Financial Accounting and Reporting Assignment †Get Complete Solution

Question: Discuss about the Financial Accounting and Reporting Assignment. Answer: Introduction This study deals with identifying on the Australian-listed company that have gone into liquidation as it failed in meeting the liabilities whey it was due. For this particular assignment, One Tel Phone Company has been selected for study purpose. This is case regarding the collapse of One Tel Phone Company in the year 2001 (Cpaaustralia.com.au 2016). One Tel Phone Company was positioned as forth number as largest telecommunications company in and around Australia. This particular company has more than 2 million customers as well as business operated in more than 8 countries. One Tel Phone Company collapse comes as shocking news to the business world of Australia. One of the major collapses was for the company HIH Insurance for the year 2001 in Australia. It is difficult to find any academic research on One Tel Phone Company Collapse news. It requires using of evidence on One Tel Phone Company from the paper demonstrating the weakness of government practices in relation with internal control system (Cpaaustralia.com.au 2016). It further requires attention on audit superiority, organization announcement with Board as well as organization inspection and decision-making pay-to-performance links in aligning with corporate collapse. Research has been conducted mainly on the developing as well as testing of bankruptcy prediction models. On the contrary, bulk of corporate governance differs largely on attributes like firm performance, executive compensation as well as corporate structure and firm value. This study explains brief history of One Tel Phone Company and its major activities in terms of business models (Weil, Schipper and Francis 2013). Brief History of One Tel Phone Company and its activities that leads to liquidation One Tel Phone Company was launched in the year 1995. It was under the agreement with Optus and it was considered as succeeding main telecommunications in and around Australia. One Tel Phone Company conventional SIM cards as well as client call facts and system services from Optus. One Tel Phone Company aims at paying Optus for the call charge as well as review right to use fee from the major subscribers (Warren, Reeve and Duchac 2013). Therefore, it has been notice that One Tel Phone Company gross profit was in excess with the billed amount from its customers for the amount paid to Optus. One Tel Phone Company intended in attracting the customers by rendering cheap mobile call rates as well as extended space and worldwide call services to the potential customers. One Tel Phone Company grew at faster pace in the early years of operation. On analysis, it has been noticed that customer base increases from 1000 to 100000 within 1 year of time from 1996 to 1997. As far as sales revenue is concerned, One Tel Phone Company has $148 million AUD for the year 1996 to 1997 (Sharma and Panigrahi 2013). It had in commission profit after tax of around $3.7 million AUD. A dispute present is developed between Optus as well as One Tel Phone Company for the year 1996. There are two major issues listed below: Optus was openly competing with One Tel Phone Company especially for subscribers Whether One Tel Phone Company clientele for entitled to Optus reduced priced offers In the year 1997, One Tel Phone Company signed an agreement with Global One. This enabled One Tel Phone Company in providing discounted national as well as international calls to its potential customers in carrying out Global One network. In the same year, One Tel Phone Company was listed in ASX (Australian Stock Exchange) at an issue price of $2 AUD. At the end of 1997, One Tel Phone Company had more than 200000 customers as well as 400 dealers in and across Australia (Samkin and Deegan 2012). In the year 1998, One Tel Phone Company launched Global Strategy in expanding into Europe as well as United States. One Tel Phone Company opened offices in London, Paris as well as Hong Kong and Los Angeles (Richard and David 2016). One Tel Phone Company acquires 2.5 MHz of spectrum especially in Melbourne and Sydney. One Tel Phone Company share price increased with $9.8 AUD for the year 1999. In the year 2001, One Tel Phone Company revealed that it lost more than $ 132 million AUD for running out cash. Cash reserves fell with $35 million AUD and dropped cash balance for the given year taken into consideration (Reimers 2014). One Tel Phone Company share prices continued in sliding downward because of recording last trading day. Creditors of One Tel Phone Company voted for winding up its business operations. Liquidity Ratios of One Tel Phone Company Liquidity is a particular measure of the capability of the debtor to make imbursements for debt at the time when the amounts become due. There are key financial ratios such as the current ratio as well as quick ratio that can analyze the liquidity position of the firm, thereby evaluate the capability of the corporation to repay the short-term requirements of the corporation (Pratt 2013). In the present case, we can analyze the financial position of the One Tel Company from certain significant ratio. Current Ratio The current ratio that indicates towards the ability of the company One Tel is enumerated by dividing the current assets by the current liabilities. Again, the current ratio of One Tel during the year 2000 is enumerated to be (628.1/375.2=1.67). The current ratio during the year 1999 was recorded to be (296.2/84.9=3.48). The fall in the current ratio indicates decrease in the assets of the corporation that is required to meet the definite debt obligations of the corporation (Otley. and Emmanuel 2013). Quick Ratio The quick ratio also helps in analysis of the financial position of the