Ethical Issues And Dilemmas From Financial Statement Of Dick Smith

Question: Discuss about the Ethical Issues And Dilemmas From The Financial Statement Of Dick Smith. Answer: Introduction With the increasing ramification of economic changes and complex business structure, Dick smith holding, a major electronic retailer has closed down its business due to several ethical and legal compliance issues. It is evaluated that Dick smith holding company has failed to comply with the international and financial reporting standards. In this report, study has been prepared on the financial and non-financial aspects of Dick smith holding company and ethical and legal compliance issues which have resulted to closure of the business (Mills and Woodford, 2015). Present description of company Dick smith holding company is major retailer company which was acquired by Anchorage capital partner. This company was part of Woolworth Company which sold Dick smith holding company to by Anchorage capital partner for AUD$ 115 million. After that Dick Smith holding company got listed and sold its shares in market. However, due to the sluggish market conditions, Dick Smith Company had to face liquidation in its business process and closed down its business. (Anchorage capital, 2017). The main ethical dilemma which was faced by Dick Smith Company was related to its less efficient financial reporting compliance program and disclosure of wrong information to its stakeholders. This resulted to sudden increase of overall market share of company and also increased its market capitalization of company by AUD $ 520 million. Market making process of directors and mangers of Dick Smith Company reflects the sudden increase in overall share price of company and investors inclination towards buyi ng companys share (Adelopo, 2016). After collecting data from the secondary sources, it is considered that Dick smith company was sold by Woolworth to Anchorage capital partner for the initial amount of cash payment of AUD$ 20 million and eventually Anchorage Capital investment company had to pay AUD$ 115 million for the acquisition of Dick Smith company. Nonetheless, at the time of listing of company an due to the market making of companys directors and mangers of company, the market capitalization of company resulted to value of AUD$ 520 million. The main ethical dilemma arise when Anchorage capital partner did not disclose the information about the functioning of Dick Smith company and adopted the falsifiedaccounting in the financial statement of Dick Smith company. (Bahadir, DeKinder Kohli, 2015) The Anchorage company caught in the ethical dilemma regarding whether to disclose the Dick Smith companys information to its stakeholders or not. It was clear if Anchorage Investment C ompany failed to disclose information to stakeholders then it would put negative impact on the share value of Dick Smith or may result to closure down of its business (Malley, 2016). Another ethical issue was related to misguide the investors by showing falsified market making process (Knapp, 2016). Critically evaluation of Dick Smith Company in handling Earning Management and related issue of real activities management A real activity management of company is related to application of management functioning to manipulate financial information to shareholders. It is considered that dick smith holding was acquired by Anchorage capital partner by paying USD$ 115 million to Woolworth. It is evaluated that by showing falsified statement to showcase high earning to its stakeholders company increased its market capitalization to AUD$ 520 million (Adelopo, 2016). After evaluating the annual report of Dick Smith Company, it is determined that company issued share value of USD$ 7682980 in the market and shareholders invested in these shares on the basis of falsified statement and wrong profit earning result of company. This reflects the real activities management of company to depict the falsified information to attract more investors to buy companys share and create value of company in the market (Malley, 2016). Management department and directors of Dick Smith Company manipulated all the data and produce f ake documents to increase. Ethical dilemma of management department of Dick Smith Dick Smith Company had reflected high amount of profit and increased value of its total assets and showcased less amount of profit earned (Tomasi, Bottomley and McQueen, 2002). This level of manipulation in the profit of company was made by implementing real activities management plan and reflecting high earning of the company. (Ferraro, 2017). In addition to this, Dick Smith Company also decreases its capital assets by selling its myopic softwares to other organizations and decrease the overall cost of capital to increase the overall profit of company. This act was done by company to manipulate the real profit of company and increase the overall profit of company to misguide the shareholders to increase the value of share in capital market (Tomasic, Bottomed, and McQueen, 2002). However, ethical dilemma could be defined as concern when organization caught in a situation where both situation has right and right option or wrong or wrong options.Another falsification of information was done by company by reflecting negative results of overproductions in which company manipulated all the inventory details and increased overall production and profit of company (Leow, 2009). This falsification of inventory details and overproduction of goods has reflected unimaginable profit in that particular year which not only increased its share value in the market but also Increase Companys value in shareholders mind. It is further evaluated that market making process and real activities management initially increased the overall profit reflection of company but eventually resulted to negative (AASB 102. 2009). This real activities management of company could increase the overall profit but eventually it will showcase negative result in the end. The biggest scam of Dick smith was related to showcase manipulation of profit by adding the consideration of USD$ 50 million in the net profit to misguide the shareholders. This act manipulated shareholders to invest more money in the s hare capital of Dick Smith and resulted to falsified market capitalization. Another dilemma of Dick Smith Company was related to offering high amount of discounts and offers to clients in the market. However, this practice of company was valid to increase the overall sales of company but resulted to destruction of consumer electronic market (Bahadir, DeKinder and Kohli, 2015). This level of discount offering increased overall sales of company but showcase negative implication of business. Inflation of sales by offering various lucrative offers to client was just an illusion of company. The ethical dilemma is related to the management functioning and their practice to falsified companys financial information in the best interest of company in determined approach (Drazba, 2015). Conclusion After evaluating all the details of Dick Smith case and other information of the case, it could be considered that directors and managers falsified all the details and earning of company with a view to attract more investors in the market. In addition to this, manipulation in the profit of company was made by implementing real activities management plan and reflecting high earning of the company so that investors could invest their capital in Dick Smith company with a view to attract more investors to invest in its capital. Now in the end, it could be inferred that Management of company has acted in fiduciary position to the company but ethically they should not indulged infalsification of accounting and financial informations in determined approach. References AASB 102. 2009. Inventories. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB102_07-04_COMPjun09_01-09.pdf [Accessed on: 31st August 2017]. Adelopo, I. 2016. Auditor Independence: Auditing, Corporate Governance and Market Confidence. Routledge. Anchoragecapital. 2017. Dick Smith Holdings Limited. [Online]. Available at: https://www.anchoragecapital.com.au/case-study-dick-smith/ [Accessed on: 31st August 2017]. Bahadir, S. 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