Accounting assignment essay help: Centro Property group

Introduction to Centro property group:

Centro properties (CNPR) group, generally known as ‘Centro’ is a company which is located in Australia and an investment enterprise that has specialization in the rights, and progress of shopping centres. It is a well-known listed enterprise with securities that are traded on the securities exchange of Australia. Moreover, Centro group addresses both listed as well as unlisted trade land and consists of a wide-ranging collection of trade centres from corner to corner Australia, New Zealand and the United States (Centro properties group, 2001).

In contrast, Centro’s planned investment products which are based on property consist of CNPR group and Centro Retail Trust. In unlisted funds, it also manages 34 Centro MCS syndicates, direct property associations, two wholesale funds in addition to the direct and international property fund of the said group on the other hand. The DPF and DPFI are unlisted funds being invested largely in this organization and its funds (Centro properties group, 2008).

What led to the collapse of CNPR group? :

• Appropriately organize definite interest posturing current accountabilities, reiterated accounts finally demonstrated more than $2 billion for CNPR group that was more than $1 billion primarily revealed in accounts. It also failed to disclose certain undertakings like post-balance date experiences (The Sydney morning Herald, 2007).
• Centro properties of Australian troubled amounted $ 1.1 billion loss and articulated that it has acknowledged terms of interests for two of its funds as it attempts to elevate the cash to diminish a heavy debt load. In sum, greater funding cost led to the collapse of Centro properties group and strained the organization to demote its distribution guidance. After this the shares of Centro group sank by more than 70 percent and made it the biggest sufferer of sub-prime for United Kingdom’s credit calamity (Retail traffic, 2012).

Apart from that, the owner of second main shopping centre of Australia also demoted its distribution management by less than 15 percent and to nearly 40 cents from more than 40 cents which was for full year. It was contemplated that the subprime mortgage that is completely based on Australian nation, render down was the reason of a turn down in offering and problems related to credit market. Several reasons can be explored in this regard of collapse of Centro properties group. Next section of the report attempts to identify some of the reasons of this failure (Mayne, 2007).

Mismatch between the debt and capital raising profile;

Generally, when an organization has fallout with its business and it arrives in a condition of being failure, things come forward in terms of spending excessive money too far and too fast. In this context, it is considered that when any business pick over, it comes up with the business strategy. A major reason was recognized in case of Centro properties group’s collapse that it had got the disparity between the debt profile of the company and their capital hoisting profile (Maiden, 2009).

 As Centro is considered to be the best at raising money in syndicates because they have been doing it for many years, it has been very successful. But Australian securities and investment commission (ASIC) suspected that Centro undoubtedly misinformed, by arranging massive debt’s wads that was payable on a short-term basis within a year similarly as long term, or to be paid after more than one year. It was a big mistake made by the enterprise, and it was Centro that first carried forward it to light (Eyers, 2011).

Inadequate disclosure:

Financial statements and other significant matters are disclosed and approved by directors and chief financial officer of the company in order to retain the enterprise financially strong. Moreover, directors have key responsibilities to read the financial declarations and reports suspiciously and emphasise on the information they reveal is reliable company’s affairs knowledge of them for their own. Likewise, the 2007 annual report of Centro property group failed to reveal some of the significant matters related to account and finance (Harper, 2012). In the case of Centro property group (CNPR) the core team of directors became unsuccessful to release $1.5 billion liabilities based on short-term by classifying them and considering as liabilities that are non-current. Besides, CNPR group had given an amount of about US $1.75 billion to an associated company. Centro also failed to disclose the undertaking of short-term liabilities with respect to that particular amount provided (Akerman, 2011). 

Directors’ failure for financial statement and debt related significant disclosures:

According to ASIC & Healey, the directors of Centro group did not take significant step in checking and approving financial statements of the company, which led to the failure of Centro property group. The end result of the corporate regulator’s detection of Centro Properties Group’s directors over suspected contravenes of their duties/responsibilities presents the deficiencies in corporate governance of the company. Therefore, the forthcoming segment of the report highlights the meaning of corporate governance and areas of deficiencies in Centro group’s corporate governance which played role in company’s failure (Langes, 2011).

Deficiencies in corporate governance:

Over the last few decades, the role of corporate governance has fascinated public interest due to its noticeable significance for both corporations and society’s economic health in broad-spectrum.