firm by proper evaluation of the quick assets of the firm that is essential to meet the liabilities of the corporation. The quick ratio for One Tel, obtained by dividing the quick assets by the current liabilities is enumerated to be (335.7/ 375.2=0.89) in 2000 that increased to (172.6/84.9=2.03). The decline in the quick ratio replicates the fact that the company has inadequate quick assets to meet the current liabilities (Horngren et al. 2013). Financial Stability Ratios of One Tel Phone Company Net Profit The evaluation of the net profit ratio of One Tel can help in ascertaining the association between the net profit of the company and the net sales. The net profit ratio of One tel enumerated by means of dividing net profit after tax by the sales is recorded to be (291.1)/(230.4)=1.2 during 2000 and (25.2/7=3.6) during 1999. The net profit ratio declined during 2000 that reflects the undesirable financial position of the firm and loss of potential of the firm to convert sales to profit (Horngren et al. 2012). Return on Employed Capital (ROCE) The return on investment of the corporation One Tel can reflect the efficiency of different investments of the firm that can lead to greater value of the shareholders. The return on employed capital enumerated by dividing the operating profit by the capital employment is registered to be (259.9)/1060.3=0.24 during 2000 and (9.9/441.1=0.02) in 1999. The return on capital employed decreased from 0.24 to 0.02 that reflects reduction of the financial condition (Hoggett et al. 2014). Debt to equity Ratio The debt to equity ratio for the corporation One Tel reflects the proportion of the liability of the business to the overall equity of the shareholders. The debt to equity ratio for One Tel is calculated to be 92.2/944.8=0.09 in 2000 and 7.2/363.3=0.01. The increase in the debt to equity ratio reflects undesirable condition as the debt has decreased relatively in comparison to the equity. The increase in the proportion of the debt replicates unfavorable condition for the One Tel as it indicates the increase in the debt obligations of the firm (Henderson et al. 2015). The increase in the debt also reveals the risk that the company faces due to the increase in debt of the firm. Summary of the findings The analysis of the financial statements of the One Tel reveals the fact that there is decrease in the current ratio of the firm during the period 2000 as compared to the year ago period. Therefore, the decline in the current ratio reflects the unfavorable liquidity position of the firm (Gassen 2014). However, the decline in the quick ratio also reflects the fact that the company has inadequate quick assets to meet the current liabilities. Again, the net profit ratio also declined during 2000 that reveals the detrimental financial position of the firm and loss of capability of the firm to convert sales to profit. The decrease in the net profit ratio in turn also replicates the fact that the profitability position of the company has also declined. The business operations of the corporation One Tel lacks the efficiency to acquire profit out of the total sales generated by the firm. In addition to this, the return on employed capital of One Tel also declined revealing the fact that the company is ineffectively utilizing the capital of the corporation for the purpose of long-term financial policies. On the other hand, the debt to equity ratio of the firm has increased disclosing the fact that the debt obligations has increased during the mentioned period (Edwards 2013). Therefore, the decreased current ratio and the quick ratio reveal dismal financial condition of the firm. Again, the decrease in the net profit ratio, return on employed capital indicates the unstable financial condition of the corporation. In addition to this, the opinion regarding dismal financial health of the One Tel Corporation can be substantiated by the bad results of the debt equity ratio where the debt fraction of the firm in the overall funds for operation has considerably increased (Deegan 2013). Indication of financial distress in the management discussion from the annual report of One Tel Phone Company From the annual report of One Tel Phone Company, it has been noticed that management discussion and analysis emphasize upon earnings before interest, taxes as well as depreciation and amortization as report below GAAP (Deegan 2012). It requires focus on EBIDTA on creating illusion on notice expenses, amortization as well as depreciation and accounting expenses. From the annual report (1998), it contains graphs comparing it with EBITDA arrives at $3.9 million AUD. EBITDA is used by the companies reporting lower than its predictable earnings. Start-up companies operate at a failure under the Non-GAAP performances metrics. On critical analysis, it has been noticed that audit quality for One Tel Phone Company was low. Deegan and Ward (2013) suggest that audit quality in the paper defined upon two dimensions. These involve: Auditor propensity relates with issues considers as going-concern opinion Level of abnormal accruals in responsive with earnings act as an indication of earnings management Non-compliance with accounting as well as auditing standards for issue of unqualified audit opinion in response with low-quality audit One Tel Phone Company was audit with the similar audit firm for issue of unqualified audit opinions for the given years. On the contrary, submission of financial statements for the year 1998 to 1999 in ASIC in deferred $ 48 million AUD (Christensen, Baker and Cottrell 2014). One Tel Phone Company financial report identifies main 48 items for concern. One Tel Phone Company had worsening operating cash deficits with more than $4800 million AUD from the year 1998 to 1999 (Cpaaustralia.com.au 2016). One Tel Phone Company faces issues with