The article further looks at the possible role that the auditors might have had on the failure of the company. Did the auditors hide particular vital financial information? Did the auditors allow for poor handling of accounting information by directors and managers? Did the auditors consider crucial information on the history of the company while making their decision? All this has been considered by the article in trying to unlock the stalemate of the Dick Smith Electronic Company.
Additionally, the article summarizes the role that the prospectus says about inventories. The various reasons that affected the continuous flow of the inventory. The balances of the inventory and how they were crucial towards the failure of the company. The possible reconciliation ways that the company employed in trying to solve the failure of the company that at this time was imminent. Lastly, the company finds out the role ownership and structure in interfering with the prospectus of the inventory. The paper mentions a few roles of the Senate in their ways of trying to salvage the company from going down. The various legislative measures that the company either avoided or followed, that led to the growth or failure of the company. Furtherly enough the report gives information on the various ways over which the company would have been salvaged or can be salvaged.
The report begins with a little history of the company that will give us an avenue to further analysis. A conclusion that focuses on a few recommendations ends the story. The Dick Smith Holdings was a well-known company for consumer electronic goods. The company operated in Sydney Australia. The founder known as Dick Smith owned the company. They later sold it to Woolworths. Woolworths did well to maintain the company until then in 2012. The company was sold to Anchorage Capital Company. The company then floated the Dickson Company in ASX 12 month later.
The company began losing their retailer price ground when they had profits that were weaker than the expected sales. This forced the company to write off its stock to up to 20%. The drop off continued when the company had a significant decline in its yearly debut share. The debut share had dropped off 80% from the previous trading income. The company main stakeholder, who was the National Australia Bank, decided to change the administration of the company and brought in new management. The new management attributed the failure to cyclic factors after they analyzed the company’s financial reports. The then managers stepped down leaving the company to be operated by the newly appointed managers.
The financial report of the company further revealed that there were constraints in sales, a claim that the new management was quick to refute. The other claim that the new administration refuted was the weakness in the company’s ability to finance inventory statement. The market analysis, however, had shown that poor corporate governance and low transparency had contributed to the company’s failure. The report further determines the impact that the disclosure had on the company. Having been one of the possible reason for many companies fail. The company looked to determine if this was one of the likely reason for the failure of the electronics company. If it was a reason, the article further summarizes the reasonable way that the disclosure led to the company’s collapse Damron,Rupp and Smith 2016 (). The report also determines the possible means that might have saved the company from the failure that it had undergone.
The report examines the brochure of fundraising while concentrating on the Dicksmith Company. The various analysis is focused on the way; it led to the downfall of Dickson Company. The study of the defeat takes multiple angles. Below is a group in-depth analysis of how the company prospects for fundraising contributed to its failure.
In the analysis of the part of investors, there were significant findings. The reporting group determined that the investors were at fault when funding the company. The group realized that during the selling of the company from Dick Smith to the Anchorage there was a swap of information. The account inventory used showed the worth of the company to be 370 million dollars.
While the exchange was supposed to take place, the next day the stock had gone down 12 million dollars. The Anchorage Company, therefore, paid less for the company’s worth. This write-down of the inventory might have contributed to the failure of the company. The, therefore, might have affected any premium consolidation. The audit firm that was supposed to determine this failure too. The Deloitte Company only discovered that the company had followed all the legal procedures in acquiring the necessary information about the company. They also determined that the prospectus was duly observed in the sale procedure.
The company, therefore, had failed to realize the write-down on the inventory. It is not determined why they overlooked such a crucial matter (Firth and Gounopoulos 2017). The group later discovered that this information was also missing in the prospectus of the company. The Anchorage Company, therefore, gained on the same when they inherited a 58 million start on the profit prospect, while this was a massive loss to the Dick Smith Electronics.
The history of the commercial inventory reported that the company was worth a149 million dollars as of June 2012. Suddenly the cost had risen to a whopping 370 million dollars year later, and to 312 million overnight. These figures were reportedly given the day the exact float was required. This inconsistency in the inventory invited questions to it (the inventory) the group realized that the company had a load of unaudited inventory statements from the period one of the company. The amount they gave to the investors, therefore, were only extracted from accounting records that were available at that time while there were severe neglects.
