Introduction

The current report aims to conduct an audit evaluation for gaining an understanding of the problems related to real-life auditing and linking between theory and practice. ABC Learning has been selected as the organization, which was liquidated in 2008 due to certain ethical issues. Therefore, the collapse of ABC Learning has been analyzed in relation to the common good, corporate social responsibility, and stewardship. In addition, relevant ethical theories have been discussed along with the effect of unethical practices on stakeholders. Finally, the report sheds light on evaluating the role of the auditor to detect such unethical conduct.

Purpose of the Audit

The main popups of the audit are to explore the reasons behind the “ABC Learning” collapses in the market that was entered in the market with a capitalization of $25,000,000 (Sweeney, 2018). Aim of this audit is to investigate the case of the company to explore the reasons in the failure of the company in the term of the ethics, role of auditors and ethical theories. Through this process, the unethical practices that were used by the company would be explored easily.

Evaluation of collapse of ABC Learning

Following is the analysis of the collapses of ABC learning on the basis of some factors that are:
Corporate Social Responsibility: According to Idowu (2015), the audit of corporate social responsibility is an effective strategic technique for the company to analyze the actual performance of the organization in the term of the social aspects in comparison to set objectives. As per the objective of ABC Learning for corporate social responsibility, the company was intended for providing content with integrity, diligence, and transparency for ensuring the prevention of citizens’ interests.

Further, the organization aimed to provide satisfactory services and products to customers. But the failure of the company in regard to offering adequate importance for corporate governance within the organization during the different party transactions affected its services towards the customers.

For example, the company may a decision in 2006 to pay Austock who was a broking stock. Against this decision, the owner took $27 million as a transaction fee. On the other hand, the company had paid $74 million for renovation and maintenance work on ABC centers to Queensland maintenance services. Both decisions dissatisfied the investors largely because the company had not followed the set standards in making both decisions that damaged not only the confidence of investors but also its reputation in the market (Teen, 2012). This was another reason for the failure of ABC Learning.

Common Good: According to Sison, Ferrero and Guitián (2018), the aim of the common good is to benefit and share the majority of particular community members achieved through citizenship and collective action. In this context, it can be stated the leadership of the company was visionary, aggressive, and energetic. This is because that he had focused on the organization’s growth that ultimately benefits the members of societies. But he failed to share the benefits to the members due to the overpaying for UK and US acquisitions. The owner of the company believed that he is the best person for his organization while his decision was not good for the sustainability of the organization.

Stewardship: According to Mohon (2012), stewardship is an ethic that reflects towards the use of sound planning for the management of the resources. But the analysis of the case organization reflected different facts from their ethical aspect. For example, the owner of ABC Learning has commenced for the global expansion of the business for that it had implemented acquisitions related decisions in the US in 2005. After this, the company entered the UK. For these decisions, the owner followed the diversifying business strategies but the owner had refused the caring of its cash cow service such as “childcare operation” in Australia that was generating profits for the company mainly (Sammut, 2021). Further, the company was hired external recruiters to recruit the staff in new locations that had also increased the cost of its operation and reduced its profit. Because of the inefficient management of available resources of the company, more than 200 centers of ABC Learning in Australia had incurred huge losses (Sweeney, 2018).

Identification of Ethical Issues with respect to relevant ethical theories

Below are a few of the key ethical problems that contributed to ABC Learning’s demise:
There were no regularities related to margin and accounting of loan to fund. ABC Learning has not set aside a significant amount of time to expand its profit-generating capabilities. The rise in intangible asset’s value has increased the worth of the company. But the organization did not explore such growth in its financial statement (Kruger, 2009). As a result, the company lost the trust of its shareholder. Therefore, ABC Learning was failed in sustaining its business. The utilitarianism theory of ethics is reflected similar aspects for an organization that could not manage the trust of the stakeholders due to lack of transparency.

As per this ethical theory, inequality may not take place in an organization that offers benefits to each individual on an equal priority basis. In this context, it can be stated that ABC Learning has developed inequalities by following irregularities in account reporting. Further, utilitarianism ethical theory defines the need for analysis to analyze the pleasures and pain of others. In this context, In this case, the organization did not care about the pain of stakeholders during the sharing of faulty financial reports to them (van den Heever, 2019). Due to this reason, it has faced a lack of confidence and trust in the stakeholders on the financial abilities of the organization.

Effects of Unethical Practices of Stakeholders

As per question 4, the following are some effects of unethical practices of ABC Learning on its stakeholders:

The users of ABC Learning’s financial statements have lost faith in the company as a result of the inflated firm valuation. Investors have suffered considerable losses because of unethical behavior. As a result, the company has struggled in raising finance. As per the business objectives, the owner of ABC Learning was focusing on the worldwide expansion of business. Due to this, the company could not effectively look at its childcare centers in Australia (Sison, Ferrero and Guitián, 2018). Hence, the quality of the services was affected that also affected the net earnings of the company. After this, the company was dissolved in 2008 and many employees lost their employment. This situation was increased the unemployment rate of the country.
Role of an auditor in detecting unethical conduct: in an organization, the auditor is mainly responsible to explore the existing financial statement presentation technique used by the company in the context of financial reporting compliances of the nation. In addition, the report presented by the auditor for the users develops confidence in the information otherwise flaws in reporting may lead to legal actions against the auditors also (Sison, Ferrero and Guitián, 2018). Auditor uses effective and acceptable evidence to develop the opinion of the report users in a positive manner.

Conclusion

From the above discussion, it concluded that ethical issues were mainly responsible for the collapse of ABC Learning. The owner of the company has not given importance to corporate governance during the diversification of business that affected the operations and profitable position of the childcare operation in Australia. Further, the use of the inflated value of the firm lost the trust of investors in the organization.

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