Corporate governance (CG):

It basically crafts a framework with the help of which organizations are intended for and then prohibited. The configuration of CG stipulates an appropriate distribution of rights and duties among diverse members in the company for example, the board, company’s managers, and stakeholders. Similarly, it also specifies the statutes and processes for corporate affairs’ decision-making. Following this, it proposes the system by which a corporation’s goals are established and the way of accomplishing those goals and examining their performance (Centro investor, 2010).

By this it can be observed that it includes the link of an enterprise to the shareholders/investors and to the community, the fairness’ promotion, lucidity and responsibility. Centro property group’s failure was the result of poor role of board and directors in approving and disclosing financial reports. In the presence of such mismanagement, there has been a transformed prominence on the context of corporate governance. In this context, role of board, audit committee, board strategic policies on conflicts of interest comes into consideration as the area of deficiencies in Centro’s corporate governance (Mallin, 2007)

Role of Board:

The board of directors is a crucial constituent of CG. Therefore, every director is positioned at the head of the route and board’s framework of a corporation. The greater the administrative centre would be that is apprehended by an individual, the greater the duty would be that falls upon. The board of directors’ role is momentous because their achievements may have a insightful impact on the business’ society, and not only shareholders, creditors and staff. The directors of Centro group became unsuccessful to acquire all sound steps needed of them, so, worked in their responsibilities’ performance. Moreover, it can also be made a point to be noted that directors acted without practicing the extent of heed and attentiveness the law expects of them (Nickless, 2012).

Accordingly, viewing the matters’ significance that they were aware of or were considerable for correct information could not verify the financial statements’ equality and transparency. Afterward, they in printed the annual financial reports in the nonexistence of those significant matters’ revelation. Centro board by mistake classified more than $2 billion of debt as non-current in its financial annual reports of 2007 and similarly faulting to reveal a debt of near around $3 billion undertaking used to acquire a portfolio of the United States’ retail center (Akerman, P 2011).

Breaches of director duties as outlined in the Corporations Act;

Subsequently the failure of Centro property group, ASIC and Healey revealed that Centro board did not capture the considerable steps to protect agreement with 295A section of the act, and next approval of the statements by them contravene sections 180(1) and 344(1). Therefore, the Federal Court articulated and came forward with the core findings that eight main CNPR group’s directors and on the other hand Centro Retail breached their financial coverage compulsions and their care and diligence’s duties under the 2001 act of corporations in agreeing upon erroneous fiscal reports of the entity throughout 2007 (Harvey & Briffa, 2011).

Audit committee;

Centro group has implemented an audit committee charter performing the responsibilities of establishing the company’s objectives and other audit related functions of the business. This committee comprises of CEO, CFO, and GM of finance, conformity officer, and both internal and external auditor manager as well (Centro properties group, 2011).

Here in Centro, Audit committee did not provide the enough information and detail. In contrast, one of the cross-examinations of the Centro group’s crisis, it was brought into light that Centro’s former CEO that name is Andrew Scott had an obligation to put the significant matters forward before the board of director’s consideration but he accepted that he stayed silent about the error of $1.1 billion. In this case, the partner, Mr. Cougle accepted that PricewaterouseCoopers staff had been provided confirmation letter from at least two banks. These letters had acknowledged that after this confirmation they took proceeding steps and finalized the accounts (Francine, 2011).

Less emphasis on shareholders and the financial community:

One of the major areas of deficiencies in Centro’s corporate governance was the less emphasis on shareholders’ consideration in business revealed by ASIC. Following this, the investors of Centro group sought more than $2 million in damages in their business. They indicted Centro of misleading and unreliable conduct by not revealing the true state of its debts. This issue of non-disclosure further led to the share price collapse. However it was considered that the shareholders who have invest interest in Centro was in the misconception that it was a company that was well positioned against the backdrop of the budding global financial crisis (Plessis, 2012). While, Centro did not disclose that they had $6 billion of liability due before the Christmas time. This condition clearly reveals Centro’s less emphasis on its Shareholders/investors and responsibilities towards them.