The financial information they had was from acquisition balance sheet and impairment losses from the previous owner of the company. None of this information was covered in the prospectus. This inconsistency of balance sheet led to the failure of the Dick Smith Company because considering the accounting information from AASB. The AASB records that any reduction of 2.5 million to any commercial inventory brings a massive change to the development of the firm. From this statement, it is significant to recognize hoe the Dick Smith Company had lost from being inconsistent in their financial inventory information and failing to record the same in the prospectus of the company.
The company according to the IRFS information on prospectus should be historical and relevant. The prospectus should be relatively choosy on the consumption information that they relieve. The report, however, should be very concerned. The brochure should further warn about omitting or adjusting particular information that might be very relevant to the future of the company.
It further warns on heavily modifying information so that it fits particular normalcies, or to bear a resemblance to specific information that is with relevant stakeholders. The data could be changed to be similar to the tax office, the ASX, and the listing company. These will affect the outcome of the company as the investors are blanketed on crucial information that influences their judgment on the investment patterns of the company (Henderson, Peirson, Herbohn and Howieson 2015).
The group determines that this is the same case with the Dick Smith Electronics. The company invites investors while hiding the prospectus by other managers and other essential stakeholders. The information released is only timed from June 2013 so that it hides particular essential elements of the flyer. Keeping in mind that the company started operating from 1968, proving the bulk of the information was therefore shielded from the investors. They, therefore, invested hoping that the company was doing well financially only to realize a failure years later.
When investors read the prospectus of the company, they believe in it knowing that the trusted auditors had rendered it relevant by synchronizing it to the highest level they could. The investors, therefore, are easily swayed into entering the agreement once they realize there is an audit firm involved. Less severe investors would not even look at the in-depth analysis of the prospectus once they understand there is an audit. They will start looking at the company as an investment grade (Dagwell, Wines, and Lambert 2015).
They (investors) however fail to realize the limited action of the auditors in certain complicated situations. During fundraising period of the prospectus, the auditors’ activities are limited to determine that the company followed the legal procedures. They don’t go deep into deciding the historical background financial information of the company (Lau 2016). These make the role limited but crucial as very crucial information is omitted in their report and the prospectus. Most of these occasion happens when there is no historical information of the business.
The same case applies to the Dick Smith Company. The Deloitte Company which audits the company finds out that the company has complied with the law. Their action then stops there since the company is operating on a 2013 fundraising period. The company too only have information from the June 2012 and lucks previous historical details. The prospectus of the Deloitte Audit firm is therefore useless and only useful in determining law compliance.
The investors, therefore, invest in the Dick Smith company without realizing this limitation if the audit. This, thus, implies that part of the failure of the company was due to the limited role of the auditing company, not on their fault but no fault of the jurisdiction that they could operate from.
The accounting and business law of Australia protect the investors. The Australian Corporate Law requires that all investors are given all the legal and related information that they need to have before funding of the company (Du Plessis, Hargovan and Harris 2018). They further agree that the company should offer all the necessary prospectuses of the professional advice given to the company.
This information is to help the investor make informed assessment and decisions regarding the company that is seeking funding. According to the report it is suspected that involved managers might not have followed this corporate law in the case of Dick Smith Electronics (Dumay and Guthrie 2017).
. There were the conventional explanation of the prospectuses to the investors by the managers in jest. They weren’t reading the brochures from front to back but only mattered on a few elements that would help the company.
The report recognized that the government failed to take legal action due to the sympathy it had for the firm. The government considered the employment generation that was going to lose had the Dick Smith lost funding from the investors. They figured out that the company employed a lot of people and therefore refraining particular information while saving people’s employment would not be criminal, so long as the company will get funding based on the prospectus.
Secondly, the Dick Smith Company was well lubricated in better parts of Australia. It had a positive reputation in most parts of Australia. This would, therefore, affect the judgment of the investors into even believing that the company would lack funds to raise capital for their investment (Hutchinson, Seamer and Chapple 2015).
