Accounting management assignment on: Case study analysis of ASC and AASB

Question 18It is viewed from the case study that at the end of 1994, the ASC was considering taking Pacific Dunlop ltd to court because on its implementation of the controversial ISOTD technique of amortizing goodwill, in spite of the threat of the proceedings of court hanging over it. In simple words, it could be stated that the main reason for the ASC to take Pacific Dunlop ltd to court because of the usage of the ISOTD technique for amortizing goodwill which breaches the standard of accounting AASB 1013. The main argument for the case study is on the treatment of the goodwill, that the Company should use which method of accounting for treatment of goodwill like discount method, ISOTD method or calculate the amount of the goodwill in accordance with AASB 1013 (IAS Plus guide, 2008). Those who are not in the favor of ISOTD technique said that using of the ISOTD technique for amortization of the goodwill is not the right technique because this technique is based on the assumption that most of the advantages are predicted to be accomplished in subsequent years and which could be possible in exceptional and rare situations.It has been examined that according to the view of the ASC’s, it could be complex to predict the situations in which benefits and advantages are estimated to be achieved from the goodwill towards the later year of useful life of the goodwill. Accordingly, methods of the amortization like discount method and ISOTD technique are related on the assertion that most of the benefits are estimated to be achieved in subsequent years and that would be possible in exceptional situations. On the other side, AASB 1013 explains the treatment of accounting for the discount and goodwill on the purchase and acquisition prevailing on the acquisition of the business entity.  This standard also contains the treatment of accounting for the internally created goodwill.  The objective of the AASB 1013 is to mention the treatment of accounting for discount and goodwill on the purchase and acquisition of the business entity and need disclosure information associating to the goodwill so that financial report users are offered with the information about the performance and financial position of the business entity.  It would be difficult for the ASC/ASIC to prove that the accounts of Pacific Dunlop were not fair and true because managing director of the Company, Mr. Philip brass has argued that the boards of directors of the Company were being pressurized to sign off the accounts with no their own input as to goodwill value. But on the other side, the AARF executive director that puts information together which forms the foundation of standards of the accounting and he supported that the ASC principle against Pacific Dunlop forms the legal and intuitive position which could appear to be the sufficient move for ASC to make. It has been examined that executive director of the AARF was worried how the ASC would succeed the case (Tomasic, Bottomley, & McQueen, 2002). The lawful action find out by ASC is recognized to be related on whether the accounts of the Company show an accurate and fair view of the financial position, if the implementation of the ISOTD technique breaches the standard of accounting AASB 1013. In short, it can be said that the proving of the accounts that they are not fair and true in the past has been the complex task for the corporate regulators. It is very clear that the management of the Company had manipulated the accounts in such a way which becomes difficult for the corporate regulators to prove in the court that the financial statements are not accurate and does not provide the relevant information to investors and users.  The most compelling argument in this case study is that the Pacific Dunlop was continuing to use ISOTD method for amortizing the goodwill after the threat of court proceedings.At last in my opinion, management of the Pacific Dunlop was not using the accurate technique of the accounting for the treatment of the goodwill after the constant threat from the corporate regulator ASC.  The ASC warning of the lawful action against the company over the issue of the goodwill has fascinated the cautionary note from AARF which speaks that such kind of claim might be complex to prove in courts (Schipper, 2007).  This was the main reason for the ASIC which would be difficult for them to prove that the accounts of the Company were not fair and true. The ASC was worried about how to prove in the court, the financial statements made by the Pacific Dunlop were not accurate and fair because the accounting method for the treatment of the goodwill breaches the accounting standard AASB 1013. At last, it can be concluded that the proving of the accounts that they are not accurate and fair has been the complex and difficult task for the corporate regulator. According to me, it is advisable to the management of the Pacific Dunlop that they should amortize the goodwill according to the accounting standard AASB 1013 in order to avert any kind of issues raised by the ASC (Spooner & Andrew, 2008). There are various benefits on the use of AASB 1013 because this standard mentions the treatment of accounting for discount and goodwill on the purchase and acquisition of the business entity and need disclosure information associating to the goodwill so that financial report users are offered with the information about the performance and financial position of the business entity.

