The current report aims to conduct an audit evaluation for gaining an understanding of the problems related to real life auditing and linking between theory and practice. ABC Learning has been selected as the organisation, which liquidated in 2008 due to certain ethical issues. Therefore, the collapse of ABC Learning has been analysed in relation to common good, corporate social responsibility and stewardship. In addition, relevant ethical theories have been discussed along with the effect of unethical practices on stakeholders. Finally, the report sheds light on evaluating the role of the audit or to detect such unethical conduct.
The basic objective of this audit is to assess the ABC Learning collapse, which went public in 2001 having a market capitalisation of $25,000,000. However, it liquidated in 2008 after a period of aggressive diversification, in which the market capitalisation had reached $2,500,000,000. Specifically, this audit aims to investigate the following and the ways through which they have been achieved are discussed as follows:
The collapse of ABC Learning has been an instance of the ineffectiveness of an organisation in complying with the principles of sound accounting. Apart from the accounting principles, there are certain other principles that lead to the collapse of ABC Learning in 2008. These principles are briefly summarised as follows:
In the words of Birkey et al. (2016), corporate social responsibility audit is a formal strategic technique to gauge the actual social performance of an organisation in contrast to the set objectives. According to the corporate social responsibility objective of ABC Learning, the organisation has intended to provide content with diligence, integrity and transparency to ensure the interests of citizens. In addition, the organisation aims to provide products and services for satisfying
However, the owner of ABC Learning has not provided adequate importance to corporate governance by entering into numerous related-party transactions. In 2006, ABC had paid Austock, a broking stock and the owner of the organisation had owned a sizeable stake of $27 million in transaction fees. In addition, ABC had paid $74 million to Queensland maintenance services in 2006 for maintenance work and untendered renovation on ABC centres. This has dissatisfied the investors of the organisation largely, as it did not follow its set corporate governance objectives. As a result, it has damaged its reputation and investor confidence (Carson et al. 2014). This has been one of the reasons behind the fall of ABC Learning.
As commented by Hardy (2014), common good is an artistic term, which aims to share and benefit majority of the members of a particular community achieved through collective action and citizenship. The owner of ABC Learning has been visionary, energetic and aggressive; however, his drive had consumed him. The person had taken of his vision from the management of the organisation to focus on the growth strategy. In addition, the person had failed to provide desired benefits to the community members, instead, he had focused on overpaying for the US and UK acquisitions.
This has resulted in increased amount of pressure exerted on the part of public market in the growth of ABC Learning (Logan, Sumsion and Press 2015). The owner of ABC Learning has thought he was the best person to run the business operations. However, this thought was wrong, as recruiting an efficient manager would have saved the collapse of ABC Learning.
As pointed out by Hay, Stewart and Botica Redmayne (2016), stewardship is an ethic, which depicts the sound planning and management of resources. In case of ABC Learning, the owner has commenced global push with acquisitions in the US in 2005. However, the acquisitions have been followed later in UK. As the owner of the organisation has been engaged in diversifying the business operations, the person has ignored the childcare operation in Australia, which includes cash cow and generator of major profit (Jones 2016). In addition, such diversion of focus has resulted in appointment of agencies for finding staffs. As a result, it has increased cost of recruitment, which has resulted in profit slump. Due to this inefficient management of resources, 200 Australian centres of ABC Learning had incurred huge losses leading to the downfall of ABC Learning.
The main ethical issues that have lead to the downfall of ABC Learning are briefly described as follows:
The above-mentioned ethical issues have been associated with the utilitarianism theory of ethics. According to this theory, the benefit of each individual is provided equal priority and there is absence of inequality (Singh et al. 2014) In this case, ABC Learning has conducted accounting irregularities by inflating its value of inflated assets. According to the utilitarianism ethical theory, there is need of some kind of tallying or computation of likely pains and pleasures for the stakeholders. In this case, the organisation has provided incorrect information to the stakeholders, which has minimised the trust and confidence of the stakeholders on the organisation. As a result, it has violated this specific ethical theory, which has resulted in collapse of ABC Learning.
The following are the major effects of the unethical practices on the stakeholders of ABC Learning:
The auditor is responsible for rendering an opinion on whether there has been fair presentation of financial statements in all material respects in complying with the framework of financial reporting. In addition, the auditor provides the users with an increased degree of confidence in the financial statements. In order to develop the opinion, the auditor accumulates effective and adequate evidence along with observing, testing, contrasting and confirming until reasonable assurance has been achieved. Thus, the auditor develops an opinion to check whether any material misstatement exists in the financial statements due to error or fraud (Varughese, Janda and Obermair 2014).
From the above discussion, it has been found that ABC Learning has collapsed in 2008 due to certain ethical issues. The collapse of ABC Learning has been evaluated in terms of corporate social responsibility, common good and stewardship. However, the owner of ABC Learning has not provided adequate importance to corporate governance by entering into numerous related-party transactions. As the owner of the organisation has been engaged in diversifying the business operations, the person has ignored the childcare operation in Australia. Due to the inflated firm value, the users of the financial statements of ABC Learning have lost trust within the organisation. Finally, it has been found that the auditor develops an opinion to check whether any material misstatement exists in the financial statements due to error or fraud.
Birkey, R.N., Michelon, G., Patten, D.M. and Sankara, J., 2016, September. Does assurance on CSR reporting enhance environmental reputation? An examination in the US context. In Accounting Forum (Vol. 40, No. 3, pp. 143-152). Elsevier.
Carson, E., Simnett, R., Trompeter, G. and Vanstraelen, A., 2014. The impact of group audit arrangements on audit quality and pricing.
Ge, Q., Simnett, R. and Zhou, S., 2016. Ethical and Quality Control Requirements When Undertaking Assurance Engagements.
Hardy, C.A., 2014. The messy matters of continuous assurance: Findings from exploratory research in Australia. Journal of Information Systems, 28(2), pp.357-377.
Hay, D., Stewart, J. and Botica Redmayne, N., 2016. The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis.
Jones, P., 2016. Internal audit: An integrated approach. Company Director, 32(5), p.50.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: assurance and risk. Routledge.
Logan, H., Sumsion, J. and Press, F., 2015. The Council of Australian Government Reforms [2007–2013]: a critical juncture in Australian early childhood education and care (ECEC) policy?. International Journal of Child Care and Education Policy, 9(1), pp.1-16.
Singh, H., Woodliff, D., Sultana, N. and Newby, R., 2014. Additional evidence on the relationship between an internal audit function and external audit fees in Australia. International Journal of Auditing, 18(1), pp.27-39.
Varughese, E., Janda, M. and Obermair, A., 2014. Can the use of quality assurance tools reduce the impact of surgical complications on the well?being of obstetricians and gynaecologists in Australia and New Zealand?. Australian and New Zealand Journal of Obstetrics and Gynaecology, 54(1), pp.30-35.
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