Get Instant Help From 5000+ Experts For

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing:Proofread your work by experts and improve grade at Lowest cost

And Improve Your Grades
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Guaranteed Higher Grade!
Free Quote

Flaws in Management and Auditing Leading to ABC Learning's Collapse


Discuss About The Internal Information Systems Audit Quality?

The ABC Learning was established in the year 1988 and the company had a dominating position with thirty outlets at the end of the year 2000. The company was obliged with its listing in the year 2001 and this caused it expand its dominating structure by setting up over 650 centers distributed over United Kingdom, Australia, and the United Kingdom. Such a dominating company did collapse dreadfully whose credit can be given to the high expectations of the management and the failure of the auditor to show them the reality. 2007 was the year of the emergence of an emergency debt which had to settle on with the bankers which were also a leading cause of the dreadful collapse. This type of negotiation failure had resulted in non-payment of some of the long-term liabilities. These liabilities took serious figures and started affecting the cash flows in a way so as to decrease its value. All this also resulted in the decrease in the share price of the company. All this can be collectively summarized as a bunch of flaws that were prominent on the part of the management and the auditors which played the key role in the collapse (CPA, 2012). Despite inviting the best in a class auditing firm, these flaws were prominent and repeated excessively. If the auditing firm had taken correct and potentially strong steps to handle the above situations, the company would have been saved from the collapse could have been prevented. But the unethical means of the auditors started to fetch the company some small profit gains which absolutely hid the unauthorized steps of the auditors. It was not at all clear that what procedure did the company followed to lure such expansion so fast though being a childcare division (Kruger, 2015). The steps followed by them could be an example for the companies in the same field to dominate the market and to enhance one’s business.

It was seen that the auditors of the ABC always made ill-equipped decisions from the date they came into action in 2003 for the company’s audit. Any profits gathered by the company before the year 2007 were strictly analyzed and taken into serious attention by the audit firm of Ernest & Young in the year 2007. It was also seen that the KPMG Company stood up along with the ABC learning as a third party for the settlement of the demarcations. Both the dominating auditing firms worked in away so as to detect the flaws of the management. Both the companies worked as an audit company for the ABC Learning and represented different conclusions and decisions which was a clear-cut symbol of the ill-equipped judgment of the auditors which lead to the collapse of the company (CPA, 2012). Thus, despite having such auditing giants involved in the company’s affairs, the company fell down dreadfully in a way unrecoverable.  

Importance of Internal Information Systems Audit Quality

The transactions going on within the parties are depicted in the financial statements that were not done and this was also a major reason for the collapse of the company. All this was done so as to as to represent a clear and respected picture of the company which would hide its financial conditions and would help in the borrowing of funds from other sources without hindrance (Matthew, 2015). Finally, all this led to the reduction in the securities of the company which opened the manipulative gate of the depiction of the general transactions of the company to be shown as the sale of the securities which are legally registered in nature (Geoffrey et. al, 2016). It was also seen that the auditors took a different way and helped the management in hiding the factors that would degrade their respect in the market. “Sales Proceed of the Investment Securities” was the manipulated term which was given to the borrowings of the company and this is the reason why it was never recorded in the book of accounts. Such procedures were followed so as to eliminate liabilities which are weak in nature (Ghandar & Tsahuridu, 2013). The cleverness of the company was on the part to earn more and more profits and as fast as possible to eliminate the loopholes that were prominent in the company (Gilbert et. al, 2005).

The company also paid a massive amount of $74 million to the other third-party companies which were involved in the operations of the company’s affairs. It was also a trial from the company to sponsor the Brisbane Bullets Basketball Team. All these transactions didn’t hold any place in the major affairs of the company but in actual reality, these were also playing a crucial role in the collapse of the company. It was as per the records of the company. All this was due to the unethical means followed by the management and the team of the auditors. Non-handling of the related party transaction with care surely led to a situation of disrespect in the market which also led to its collapse (Teen, 2012). It was thought by the investors and the general public that the means followed by the management was done so as to benefit them individually. But the actual case depicts that the inconvenient use of the corporate governance mechanism and the steps undertaken by the audit team led to this disintegration. In short, he concept of corporate governance was altogether neglected and the innocent investors were duped by the management of the company. The above situation explains that the financial conditions and other facts were not exposed in the financial statements and the sheet contained data in a limited amount which the company wanted to depict (Mock, et. al, 2013).