The same lubrication affected the judgment of the investors into thinking that the company had an efficient market and financial liquidity that just a little funding would lead to massive profits and colossal company development. The investors, therefore, assessed the company biasedly. Making them come up with poor decisions from the prospectus of the company (Knapp and Tronne 2017).
This failure of the managers to reveal crucial prospectus information before the funding year 2013 might have led to the downfall of the company as has sufficiently been explained.
The role of the consumer does not sufficiently relate to the prospectus role, but from a fare fetched view it can become one of the factors the contributed to the company’s debacle. The consumers of electronic goods usually consider how they are served and most importantly the brand of what they are acquiring from the electronic store (Chanticleer 2016). The brand of the electronic product is useful to the consumer depending on how the brand will be advertised to the consumer.
The consumer is therefore dependent on impressive customer experience and not on any financial information or prospectus (Kenney, La Cava and Rodgers 2016). It, therefore, means that when the company sacrifices excellent economic prospects to satisfy the customer, it will affect the commercial chances of the company. According to the AASB, however, the customer has to be happy, but the financial prospectus should be maintained for the development of the company (Lin, 2017).
The Dick Smith Company suffered the same fate. According to customer experience, Mr. Lych. The customer expresses an employee wanting to give a free warrant offer to the consumer at a lower price (Eastwell, Dale and Dunstone 2017). The customer further narrates of how the deal was lucrative, but he later realized it was disadvantageous to the electronics company. This implies that the consumer and the employee caused part of the failure of the prospectus (Kenney La Cava and Rodgers 2016).
Conclusion
Deriving its recommendation from the prospectus of the funding before 2013 of the Dick Smith Company. The report recommends that the state Senate has determined to look into the matter intending to find the solution, they should investigate the accounting regime that was in charge of the company during the funding period before 2013.
The Senate should also consider the role played by the investors by not following the prospectus of funding strictly, while they were funding the Dick Smith Company.
Lastly, the report recommends that before any implementation of trying to salvage the Dick Smith Electronics Company. The Senate should look into both the background and the financial history of the company. As it stands, there is specific crucial financial information that is yet to be unraveled from such account. Especially the past before the prospectus funding of 20
References
Chanticleer, 2016. Dick Smith collapse a case study in electronics retailing. Financial Review , 1(Collapse of Dick Smith Holdings), pp. 1-4. https://www.afr.com/brand/chanticleer/dick-smith-collapse-a-case-study-in-electronics-retailing-20160713-gq54s0
Dagwell, R., Wines, G. and Lambert, C., 2015. Corporate accounting in Australia. Pearson Higher Education AU.
Damron, T., Rupp, W.T. and Smith, A.D., 2016. Inventory control in the retail sector: case studies of best business practices. International Journal of Procurement Management, 9(3), pp.354-371.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.
Dumay, J. and Guthrie, J., 2017. Involuntary disclosure of intellectual capital: is it relevant?. Journal of Intellectual Capital, 18(1), pp.29-44.
Eastwell, M., Dale, J. and Dunstone, F., 2017. Crowd-sourced equity funding is coming to Australia. Governance Directions, 69(7), p.411.
Firth, M. and Gounopoulos, D., 2017. IFRS adoption and management earnings forecasts of Australian IPOs.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hutchinson, M., Seamer, M. and Chapple, L.E., 2015. Institutional investors, risk/performance and corporate governance. The International Journal of Accounting, 50(1), pp.31-52.
Kenney, R., La Cava, G. and Rodgers, D., 2016. Why Do Companies Fail?. Journal of Applied Research. No. rdp, 9. Mescher, B., 2012. Market Integrity and Disclosure Quality.
Knapp, J. and Tronnes, P., 2017. Dick Smith Inventories: The Evidence of Accounting Irregularities. COMPANY AND SECURITIES LAW JOURNAL, 35(6), pp.369-390.
Lau, A., 2016. ASA stands up for shareholders. Equity, 30(4), p.10.
Lin, L., 2017. Managing the risks of equity crowdfunding: lessons from China. Journal of Corporate Law Studies, 17(2), pp.327-366
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