customer billing as well as cash collection problems. Further evidence noticed for One Tel Phone Company in case of employing large positive accruals as well as non-conservative accounting policies for minimizing losses. Therefore, BDNP never joined hands in issuing going-concern opinion. It requires further evidence regarding One Tel Phone Company in purchase of non-audit services especially from the external auditors. Non-audit fees consist as a propo rtion of total fees paid to the auditor arriving at 41% for the year 1996 to 1997. It mainly engages in NAS with potential client for useful insights for evaluation purpose for internal control of client for audit planning process. Audit planning of One Tel Phone Company requires further improvement in relation with NAS (Bevis 2013). On critical analysis, evidence suggests One Tel Phone Company reported earnings involve basic income procedure (Cpaaustralia.com.au 2016). Financial treatment quality involves low earning excellence. Audit quality of One Tel Phone Company considers as low in respect with financial reporting quality. Low monetary coverage excellence as well as low review quality conceals with One Tel Phone Company in terms of real financial performance. One Tel Phone Company faces financial distress from the Board as well as shareholders. It mainly turns into blocking opportunity remedial measures actions for avoiding corporate collapse (Beatty and Liao 2014). Usefulness of annual report for identifying potential sources of concern regarding corporate survival From the annual report of One Tel Phone Company, it has been noticed that non-executive directors qualifies as independent auditors under the Australian Stock Exchange (Cpaaustralia.com.au 2016). Evidence provides that lack of diversity of opinions briefs regarding the board meetings as well as remained instrumental for One Tel Phone Company. One Tel Phone Company involved in various dispute with the supplier named as Optus and Telstra. This company paid for the acquisition of telecommunication licenses for positioning itself in the global marketplace. One Tel Phone Company management lacks diversity of opinions from the Board. Management failed in making full disclosures to the Board regarding viewing at the performance as well as solvency of the firm (Bazley et al. 2013). One Tel Phone Company troubles with the essential cash balances, earnings as well as creditors and debtors (Samkin and Deegan 2012). This is in case of running connections to the Board for being highlighted only in EBITDA as well as gross margin rather net profit. Board was precise in giving gaining creditors as well as aging debtor troubles. Reported cash balances presented in the omitted unpresented cheques. Firms had dominant CEO that worsens with the turbulent environment. There was poor monitoring of the management by the Board for survival in gaining blocking opportunities in case of leadership renewal. CEO dominance as well as major shareholders for gaining information for highlighting true picture of business firm One Tel Phone Company collapse leaves several lessons gathered from corporate strategies. It failed in acquisition of customers on large-scale for contributing over firm profitability. Secondly, there was high competitive pricing in gaining market share for possessing disastrous consequences. Thirdly, it is not enough in generating sales revenues in cash collection on timely manner. This particular question provides some insights into the association with the corporate collapse as well as corporate governance at the same time (Cpaaustralia.com.au 2016). Weaker Corporate Governance for collapsing for demand of good governance especially for poor firm performance Good corporate governance plays important role for safety net in relation with corporate collapse. Auditor involvement for understanding the non-audit services in response with audit quality. Board chair discuss for the board meetings for controlling over Board agenda for monitoring management behavior for future analysis purpose (Samkin and Deegan 2012). Conclusion From the above study, it is concluded that collapse of One Tel Phone Company was considered as one of the major news for the year 2001. One Tel Phone Company was the fourth largest telecommunication company in and around Australia at the time of collapse for the year 2001. Determination of profits charges by the customers as paid to Optus. This particular company hoped in providing cheap mobile calling rates as well as selling profitable long distance international calls. One Tel Phone Company grows rapidly in terms of customers as well as sales revenue. One Tel Phone Company collapse is one of the classic cases of failed expectations, wrong pricing policies as well as strategic mistakes and unbridled growth. It involves likelihood shows the collapse of One Tel Phone Company in case of corporate trajectory. Addition to that, it has been noticed that corporate collapse takes plans from corporate deteriorations from several errors from Senior Management. One Tel Phone Company made seve ral strategic errors in conducting the business operations in certain way. One Tel Phone Company has wrong pricing policy. Therefore, One Tel Phone Company was stuck with the aggressive as well as costly customer acquisition campaigns on an adverse manner. These potential customers failed in contributing to revenues as well as cash flows operations whereby company needed to survive on the near future. It further undertaken very aggressive strategy for expansion into new markets without any kind of consolidation of position from the existing markets. Reference List Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013.Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne. Beatty, A. and Liao, S., 2014. 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