Role of ASA 701

Thus, it can be said that if the auditors were strict enough to follow the ethical laws of auditing and would have warned the company then the collapse could have been prevented. Even the presence of big two giants in the field of auditing failed to prevent the collapse of ABC learning. Concealment of facts was done in order to present the company as a profit-making one. It can also be thought that if the auditors commented on the risks prevailing in the company than with the help of the management, the collapse could have been prevented or would have been delayed to some extent. (Tepalagul & Lin, 2015)        

It is a very important set of rules set up for increasing the clarity and the potential of the annual financial reporting which was released in the year December 15. The most important work of the this set of rules is to track and record all the crucial affairs of the company and to see that it is as per the ethical and legal rules which have been set up and if any emergency occurs then without wasting any time report it to the chief auditors and to the headquarters. This set of rules is very much important and acts as a boon to the users of financial statements which rely on these statements to decide their investments (Heeler, 2009). This helps the shareholders to check the financial position and the internal conditions of the company so as to save them from the losses that would occur because of the misstatements of the concealed facts and figures. This is a very effective way to offer clarity to the financial statements. But in the case of ABC Learning, it was evident that many of the facts and figures were hidden which could have prevented y the auditors of the company (Ruhnke & Schmidt, 2014). If in the case of the ABC Learning the ASA rules would have existed then the auditors would have been bound to follow all the ethical rules and there would have been zero concealments of the facts about the financial position and the internal affairs of the company which totally led to its dreadful collapse.      

If the ASA 707 would have been taken into attention as in the case of the ABC Learning then many concealed facts and figures about the company could have been exposed to the public, which would not only depict the financial position of the company but also its survival in the future. It should be now clear that the absence of the ASA 707 way a dominating factor in the collapse of the ABC Learning which could have been prevented. Flaws of the management, unethical means of the regulatory system in that sensitive span of time led to the major collapse of the ABC Learning. All this acts as a boon to the users of the financial statements of the company in a better way.    

ACCC Interpretation of ABC Learning's Collapse

The departments and the individuals that have been responsible for the collapse of the ABC Learning can be the crucial one in depicting points that have led to the total dreadful collapse of the company. It is clear from the above explanation that if the ASA 701 existed and was applied successfully in the company’s auditing then the company could have been saved because it would bound the auditors to drop all unethical means and carry on the works genuinely (Coram et. al, 2011). The loss of respect for the auditing firm could have also been prevented.

Going through the ACCC interpretation, it is noticeable that the ABC downfall was not due to cut-throat competition instead the collapse had occurred due to financial blunders such as large acquisitions and high debt. The main reason behind the downfall was due to inefficiency in the system displayed by the management. The company was subject to provide true information about sales proceeds with their transactions in a manner that can comply with the provisions in the law for the transfers. Owing to large borrowings and transactions the company comes across its failure (Hoffelder, 2012). Therefore, the fall of the entity can be associated due to the flaws that the financial information projected. In addition to that, the financial institutions also stopped leading to the entity for short-term borrowings against securities as collateral. This culminated in the failure to respond to the business obligations on part of ABC work culture and all these situations take place after the existence of massive debt and liabilities in the financial framework of the entity resulting in big complications in operating the business to the situation and ultimately the entity disintegrated at the end (Teen, 2012). The financial framework rested on a very weak ground and the same was ignored by the auditing firms that lead to the major issue.

The company on its part indulged in inappropriate transactions which are obligatory to be mentioned in the financial statement and audit report. Instead, the management has made arrangements to hide the same because it would be sensitive due to huge borrowings and other constraints (Messier, 2013). Apart from this, the unaltered leverage ratio would also bring to light in the eyes of the investors in the firm if they had not camouflaged the same. The auditors played a vital role in concealing the information in improper transactions done by the firm that would have caused major influence, ultimately decided to conceal the same in the audit report (Holland & Lane, 2012).

The management had taken many compromises without concerning the auditors as the financials of the company were based on sticky grounds, leaving no scope for the auditors to identify the irregularities and continued with the same information’s whereas many transactions were provided as investments in the financial report. It was the fundamental duty of the auditor to cautioned the management of the company about the same and the consequences that would arise out of this (Carcello, 2012). Moreover, the management of the company aspired to characterize its equities as collateral instead of fixed income securities so as to smoothly carry out related party transactions.

In the company, the bulk of short-term transactions were improper and accounting was not in accordance with the provisions. Moreover, the securities were interpreted as collateral and were later removed from the records (Jubb, 2012). To add to this, the company also undertaken the exercise to reduce its liabilities to reflect the image that the securities are being provided to the parties as compensation resulting in a decline in the leveraged portfolio. All the debt accomplished by the entity was also supposed to be reflected in the financial statement of the company until they are repaid (Christensen, 2011). Nonetheless, the transactions were illustrated as sales so that the securities sold could be deducted from the assets and there could be no liabilities reflected in the financial statements.

The management and the auditors in the company were shrewdly illustrated the significant securities transactions as nominal alterations in the financial statements. The company also restores to emphasize that the repurchase of the securities was done at a nominal cost and the same was camouflaged under large-scale derivatives. Further, the management and the auditors of the company restored to reflect those transactions in the notes attached to the financial statement (Blay et. al, 2011). To sum up, the auditors are morally responsible to point out all irregularities done by the company to carry out the business and disclose the same in their audit report.