Question 32This case study gives the brief description about how the HIH used one-off items for reducing the loss by $157m in the financial accounting. In general, various issues had taken place in the companies like socially unacceptable in accounting choice, illegal decision in accounting choice and unethical decisions in the accounting choice. The issue which had taken place in the HIH Insurance Limited considered as the illegal decision in the accounting choice because the company had manipulated the figures of the items in the balance sheet for showing the figure of the loss less in the financial statements (Walker, 2007).  The researchers had analyzed that accounting is called as business language. According to the American perspective accounting is defined as that provides information about the expenses in monetary terms which helps the company in decision making and planning. It is viewed that largest insurance company of the Australia called HIH suddenly collapsed because of resulting in loss of wealth and income for various investors, creditors and policy holders. It has been examined that the former finance director of the HIH conceded, the organization that they had list one-off items for reducing the size of the loss by $ 157 million in the half year of December 1998.

Those who are not in the favor of the illegal decision taken by the Company said that, it is wrong that the company had not shown the items in the financial statements for reducing the size of the loss faced by the Company. Because of inadequate working papers, liquidators were not able to search the documentation explaining the factors for forming HIH Insurance Limited as the Going concern (Nelson, Elliott, & Tarpley, 2002).  At the royal commission of HIH, Finance director had to admit that the HIH had recorded reserves that were at very low side of the actuaries and tolerable limits of auditors. The former finance director of the HIH Insurance admitted that the failed insurer took large time to make individuals and public, the truth that the FAI, that it bought in Sep 1988 had increased the figure of the profits for the last years by the amount of $ 60 million through the implementation of the contracts that were booked as the reinsurance. But on the other side, he said that he had not misled the financial market above the results, because they were ratified by auditors, although they were deviated from the recommendations of the auditors. In, fact he revealed that the company had minimized the loss of half year in Dec 1988 from $230 million to 73million by implementing the large one –off items list. It has been also examined that the finance director admitted that he was informed that the FAI was under-reserve by the amount of 75 million throughout the time, he attend the audit committee of HIH in February 1998. It is also viewed that HIH insurance took over the FAI insurance in September 1998 and searched what Fodera called as the dead bodies in the books of FAI. HIH insurance recorded more goodwill on the acquisition of the FAI than it actually costs, and implementing goodwill as the distinction among the net tangible assets value of the acquisition and the value paid for it. The most compelling argument for this case study is that the HIH Insurance Company had done the illegal choice in accounting decision by manipulating the figure of the loss.

In my opinion, it is ethically wrong what the HIH insurance did, they misled the figure of the loss in order to safeguard their image in front of the users and investors (Barth, 2006). Everyone in the market, get shocked when the former financial director of the Company admitted that the company had minimized the figure of the loss from $230 million to $ 73 million by not showing the one of the items in the financial statements (Walker, 2007). Ethically it is very wrong, when former finance director said that failed insurer took large amount of time to make aware about the public about the truth that the FAI that it purchased in 1988 had raised the figure of the profits of the year by the sum of $ 60 million with the help of contracts that were recorded as the reinsurance. It can be said that the Public had invested money in the Insurance Company because they want to insure their life, but on the other side, the Company was playing with the money of the public. It has been analyzed that the HIH Insurance Limited had misled the financial statements by various ways such as showing the figure of the loss less in the financial statements, raised the figure of the profits by the amount of $60 million with the help of contracts that were recorded as the reinsurance and recorded more goodwill on the acquisition of the FAI than it actually costs. These were the reasons which made the HIH collapsed and loss in wealth and income for various investors, creditors and policy holders (Leuz, Pfaff & Hopwood, 2004). It becomes significant for the companies to accept the challenges that have been placed upon them. The responsibility of accounting policies is to make sure ethical guidelines to the company. The responsibility of accountants is to provide services to clients in the right manner. It is advisable to HIH Insurance Ltd to follow the CSR in the well manner for integrating and coordinating the social and economic purpose of the community. It is advisable to the management of the HIH Company to follow the ethical principles properly for conducting the Insurance business in the right manner. In general, if the Company does not implement the ethics in the accounting then it would result in money stealing and scamming.

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