order to benefit Mr. Grooves. The increment in
liabilities and immoral activities were the primary reasons for the company to fail which is
further elaborated below-
a) Rise in Liabilities- ABC Learning owing to its unnecessary extensions and accessions
trapped itself into rising in liabilities. In 2007, the company suffered a huge setback when it
encountered insolvency that further accounted for its losses to grow enormously. The
incurred losses crossed the expected numbers because of which the liabilities grow
enormously and the assets of the company fell short for meeting nearing contingencies. The
auditor's motivated loss that was around $364 million and costs that amounted to $1.68
billion for the company in the year 2008 that further called for company’s untimely
disintegration (Teen, 2012). There was a collapse in the net assets of the company which
lowered to $284.5 million from a whopping $2.22 billion. The creditors and administrators
were shocked and disappointed at the same time when they came to know that the company
had only 40 cents and 30 cents each of its current assets for each dollar of its current
liabilities. It became a huge problem for the company to act upon. The company became
incapable of meeting its debt obligations owing to the rise in debts (Teen, 2012). However,
the company could have easily come out of this fatal scenario and would not have
disintegrated if the management undertook appropriate and effective corporate governance
measures in due time.
b) Immoral conduct and practices- It is quite evident that the management of the company
encouraged immoral conduct and unethical standards so as to smoothen its business
operations which in return worked opposite and call for the company to untimely disintegrate.
The current ratio of the company was less than one which also depicts that the company’s
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OneTel, HIH & ABC
ability to cater future debt obligations is in danger. The quick ratios also fell drastically that
signifies the company faced troubles in encountering its liquidity issues. The actual practice
of corporate governance in the company was very disappointing and full of flaws as well. It
was also seen that the company also accepted related party transactions so as to benefit Mr.
Grooves. His brother-in-law who apparently was the director of Queensland Maintenance
Services was paid a lump sum amount for maintaining ABC Centres. ABC also paid Brisbane
Basketball Team that belonged to Mr. Grooves. The company did not disintegrate in a day. It
could have survived from its initial failures provided if there were legitimate actions and
implementation of required strategies in due time.
Conclusion
After all the above statement it has been made clear that the involvement of the corporate
governance and risk management strategies are very crucial for the company to survive in the
market. If the company doesn't take measures to remove the problems then they will become
very corrosive for the firm and thus the corrective actions are needed to be taken by the firm
at the earliest. Companies should start applying penalties on the illegal and incorrect actions
of the management. Also, the company should keep in mind that it should not demoralize the
principal and risk management approaches while applying the corporate governance and risk
management strategies.
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OneTel, HIH & ABC
References
CPA. 2012. ABC learning collapse case study, [online]. Available at:
https://www.cpaaustralia.com.au/professional-resources/education/abc-learning-collapse-
case-study [Accessed 16 May 2018]
English, L., Guthrie, J., Broadbent, J. and Laughlin, R. 2010. Performance audit of the
operational stage of long term partnerships for the private sector provision of public services.
Australian Accounting Review , [e-journal]. 20(1), pp. 64-75. DOI: 10.1111/j.1835-
2561.2010.00075.x
Hoffelder, K., 2012. New Audit Standard Encourages More Talking. Harvard Press.
Kruger, C. 2009. Lessons to be learnt from ABC collapse, [online]. Available at:
http://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-collapse-
20090101-78f8.html [Accessed 16 May 2018]
Manoharan, T.N., 2011. Financial Statement Fraud and Corporate Governance. The George
Washington University.
Mock, T. J., Bedard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. 2013. The audit
reporting model: Current research synthesis and implications. Auditing: A Journal of
Practice and Theory, [e-journal]. 32, pp. 323-351. https://doi.org/10.2308/ajpt-50294
Parker, L., Guthrie, J. and Linacre, S. 2011. The relationship between academic
accounting research and professional practice. Accounting , Auditing &
Accountability Journal, [e-journal]. 24(1), pp. 5-14.
http://media.accountingeducation.com/1304/Parkeraaaj24(1).pdf
Teen, M.Y. 2012. The ABC of a corporate collapse, [online]. Available at:
http://governanceforstakeholders.com/2012/12/28/the-abc-of-a-corporate-collapse/ [Accessed
16 May 2018]
Vause, B., 2009. Guide to Analysing Companies. Bloomberg Press
Westfield, M., 2003. HIH : The Inside Story Of Australia's Biggest Corporate Collapse,
[online] Available at: http://www.smh.com.au/articles/2003/03/14/1047583693489.html
[Accessed 16 May 2018]
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