The following paper discusses the critical collapse of one of the company i.e. Harris Scarf Company located in Australia

2 Introduction

The company was Harris scarf” company that produce various products such as footwear, kitchenware products, and men wear, women wear and other electrical goods. The management plays a significant role in the development of the company. If the management does not play a significant role, it Means Company cannot succeed. The following collapse case that been select has also entailed that the mismanagement of the company as well as the audit committee. 

3 Body/Explanation

3.1 Provide the summary of the case and who was responsible

The company that has been selected for the analysis of co-operating collapse or scandal is “Harris scarf”. Before going towards the collapsed section of the company it is important to discuss what actually the company was and what its operations were. Mainly, a company or a business collapse due to miss management by the managers. When managers of the company do not fulfil their responsibility and tasks, then the company slowly moves towards the loss and by the passage of time company collapse (Neubauer & Lank, 2016). 

Harris scarf was one of the famous departmental store founded in 1849 in SouthAustralia. Mainlythe headquarter of the company was in Australia. The company served to customers with the best of their products as well as values. The company serve as a departmental store, and the store sells products such as kitchenware, electrical goods and different apparel goods primarily. Whena company starts its operations, it was asmall level, but by the passage of time,the company developed and increased its product line. Moreover, by the time there was 54 Harrisscarf in two formats. Those two stores were “Harris scarf departmental store”, and the other one was “Harris scarf home”. The company face growth, development in its operations through merger and acquisition. In 2010, the company acquired another company that helps them in terms of development. Moreover, the earlier history of the company shows that company has 2,000 plus employees and has many other products such homewares, sporting and footwear’s, handbags, luggage, women wear, men wear and different electrical goods.

Summary of what occurred

The company faced various issues regarding management control and responsibilities. Basically, the downtime of the “Harris scarf” start when upper management is checking out the audit committees and internal control system. The time when “Harris scarf” company collapse there were also other notable companies collapse such as OneTel, HIH Insurance and Ansett Australia. Most important maintain the accounting records of the company is primarily the responsibility of the internal control system (Soomro, Shah, & Ahmed, 2016). The company was making growth able profit through earning and paying off liabilities. But the accounts balance of the company was not totally maintained. The accountants and record managers were the basic reason behind the collapse of the “Harris scarf” company. 

The accountant of the company making fraudulent records in the books of accounting (Kavrar & Yilmaz, 2017). It means the earnings were high, but the accountant notes the amount in an irregular manner. In an interview. The chief manager of the company address that the downturn of the company started when they realized there are a lot of frauds in books of accounts. Audit department of the company was not working accordingly, and it badly affects the growth, operations, profit earnings and goodwill of the company.

Who was responsible?

The audit control system, accountants and record managers of the company are the biggest reason behind this collapse (Kavrar & Yilmaz, 2017). As this is also discussed above that the internal audit managers were basically making the fraudulent records and its wrong expression of all stakeholders. According to one of the accountants of the company that others accountants make fraud in the accounting books of the company. The earnings and liabilities of the company completely differ from the actual situation and values. 

According to Lorsch, following case reveals the fraud in the set of company’s books. 

“A former Harris Scarfe accountant, Anthony Wight, yesterday testified at the Adelaide Magistrates Court committal hearing of Adam Trescowthick that the falsification of accounts started five years ago before Trescowthick became executive chairman”(Kavrar & Yilmaz, 2017).

Therefore, the major reason behind the collapse of the company was a fraudulent set of company records that all were wrong. Moreover, the company faced various problems regarding the cash-flow situation and financial position. The financial position of the company going towards down value. The profit value of the company was higher than its real value, and that was the main reason behind the collapse of the company. Besides these, the management control was the biggest reason behind the collapse of Harris scarf” company. The management control was not effective and accordingly. If management can effectively oversee the internal control system of the company,this never happens. This suggests that the collapse of Harris scarf” company affect other companies profit as well. Therefore, audit control, fraudulent records and poor management was the biggest reason behind the collapse. 

3.2 Identify legal, governance and ethical issues arising from the collapse

The collapse of Harris scarf” company affect various sectors and legal issues outside the boundaries. Such as after the collapse of the company there was legal issues, ethical issues as well as legal governance issues. this shows that the company does not affect the entire operations itself but also generate some legal as well as ethical issues. The issues that have been arising after the collapse of the Harris scarf” company are given below. 

