Management Accounting Case Study: Analysis of Fletcher Building Issues

This case study examines the financial difficulties of Fletcher Building, a major construction firm in New Zealand, focusing on whether the issues stem from management accounting deficiencies or mere reporting and disclosure problems. The company faced a trading halt, increased debt, and a decline in market capitalization, leading to concerns among investors and prompting top management to leave. The analysis suggests that a lack of awareness or proper reporting of the company's increasing debt constitutes a significant management accounting issue, compounded by the failure of both management accountants and auditors to adequately address and disclose these concerns. The study emphasizes the importance of transparent financial reporting and proactive management to stabilize market confidence and ensure the company's long-term financial health. Desklib offers a platform for students to access this case study, along with other solved assignments and past papers, to enhance their understanding of financial management and accounting practices.

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By student name
Professor
University
Date: 25 April 2018.
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Contents
Question 1...................................................................................................................................................3
Question 2...................................................................................................................................................3
References...................................................................................................................................................4
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Question 1
In the given case study,one of the construction giants in New Zealand, Fletcher building has been
talked about which is in trading halt for a last couple of days and has asked for some more time
from its bankers. The risk is looming large in the minds of the investors that the company is in
bad state and that’s the reason why the share price are falling dramatically. It is expected that due
to major losses the company will have to go into breaking down its banking covenants to pay the
debts it has taken from the banks amounting to $ 2 Billion. The situation cannot be termed as the
mere reporting and disclosure issue, it is surely a management accounting issue as the
management was not aware of the increasing debt of the company over the period of time and
even if they were aware they did not report the same in the financial statements leading to a
situation where the investors are the shares selling spree and the market capitalization of the
company has come down from $11Bn to $7.7 Bn (Alexander, 2016). The same has forced the
top management of the company to leave and there’s a temptation for the investors to sell and
exit the market. The best way of handling such a situation is to disclose the actual position
alongwith the future plan to make good the losses and ultimately the situation so that the market
situation can stabilise.
Question 2
I am in complete agreement with the above mentioned comment that it is the responsibility of the
management as well as the directors of the company and particularly the management
accountants of the company worth $ 5 Bn to identify the debt repayment issues of the ccompany
and report the same in the annual report so that the stakeholders will be well informed of the
issues and a way can be found out as to how the company will come out of such a situation and
pay back its debts. Furthermore, even if the management has missed out, but then it was the
responsibility of the auditor to report the issue under the key audit matters as the issue and
quantum is material and debt equity ratio and market capitalization, gearing ratio and debt
service coverage ratio is something which falls within the ambit of control procedures and
analytical audit procedures (Dichev, 2017). Therefore, besides management accountant, the
auditors have also failed in their responsibilities.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632. Retrieved from https://doi.org/10.1080/00014788.2017.1299620
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