Dick Smith Group Collapse a Case Study in Electronics Retailing

Question: Discuss about theDick Smith Group Collapse Case. Answer: Reasons that Resulted in Collapse of Dick Smith Group Collapse of the Dick Smith Group has raised several questions on the area of accounting profession. Ample accounting reasons are held responsible for the failure of the group. He consequences of accounting treatment of rebates is an aspect of the collapse story of Dick Smith Group and for this reason will be undoubtedly be a centre of attention of additional questioning. Treating rebates inefficiently was considered a reason for its collapse (Zeff 2016). The accounting team of Dick Smith Group has been treating rebates in a way that has ultimately resulted in inflated earnings. Overstatement of the performance contributes to another reason. Such issues concerning the accounting standards interpretation took place within the entity and were deemed violation of the International Financial Reporting Standards (IFRS). Moreover, International Forum of Independent Audit Regulators (IFIAR) has revealed an audit quality issue to be the result of the companys collapse. IFIAR was not yet satisfied about the fact that the company failed to address and understand the drawbacks in the quality of audit. Several other reasons those resulted in the collapse of the company includes ample strategic management blunders that encompass excessive purchasing of the inventories to fierce expansion, wrong selection of product and depending on excessive debt by the group (Dorminey et al. 2012). Moreover, Dick Smith Group was also alleged by the bank regarding breech of its borrowing agreements. Directors and officers of the Group encouraged or failed in controlling the practice of taking buying decisions concerning increasing rebates in inclination to a vital criteria like consumer demand and the capability to sell offerings within desired time to gain profit. Management Actions that Contributed To the Demise of the Group Earnings management serves as a strategy employed by the management of Dick Smith Group in deliberately manipulating its earnings to ensure that the earnings figure is aligned with its pre-determined target (Fang et al. 2015). Such practice is conducted for the income smoothing purpose. The management actions that contributed to the demise of the Dick Smith are: Inventory Management in Dick Smith Group- Dick Smith Groups inventory issues started to turn out to be apparent in the second half of 2015 and the end of the November, the company indicated that it would write down its inventories value by 20%. The company brought its inventory for estimating a particular sales level. However, it was observed that it did not attain the sales level and accordingly it declared clearance sale by decreasing prices of its old stock by 70% (Degeorge et al. 2013). The management of the company discovered alternative funding but they also gathered a view that success in attaining alternative funding that further was not observed to be in a timely manner for supporting the companys short term funding needs and facilitate it to order needed inventory over next few weeks. Due to such faulty management decision, Dick Smith struggled a lot in clearing out excess old inventory but it also faced considerable issues in attaining enough finance to acquire new stocks. Private Equity Floats are not considered the Way it seems- The function of a private equity group Anchorage Capital within the history of Dick Smith contributed to the collapse of the company. Anchorage purchases business of the Group and floated it within the Australian Securities Exchange that increased the companys cash flow and profitability. The management of the company implemented turnaround programs within a space of nine months focused on enhancing the companys cash flow (Weiss 2014). This resulted the company to claim that its initial public offering was observed to be drastically overvalued. Such valuations turned out to be clearly ridiculous which further contributed to the collapse of Dick Smith Group. Consumer Service Matters within the Competitive Market- The management of Dick Smith Company failed to offer efficient online services to its consumers. The group was alleged of not delivering online order even after several weeks and the service representatives did not address their complaints. Failure of the basics and fundamentals of the companys management functions has contributed to the demise of the company. Additionally, Dick Smith has experienced considerable enquiries from the market because of its decreasing share value (Carnegie and O'Connell 2012). Moreover, cash receipts were observed to be insufficient in addressing commitments. Excess dependence on rebate-driven inventory purchasing contributed as a major factor that resulted in mismanagement of the companys inventory and its collapse. In such case, increased discounts were required for selling the rebated stock that destroyed margin uplift that the rebate intended to attain. Stakeholders are the persons who have interest in the operations of a business and they are affected by the actions of the business. A company has several stakeholders. There are two kinds of stakeholders in a business. They are Internal Stakeholders and External Stakeholders. The same theory is applicable in the case of the retain company Dick Smith. In the company, there are several stakeholders who may have been affected by the business failure of the company. They are employees, creditors, debtors, shareholders, government and others. There are two groups of stakeholders those may have resulted in the fall of the companys profits. They are the employees of the company and the shareholders of the company. The details are given below: Employees are the heart of any company as the whole operation of the company depends on them. Employees are involved in the process of production to delivery of the product to the end customers. Thus, any company is wholly dependent on the employees. On the other hand, the company is the source of income of the employees. The get salary from the company in exchange of the service they provide to the business. Due to the fall of Dick Smith, employees may have affected the most as they will lose their job (Chang 2015). Another group of stakeholders who have been affected the most by the collapse is the shareholders of the company. They are also called the owners of the company. A lot of shareholders have invested their money in Dick Smith Company by looking at the healthy financial statement of the company. The collapse of the company has affected the share price of the company. As a result, it is bound to affect the shareholders wealth. As the failure of the company is a major one, the investors have lost the whole amount of money they have invested in the companys stock. On the other hand, there is no chance of recovering the money in the near future. Thus, this is a total loss of money for the investors or the shareholders of the company (Manigart and Wright 2013). There are enough reasons contribute to the cause of reaction to the accounting standard. As per the CPA Chief Executive Alex Malley, there are some codes of ethics which continuously monitor the accounting profession. This ethics suggest that the accountants should work according to the public interest. In the case of Dick Smith collapse, the two main reasons are mistreatment of rebates and the fault in auditing. On the other hand, the accountants of the company have not treated the revenue and the inventory of the company according to the accounting principles. This total process has been contributed to the wrong decision making of the company. In case of the auditors, they have not audited the financial statement of the company on the basis of public interest. Thus, the financial statement of the company did not reflect the real picture of the company. Hence, the accounting profession has failed to provide value and expertise in the business of Dick Smith (Addis 2016). Every profession has some major principles which help to provide better quality from the profession. The same is applicable for the accounting profession. There are some principles and conceptual frameworks in the accounting system. In case of Dick Smith, the professional accountants should consider the calculation of rebates to repair the damage. The miscalculation of the rebates from the suppliers has caused the accounting wrong for the company. Hence, the rebate should be calculated in the proper manner. On the other hand, the auditor should audit the financial report of the company correctly (Craig, Smieliauskas and Amernic 2014). Two suggestions are provided in the context of the collapse of Dick Smith Company. They are: All accountings of a company should be according to the accounting principles. There are various accounting principles available. The accounting calculations should follow those accounting rules and regulations. The accounting principles say that there is a code of ethics as well code of principles which must be followed while accounting. All material facts of the company should be correctly considered at the time of the preparation of financial report (Zadek, Evans and Pruzan 2013). Another suggestion is that the auditors should audit the reports neutrally. An auditor is a representative of the public. Thus, he should take this fact in mind while auditing. On the other hand, an auditor cannot make any ill agreement to the board of directors of the company. This is against the ethics of the audit (Smith 2014). Reference List Addis, J., 2016. Retail sector wrap: One opportunity and plenty of worry.Equity,30(3), p.6. Carnegie, G.D. and O'Connell, B.T., 2012. Understanding the responses of professional accounting bodies to crises: The case of the Australian profession in the 1960s.Accounting, Auditing Accountability Journal,25(5), pp.835-875. Chang, P.L., 2015. The Abandoned Stakeholders: Pharmaceutical Companies and Research Participants.Journal of Business Ethics, pp.1-11. Craig, R., Smieliauskas, W. and Amernic, J., 2014. 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