When it comes to the transparency of the company in terms of financial reporting, it is important that both the internal, as well as a statutory auditor should have a strong presence of mind and ensure that all the activities are directed in the correct direction.  Hence, the auditors must act in the best interest of the company because it enhances the functioning of the company.  Further, the auditors should ensure that the auditing process must be strong so that any misstatement can be easily reflected and the stakeholder interest can be safeguarded (Bedard et. al, 2014). Moreover, the auditor must ensure a compliance with the relevant accounting standard and this aid in presenting a better picture of the company. There must be strict control and supervision of the ethical system that will lay a foundation of strong governance and presentation.


To attain the best practices and to ensure better compliance it is essential that the organization must follow the accounting policies that have been laid down.  The reporting and compliance should be done considering the impact of each and every financial procedure.  It needs to be noted that the failure to adhere to the regulations will have a negative impact on the organization. The facts and figures of ABC learning is an apt example of the collective failure. Further, it projects that the status of the company is immaterial. However, the big might a company be, if the company fails to adhere to the regulations and the auditors are ineffective then the collapse is bound to happen.


Bedard, J. N, Gonthier, B, & A. Schatt 2014. Costs and Benefits of Reporting Key. Harvard Press

Blay, A. D., Geiger, M. A.  & North, D. S 2011. The Auditor's Going-Concern Opinion as a Communication of Risk. Auditing: A Journal of Practice & Theory, 30 (2), pp. 77- 102.

Carcello, J 2012. What do investors want from the standard audit report? CPA Journal, 82 (1), 7.

Christensen, J., 2011. Good analytical research. European Accounting Review, 20(1), pp. 41-51

Coram, P, Mock, T. J, Turner, J.  & Gray, G 2011. The communicative value of the auditor’s report. Australian Accounting Review 21(3), pp. 235-252.

CPA 2012.  ABC learning collapse case study. [online] Available at: <> [Accessed 14 September 2017]

Geoffrey D. B, Joleen K, K. Kelli S & David A. W 2016. Attracting Applicants for In-House and Outsourced Internal Audit Positions: Views from External Auditors.  Accounting Horizons, 30(1),  pp. 143-156. 

Ghandar, A & Tsahuridu, E 2013. The Auditing Handbook 2013. Australia: Pearson.

Gilbert, W. Joseph J & Terry J. E., 2005. The Use of Control Self-Assessment by Independent Auditors. The CPA Journal, 3,  pp. 66-92

Heeler, D., 2009. Audit Principles, Risk Assessment & Effective Reporting. Pearson Press

Hoffelder, K., 2012. New Audit Standard Encourages More Talking. Harvard Press.

Holland, K. & Lane, J 2012. Perceived auditor independence and audit firm fees. Accounting and Business Research. 42(2), pp. 115-141.

Jubb, C 2012. Auditing: A Business Risk Approach. Australia: Cengage

Kruger, P., 2015. Corporate goodness and shareholder wealth. Journal of Financial economics, pp. 304-329

Matthew S. E 2015. Does Internal Audit Function Quality Deter Management Misconduct?. The Accounting Review 90(2), pp. 495-527

 Messier, F. W 2013.  Auditing and Assurance Services - A systematic approach. Australia: McGraw Hill.

Mock, T. J,  Bédard, J, Coram, P., Davis, S, Espahbodi, R. & Warne, R 2013. The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice and Theory, 32, pp. 323-351.

Ruhnke, K & Schmidt, M 2014. The audit expectation gap: existence, causes, and the impact of changes. Accounting and Business Research 44(5), pp. 572-601.

Teen, M.Y., 2012. The ABC of a corporate collapse. [online] Available at: <> [Accessed 16 September 2017]

Tepalagul, N. & Lin, L 2015. Auditor Independence and Audit Quality A Literature Review.  Journal of Accounting, Auditing & Finance, 30(1), pp. 101-121.

Wright, M.K. & Charles, J 2012. Auditor independence and internal information systems audit quality. Business Studies Journal 4(2), pp

Cite This Work

To export a reference to this article please select a referencing stye below:

My Assignment Help. (2018). Discuss About The Internal Information Systems Audit Quality?. Retrieved from

"Discuss About The Internal Information Systems Audit Quality?." My Assignment Help, 2018,

My Assignment Help (2018) Discuss About The Internal Information Systems Audit Quality? [Online]. Available from:
[Accessed 05 March 2024].

My Assignment Help. 'Discuss About The Internal Information Systems Audit Quality?' (My Assignment Help, 2018) <> accessed 05 March 2024.

My Assignment Help. Discuss About The Internal Information Systems Audit Quality? [Internet]. My Assignment Help. 2018 [cited 05 March 2024]. Available from:

Get instant help from 5000+ experts for

Writing: Get your essay and assignment written from scratch by PhD expert

Rewriting: Paraphrase or rewrite your friend's essay with similar meaning at reduced cost

Editing: Proofread your work by experts and improve grade at Lowest cost

250 words
Phone no. Missing!

Enter phone no. to receive critical updates and urgent messages !

Attach file

Error goes here

Files Missing!

Please upload all relevant files for quick & complete assistance.

Other Similar Samples

sales chat
sales chat