TABLE OF CONTENTS

Contents

Page

Introduction

Page 2

Part A : ABC Learning Corporate Collapse Case Study

Description of Ethical Decision Guide Chosen

Page 3

Application of the Ethical Decision Guide

Page 3

Part B: Evaluation of Regaining of Audit Profession Reputation

Identification of Actions to Restore User Confidence to Audit Functions Page
5
Evaluation of Whether Audit Profession Has Regained Reputation Page 5

Conclusion

Page 6

References

Page 7

Introduction
ABC learning was the largest provider of early childhood education services. It was enlisted in
Australian Security Exchange and in the year 2007 its market capitalization reached A$2.5
billion. ABC learning appointed Pitcher Partners as an external auditor but they keep giving the
unqualified opinion for the company and for which ABC learning has to suffer greatly later on.
In late 2007 when they appointed Ernst & Young they gave very different view about the
condition of ABC learning. This is one of the popular cases where company has to pay because
of wrong decision but this case is even more popular because of the unqualified decision of the
external auditor. In this case external auditor was unable to figure out the problem for which they
are actually appointed for.

In 1981, Laura Nash makes a checklist consist of 12 questions for ethical decision making.
Although there are some other model available but from my point of view its the most effective
one. In Laura Nash each question is accompanied by an example or further question to make sure
about the correctness of the decision being taken. Now I am going to discuss Laura Nash model
for ABC learning.
1) Have you defined the problem

ABC did aggressive acquisition which result in

accurately?

the recognition of the licenses of operating the

childcare centers and large amount of goodwill
but both of them were intangible assets. So
when they have to pay back the huge debts,
they were unable to do so. So ABC learning
was an overvalued company than it was in
reality.
In 1988, when Australian government decide to

2) How would you define the problem if

you stood on the other side of the

make direct payments to families instead of

fence?
3) How did this situation occur in the first

giving subsidiaries to childcare centers.

After the first half of the financial year 2007,

place?

when the profit of ABC fell down to 42 per

cent and bank reject to renegotiate loan with
ABC learning and make all the loans from long
term to short term.
As a member of the corporation my loyalties

4) To whom and what do you give your

loyalties as a person and as a member

will always go with the investors.

of the corporation?
5) What is your intention in making this

My intension is to aware the investors about

decision?
6) How does this intention compare with

the real condition of the ABC learning.

My decision is harmful for ABC learning as

the likely results?

they are going to lose all the trust of the

investors.
Obviously my decision is going to harm the

7) Whom could your decision or action

injure?
ABC learning.
8) Can you engage the effected parties in a Yes, its possible to engage the governing body
discussion of the problem before you

of ABC learning before making my decision.

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make a decision?
9) Are you confident that your position

Yes, I am confident that my position will be

will be as valid a long period of time as

valid in a long period of time as there is no

it seems now?
10) Could you disclose without qualm your

scoop to question my decision.

As my facts are valid I can disclose my

decision or action to your boss/ CEO,

decision to my boss/ CEO, board of directors,

board of directors, your family or

my family or society as a whole.

society as a whole?
11) What is the symbolic potential of your

As I did my work honestly and I have proof

action if understood? If misunderstood?

behind my decision. So I think people will

value my work positively.

12) Under what condition would you allow

Only if investors think that they are still

exceptions to your stand?

confident with ABC learning.

We as a normal people have already seen a lot of accounting scandal throughout the world which
have questioned the role of the audit profession. No doubt that investor of the company cant
trust the auditor like before. Big auditing company now also keeps a close eye on the employee.
Big company educates their employee more often about moral issues so that they cant do
anything unethically. As an audit member everyone has to remember five fundamental principles

of auditing which include integrity, objectivity, professional competence and due care,
confidentiality and professional behavior. The changes on audit profession are given below:

Auditors are now more pressurized to follow the five fundamental principle of auditing.
Auditors now try to seek more resources about the given information.
Auditors now ask the details more towards the responsible person from the company if

they find something fishy.

Auditors now give more explanation if they think it will be confusing towards the readers

of financial report.
Auditors now think about the ethical issues more seriously than before.

Audit committees
For audit committees the changes are given below:
Audit committees are now arranging more training for the employees.
Audit committees are now stricter about the fraudulence case.
Now a day its very common to see that auditor losing their job even for their small
mistakes to keep everything in control.
Audit committees are now hiring specialized people to teach more clearly about the
specific topics.
Audit committees are now more engaged with the regulation authority to solve the
problem.
From the point of view of regulators the responses are given below:
The enforcement division was restructured to better restrict accounting fraudulence under
new leadership from May 2010.
Each year SEC receives a massive number of complaints and tips to improve the overall
situation of the market.
A formal agreement has made with the law enforcement authorities so that action can be
taken quickly.
In the 2009, SEC adopted new rules and regulation to face accounting fraudulence more
effectively.
The SEC is now providing staff training for all the audit firms from which some are
mandatory for every audit firms.
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Yes, we can say that somehow audit profession able to regain some reputation. Previously there
were many cases where we find the symptoms of accounting fraudulence but after getting the
pressure from everywhere now everybody including audit committee, regulation authority and
government become more aware about the accounting fraudulence. As a result the numbers of
accounting incidence decrease enormously. Every concerning body is now working so that audit
firms again able to retain everyones trust. Government is opening new department to monitor
accounting matter. Regulation authority is imposing new laws to ensure the quality of the
financial reports. Audit committee is creating pressure towards their employees so that they dont
support any fraudulence intentionally. So a positive vibe is going on to ensure the quality of audit
firms so that audit firms can do their job more ethically.

Conclusion
After all the action that already has taken still there is some evidence available of accounting
fraudulence. First we have to ensure the ethical issues that every member has to follow.
Otherwise its not possible for anyone including regulatory authority or government to stop the
accounting fraudulence fully. Positive changes have already made in this sector and its for sure
that some more is coming in the flowing few years.

References
1) ABC learning collapse is a policy failure | Crikey. (n.d.). Retrieved March 23, 2015, from
http://www.crikey.com.au/2008/11/07/abc-learning-collapse-is-a-policy-failure/
2) The ABC of a Corporate Collapse - Chapter 1 Foundations and Growth [Video file].
(n.d.). Retrieved from https://www.youtube.com/watch?v=YYF6JW9vJKo

3) The ABC of a corporate collapse | Governance For Stakeholders. (n.d.).

Retrieved March 23, 2015, from http://governanceforstakeholders.com/2012/12/28/theabc-of-a-corporate-collapse/
4) Lessons to be learnt from ABC Learning's collapse. (n.d.). Retrieved March 23, 2015,
from http://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-collapse20090101-78f8.html
5) The Securities and Exchange Commission Post-Madoff Reforms. (n.d.).
Retrieved March 22, 2015, from
https://www.sec.gov/spotlight/secpostmadoffreforms.htm