Discuss about the Accounting Investors and Earnings Management.
This study deals with analyzing the current issues in accounting field (Miller and Power 2013). In this particular assignment, emphasis has been given on bringing out the real causes behind the collapse faced by Dick Smith Electronics. The current segment discuses various accounting related issues that Dick Smith had to face because of unpredictable situations that come their way. This particular company is based in Australia and deals in selling electronic products to the potential customers (Messier 2016). One of the major issues that the company faced is the excess stock-in-hand that was not required by them. They faced several complaints from the customers claiming that delivery was not done for weeks. This present segment elucidates bringing together all the potential issues faced by the company and the reason for the cause at the same time. At the end, proper recommended actions have been given that will help Dick Smith in getting over with this situation within a short span of time (Lukka and Vinnari 2014).
Dick Smith Holdings Limited is one of the Australian-based retail chain companies that sell consumer electronic goods, electronic project kits as well as hobbyist electronic components (Dicksmith.com 2017). This particular company had expanded in New Zealand as well as other countries. By the year 2016, Kogan, an online retailer has traded under the brand name (Dick Smith) and started online operations and covering countries such as Australia and New Zealand (Jindrichovska and Kubickova 2015).
This report will be discussing the current accounting related issues faced by the retail giant who sell electronic components known as Dick Smith (Hunton, Mauldin and Wheeler 2015). This company was alleged by many people after the Collapse. This study will discuss regarding what made Dick Smith face the issues and the reason behind the same (Dicksmith.com 2017). Below is the reason with proper justification:
From the administrator statement, it is clearly mentioned by McGrathNicol who sets out opinion on the reason for business falling for some time (Hunton, Libby and Mazza 2015). In this case, receivers as well as administrators work with the wreckage of Dick Smith collapse. Addition to that, the responsibility of rebates from suppliers majorly influences administration while undertaking purchasing decision. It requires understanding their capability to mask the actuality of income information in a clear manner. In the year 2014-2015, more than $72 Million reported as earnings before interest, reduction as well as tax and amortization. After excluding rebates and promotion subsidy, this figures will be accustomed to a $ 119 Million EBITDA loss (Henderson et al. 2015).
The auditors signed off on Dick Smith financial records in the year 2015. This reveals that intentional administrators were selected for treating the accounting concepts in the recent field of secretarial (Gupta, Chiles and McMullen 2016). There was lot of consequences found at the time of accounting treatment of rebates as a part of Dick Smith collapse. Rebates were one of the current issues that are faced by Dick Smith (Dicksmith.com 2017).
In the recent financial year, Target was in spotlight by their accounting team by way of treating rebates resulting to inflated earnings. Addition to that, Wesfarmers Limited had investigated the issue whereby several staff members left the organization at that time (Francis, Hasan and Wu 2013).
In Britain, one of the giant retailers named as Tesco Multinational Corporation was alerted to issues with the secretarial action of rebates in the year 2014 after whistleblower contacted with the corporation universal counsel (Elliott et al. 2013). Tesco Multinational Corporation flagged it as presenting the overstated figures of first half profits. This was found at the time when it has viewed from an exaggeration of level of presentation for prior three monetary years. In this case, Tesco Multinational Corporation is still under examination by Serious Fraud Office as well as Financial Reporting Council (Hunton, Mauldin and Wheeler 2015).
Some of the issues arise from interpreting accounting standards resulting from numerous entities especially in frequent jurisdiction. These are well known as well as unstated within the IFRS (International Financial Reporting Standards) framework (Deegan 2013).
The ubiquitousness of the problems as well as subjectivity of global accounting standards is consistent in nature (Coad, Jack and Kholeif 2015). This ensures high level of consistency as well as apparent submission is likely to little console to Dick Smith. This company has 3300 former human resources based in Australia as well as New Zealand or the investors who are set for losing their cash. Management at Dick Smith is anticipating the possible consequences that need to be considered as far as possible (Dicksmith.com 2017).
According to Professor, they had flagged the audit quality as a problem. These professors were of the opinion that audit profession for understanding the addressed shortfalls in audit quality (Christensen, Nikolaev and Wittenberg?Moerman 2016). Addition to that, new accounting standard will definitely clarify the principles for revenue recognition that will be affected by 2018. In this theory, it will mainly address the issues concerned with the treatment of rebate. Therefore, it mainly relies upon introducing new accounting standards (Dicksmith.com 2017).
The accounting occupation will be bound by code of principles that mentions accountants act meeting the public attention for a good reason (Bonin 2013). In other words, the code provides principles as supported by professionals who are responsible for navigating in the complex business environments. This will help in taking business decisions like treatment of revenue as well as inventory that will fulfill with strict request of standards and law. This will comply with the spirit for achieving the objectives (Bebbington, Unerman and O’Dwyer 2014).
Most of the company faces failure that has the potential for undermining the profession constant whereby principles relies upon based approach and more on regulations (Beattie 2014). In other words, there is no doubt that increased regulation will reach at the tipping point. It strongly depends upon the warning against the tick the box mentality as well as potential for more adverse outcomes. It is the fact whereby financial regulators are getting frustrated from the content of intervention by the government (Hunton, Libby and Mazza 2015). Addition to that, accounting profession will bring value as well as expertise to business and society in broadly aspect. This majorly occupies the position of trust in and among the community people. It means being entrusted with such social science that take place from huge responsibilities as well as high expectations (Ball 2013).
As rightly put forward by Deegan (2013), it was announced by the Senate regarding an injury in terms of orientation that majorly covers up the collapse of Dick Smith Electronics. There had been lot of senators who pore over ways that floated towards failure of Dick Smith. As far as economic theory is concerned, it explains the failure of Dick Smith as it is consistent with a dynamic economy (Dicksmith.com 2017). Addition to that, it is necessary in understanding the business that do not particularly utilize economic resources in an efficient way as compared to its competitors. Therefore, the failure is widely linked with the series of ugly looking proceedings that are conflicting in a inefficient market.