3.2.1 Legal issues

The legal liability of the company was shown in common weak points. Under the legal laws and legislation of auditing, it addresses that if an auditor does not perform his duty well, he will be charged by the court and legal authority. In the global audit progression, the Harris scarf” company has common liability for the auditors, and that has been a failure in order to perform their auditing functions with due care. Basically, the auditors of the company who does not perform their duty and functions they are responsible for the loss that is caused by the misstated financial statement (He, Pittman, Rui, & Wu, 2017). The collapse of the company becomes the legal issue because it was considered illegal under Australian law. According to Australian law, if an auditor misstates the financial statement of the company, it means the person is legal liability for this issue. Therefore, it was a legal issue that has arisen after the collapse of the Harris scarf” company. The company auditors were not responsible for their tasks and activities. 

Moreover, after the collapse of Harris scarf” company, it becomes the legal liability for all others company auditors that at the end of the financial year auditors need to sign off the books of accounts. After this, the auditors of the company need to analyze the books of accounts that need to sign off the books that are prepared in a co-ordinance with corporation law. Therefore, in order to reduce or minimize the issues regarding auditing issues, Australia law introducesauditing standards. The Australian auditing standards responsible for providing the audit financial reports and financial statements. The auditing standards were made under the section of 336 of the corporation act in 2001. Under the ASQC 1 standard, it is a viable responsibility of the company to review and oversees the financial statements of the company and other financial statements (Cumming & Groh, 2018). According to these standards, it is discussed that besides internal control system by the auditors the company itself should have manage and access for the better outcomes and results. 

3.2.2 Corporate Governance issues

This section is very important; the collapse of Harris scarf” company affect the corporate governance of the company. Mainly, corporate governance is the system that the company is directed, manage and governed by the managers or shareholders of the company (Ntim, 2018). This shows that corporate governance is such a system that company direct the relationship between management, board and shareholders of the company. As the following case of Harris scarf” company was related to the declaration of the company’s financial frauds in a bad way. This was the primary responsibility of the management of the company is to make a fair manner that was not followed. So, in this case of Harris scarf” company inflation of the profits by showing the expenses as the revenue as expose that something is going wrong in corporate governance. It totally created the issues for the corporate governance of the company.

For example, first of all, the management of the company was responsible that everything is going right or not. There is another similar example to discuss WorldCom. WorldCom was one of the biggest telecommunication company in the United States, and it had also faced a similar problem in their tenure (Heracleous & Werres, 2016). However, the difference was the company collapse by the management fault; this shows how management is important for the company and its growth.

If the accountants and auditors of the company do not perform their work accordingly and fairly, then management of the company can fail. It can create problems for the corporate governance of the company as well. 

Now, in this case, such as management was fully responsible for the declaration which states if the company financial results in a true and fair view. So, now, in this case, the management was lacking behind in its responsibility by reflecting that the company has a true financial position. In the end, it reflects that the company collapse due to lack of management responsibilities and skills. Therefore, the collapse of Harris scarf” company also arise various issues for the managers. Management acts and management responsibility was the biggest reason behind the collapse of the company. So, these two clauses show that corporate governance failure in Harris scarf” company case. This also shows that company collapse due to the inefficiency of the board of directors and management responsibility. Internal control, audit system and audit committee was the biggest reason behind the collapse of the Harris scarf” company.

3.2.3 Ethical issues

When the auditors misstate the financial value by fraud, it becomes the ethical issue for the company as well as for the stakeholders. Such as it is against the ethics that the audit control system misstates the financial value. So, ethics in accounting refers to the process of actual statethe values in a meaningful way. However, it is one of the biggest challenges for the auditors and internal control system of the company that provide high-quality audits and quality based results. The auditors and internal control system of the company was creating ethical problems after miss- state the financial values of the company (Khan, Serafeim, & Yoon, 2016). They were doing and performing their tasks in a wrongful way that was one of the biggest ethical issues for the company. This was one the ethical dilemma, and this issue was creating problems for many other auditors in Australia such as collapse case of HIH and one.Tel. Therefore, ACCC declares that Harris scarf” company mislead their consumers through this way and this reflects that it was unethicalbehaviour adopted by the company. This is against the ethics that the company mislead their consumers and the general public by the financial misleads. Therefore, it explained the ethical issue for the general public as well as for the management of the company. 

Ethical issues also discussed that the company is making a profit without legal and ethical consideration that affect the profit and growth of the company. Therefore, in order to protect this situation and prevent ethical issues institutes of charter accountants issue the joint code of professional conduct in Australia and these were applied to the accountants and auditors of the company. According to these standards, the internal control system, auditors and management of the company should perform their tasks or activities in a fair manner. It discussed that management and internal audit do not perform their accurate roles, but also they should owe a duty to take care of their general public. 