Failure to follow corporate governance principles:

Centro properties group’s board operates under a set of entrenched CG’s standards and constraints of the corporation act 2001 and Australian Securities Exchange. But this crisis proved that Centro could not be able to follow the duties and obligations mentioned under corporate governance (Centro investor, 2010). It was unsuccessful in practicing due attentiveness and caution in performing its responsibilities in shielding the rights and concerns of security holders. Moreover, Centro had a principle responsibility to keep proper books of account containing true information and publish the financial reports and accounts. But it was not proved to be successful in following those properly (Centro properties group, 2011).

Strategies that should have been implemented to avoid the collapse:

Corporate governance’ letdown is an existent hazard to the potential of every organization. With valuable and strategic corporate governance that is amounted on the basis of key values of reliability and trust organizations can have viable benefit in drawing attention and engendering positive reactions. Some of the following strategies have been outlined that could be exercised by Centro to avoid the collapse.

Adherence to corporate governance:

This breakdown in corporation may have been evaded if the directors had made observance certain to the principles which were defined as “the essential corporate governance principles” (Mallin 2010).

Principle1, 2, 4, 5, and 7 talk about resonance and efficient management of board that includes the outline for board’s duties, accountability, safeguard integrity in financial reporting, timely and balanced disclosure, and recognize the risk. Centro could have put down solid foundations for management and misunderstandings by identifying and publishing the respective roles and duties of the board and audit committees involved. Because the board is finally responsible for ensuring that, as a collective body, it has the suitable skills, knowledge and experience to perform its role effectively (Tricker, 2009).

Secondly, it should have an appropriate framework to autonomously certify and protect the integrity of the company’s financial reporting and other information released in relation to accounts and financial statements because crisis in Centro properties group occurred due to the wrong interpretation of published financial report and accounts. If all the financial reports would have been cross-examined before the approval, then that collapse could have been avoided (Davis, 2011).

Strong accounting principles:

Next, the most appropriate strategy that Centro could take into consideration for the business is timely, balanced and true disclosure of company’s state of the debts. This scheduling involves captivating accountability for documents which are signed-off successfully by, agreed, or accepted by the board of directors. Likewise, Centro should have followed strong accounting practices to generate the accurate and reliable information published in financial reports, so that investors could know the sound financial condition of the entity.

Finally, Centro should have identified and managed the risk in advance as it was required. For that, it could have established an effective system of risk oversight, management and internal control. All these strategies could have been implemented by Centro to evade this collapse.

Lessons to be learnt:

There are a number of following lessons that Centro learnt from the mistakes made in that collapse in 2007:

• First, review of accounts and financial reports and statements. It made Centro learnt that directors have an irreducible liability to read, comprehend, and concentrate on the facts and state of the finance based statements before agreeing upon them in order to make sure that the information provided is accurate and well-examined (Drummond, 2012).
• Subsequently, failure by board or directors to get a financial literacy of adequate level or acquaintance with the corporation’s affairs may relate to a contravene of the obligation of concern and attentiveness (Davis, 2011).
• Next, Centro considered that a board of directors should be set properly which gets pleasure from wisdom, practice and capability of individuals drained from different abstracts of company’s business.
• One of the major lessons it learnt and kept in mind that directors may consistently rely on others, involving organizational management and other external consultants, to organize financial or annual reports and to take advice on accounting standards.
• Centro properties group found out that directors should consider the way they get the information from various sources. Consequently, if information is capacious then directors’ board should take into account whether it may be   diminished or persist on sufficient time to consider it (Langes, 2011).
• Next, they must be in a better condition to direct and monitor all the related financial activities, so that it could be recorded and amounted at the right time. It can be articulated that directors should have known of the degree of the relevant entities borrowings and maturity profiles and the post balance date undertakings as the information had been provided to them was over time (Drummond, 2012).
• Moreover, directors and management must have an interest in ensuring that suitable procedures have been taken in place to organize multiple drafts and maintain clear records of the content presented to the directors at board and committee meetings (Langes, 2011).

Need arose to provide some lessons to the board and directors of Centro properties group because the board got unsuccessful to perceive noticeable errors. Reason being, they all acquired the similar move toward relying upon those processes and consultants. None of the directors stood back, equipped with their own acquaintance and considered for himself the financial reports and statements (Davis, 2011).

If you want accounting Management Assignment Help study samples to help you write professional custom essay’s and essay writing help.

Receive assured help from our talented and expert writers! Did you buy assignment and assignment writing services from our experts in a very affordable price.

To get more information, please contact us or visit www.myassignmenthelp.Com