According to Deegan (2013), Senate discuses on the good opportunity that needs to be discussed by considering issues that make Australia like a nasty place for investing in shares. This includes:
In the year 2012, it has been viewed that Anchorage Capital had purchased Dick Smith business from the other retail giant in Australia known as Woolworths Limited amounting to $ 115 Million (Hunton, Libby and Mazza 2015). By the year 2013, Dick Smith was floated with market capitalization amounting to $ 520 Million. This float was from the greatest private equity heist whereby the Founder of Dick Smith gets involved in describing the utter greed and unethical in their practices (Dicksmith.com 2017).
There is divergent of financial information surrounding sale of Woolworths Limited of Dick Smith business to Anchorage (Hunton, Mauldin and Wheeler 2015). This reveals the fact that the parties did not agree on the book values of Dick Smith record at that particular time of sale transactions. Addition to that, the parties have irreconcilable accounting at those particular transactions. It has been reported that Woolworths Limited claims it by making it a small gain after a sequence of devaluations as well as requirements. Therefore, Anchorage claims for making gain of $ 146 Million as it brought business in a given reduction to the fair value of net property (Lukka and Vinnari 2014).
There has been subsequent financial information that concerned inventory in timely manner. In the year 2015, Dick Smith astonished the market by declaring the company requires inventory write-down of $ 60 Million for 3 months as mentioned in the financial statements. In the same year, it was found that the company was audited bit with no adverse findings (Hunton, Libby and Mazza 2015).
Most of the retail industry including Dick Smith is accused of chasing rebates by way of inflating profits at faster pace (Hunton, Libby and Mazza 2015). Addition to that, Australian retailers had even experienced a tough year by way of facing severe competition by tumbling prices as well as weekly dollar. It is also noticed that there is huge pressure on the Senior Management leader within the retailers who are turning those business with a view to become successful in shorter period. Even though, new accounting standards that will be coming up by the year 2018, will give clear idea on how revenue such as rebates will be best accounted for in any situation (Hunton, Mauldin and Wheeler 2015).
Some of the protected creditors decide regarding whether offers for selling a commerce can be satisfactory or not (Hunton, Libby and Mazza 2015). This can be understood as only banks and receivers will have actual information regarding any types of offers. This means economic incentive of banks in a given company will find ways for maximizing their payoff and come at a cost for the sake of other stakeholders. It requires more number of days when receivers as well as administrators will appoint Dick Smith. This will take place by collecting financial information from shareholders as well as unsecured creditors in the most appropriate way (Lukka and Vinnari 2014).
The collapse of electronics retail sequence named as Dick Smith has sent shockwaves from the retail business. Some of the recommended measures are mentioned below that will help in overcoming the current situation.
Inventory Management- Managing Inventory is essential for solving the issues faced by Dick Smith. Dick Smith inventory problems started to increase in the second half of 2015. This company had even revealed the fact that they would write down the value of its inventory at 20% amounting to $ 60 Million. The company declared that they bought stock anticipating of certain level of sales that they will achieve in near future. They failed in achieving the sales target and they are finding ways for clearing the stock as far as possible. Dick Smith followed the write down and labeled a mammoth clearance sale. They had prices on old stock slash by more than 70%. Addition to that, Dick Smith had explored alternative funding. Even though the directors of the company was of opinion that alternative funding will not be supported by short-term funding requirements as well as allows Dick Smith in ordering required stock for next 4 to 6 weeks. Therefore, Dick Smith had struggled enough in clearing out excess old inventory as well as securing finance for purchasing new stock.
Role of private equity floats- This explains that role of private equity group Anchorage Capital in Dick Smith aims at providing essential context to the retailer collapse. This indicate that private equity floats that cannot be otherwise visible. Addition to that, Anchorage purchased Dick Smith business from the Australian retail giant (Woolworths Limited) for $ 115 Million in the year 2012. They aid $ 20 Million upfront as well as floated the company on ASX by the year 2013. They had the market valuation of $ 520 Million. Management of Dick Smith discusses in undertaking turnaround programs for bringing improvement in company cash flow problems. Within the time span, Dick Smith debuted on ASX listings staring with a price of $ 2.20. Initial public offering of Dick Smith was overvalued at first place.
Customer Service is important in a competitive market- It is essential in considering the fact that consumer electronics market is Australia is extremely competitive market whereby customer service plays major role. In one of the case, it was posted on the Facebook by an angry customer who claimed that online orders had not been delivered. This was for a week’s whereby customer representatives hung on phone for resolving the query. There will be lot of complaints by the customers that needs to be resolved by the retailers who compete in this global marketplace. Most of the retailers receive high volume of customer complaints at the time of busy trading periods. This will take place whereby company running in a huge sale but it is the responsibility of the representatives in solving the query of customer without any delay. In this case, Dick Smith faced the same query by the market at the time of downgrading of market values.
Conclusion
At the end of the study, it is concluded that Dick Smith faced various accounting issues that is needed to be resolved at urgent note. Dick Smith had fallen by more than 80% at the time it got listed in Australian Stock Exchange. This company was even placed in liquidation by their creditors as they were suffering a loss of $ 260 Million. Finally, the founder of Dick Smith dismay at the closure as well as put it down to the utter greed of modern capitalism. The above analysis had given detailed presentation of the issues with recommended actions. These actions should be taken into consideration by Dick Smith for bringing smooth operation of business enterprise. In case of Dick Smith, the court heard that the management selects its products for maximization of rebate. This is the money that retailers will get from the suppliers for keeping the stock as well as promoting the goods at the same time.
Reference List
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