The following case arises the ethical issues that if internal control audit system of the company behave unethically, the accountants will be rectified from the company. This shows that Harris scarf” company case raises ethical issues. 

3.3 Analyze the implication of collapse to the organizational stakeholders

The biggest reasons behind the collapse of Harris scarf” company was mismanagement, audit committee and internal control system. Mainly, the stakeholders of the company were its shareholders, customers, audit controllers, employees (Denisov, Khachaturyan, & Umnova, 2018). This is very important to discuss that the Harris scarf” company collapse negatively affects the decisions and growth of the stakeholders. The key organizational stakeholders of the Harris scarf” are management people. 

Now, the collapse of Harris scarf” company affect the goodwill of the management. The company audit control system was not doing the right business. The internal control and audit system represent the false values in financial records of the company that significantly affect the development. Now, due to the misleading audit control system of the company, managers were also responsible for this act. 

The collapse case of Harris scarf” company affect the negative perception of managers of the company. The decision of the court illustrates that if the internal audit system of the company was making the fraudulent financial frauds, it means it was the full responsibility of the management. This shows that if the audit system of the company making frauds then it is the primary responsibility of the management of the company to address the issue. If the audit committee is dishonest, it means the management is also dishonest (Bowlin, Hobson, & Piercey, 2015). Therefore, besides the dishonesty of internal audit control system management of the company is also dishonest in their manner. Therefore, management of the Harris scarf” company had also punished on this basis. This shows that the case of Harris scarf” company has the effect the management responsibility and their roles in the company. People perceived that management was also dishonest along the internal audit system of the company. 

Moreover, Harris scarf” company collapse company has also affected the customers of the company as customers are the stakeholders of the company as well. The bad internal audit control system and lack of management focus affect the profitability of the company (Noe, Hollenbeck, Gerhart, & Wright, 2017). When customers come to know that Harris scarf” company has a case of an audit control system that critically affects the thinking and perception of the customers. Customers after this scandal come to know that the company is making a profit through fraud. This shows that the customers of the company perceive that the company is making fraud. This way the profit as well as earning of the company has decreased and company collapse. Therefore, the collapse of the company has a negative effect on customers. 

Moreover, the Harris scarf” company case negative affects the working employees of the company. Employees of the Harris scarf” company perceive that there is no regulatory framework or policy against the dishonesty of the internal audit system of the company. Through this way, the trust level of the employees hurt and they going to perceive that the internal control system of the company is dishonest. This does not only affect the trust level but also affect the motivational level of the employees. Moreover, besides these, the collapse case of Harris scarf” company has also affected the suppliers, distributors and shareholders of the company in terms of loss. 

3.4 Why and how as a company director avoid this situation

As a company director, I handled this situation by critical analysis. First of all, as a director, I completely analyze the situation who is responsible and what were the reasons behind this act. Moreover, the primary reason behind the collapse case of Harris scarf” company there was a lack of focus and inefficiency of corporate governance. The corporate governance and management of the company do not play its role effectively. Therefore, as a director of the company I focus on taking action against corporate governance or management. 

To avoid this situation and such type of scenario as a director I analyse the financial statements of the company and its financial values on a daily basis. It means, as a director I critically analysethe day to day operations. In case if the internal audit control system is making any frauds so it can be judged easily. Through this way, the director can evaluate the day to day operations and activities. From this way this situation can be avoided and can prevent. Moreover, I chose these ways and solutions to avoid this situation because these are the best ways to avoid. This help to providefavorable outcomes and significant results for the company as well as for the shareholders. These are the best ways to solve future issues, and they also indicates the positive results for the growth and development of the company. 

4 Recommendations

In order to avoid such a situation, the directors and top management of the company should critically analyze the situation and make decisions. Such as the biggest reason behind the collapse of Harris scarf” company was bad control of audit as well as management. Therefore, the company should analyze the position and activities of another person through continuous observation. They should secretly hire a person that just observe those people whether they are doing right work or not. This is the best solution that Harris scarf” company should adopt at that time. 

5 Conclusion

The following paper discusses the critical collapse of one of the companies located in Australia. The company that has been selected is Harris Scarf Company.  The company collapse due to misleading and fraud records by the internal audit system of the company. The internal audit managers frequently note the value in books of accounts more than its actual value. This was the biggest reason behind the collapse of Harris scarf” company. This matter significantly negative effect on the stakeholders of the company. Moreover, to avoid this situation, I take action and make strategies planned. 

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