The role of accounting in the collapse or failure of Allco Essay

The role of accounting in the collapse or failure of Allco - Essay ExampleCauses of the Collapse of Allco Corporate collapse of Allco occurred like many other collapses but reasons of other collapses had been different than with Allco, which collapsed due to duality of the positions of the chairman and the chief executive director officer, the two topmost positions in the company, i.e., one of the chairman and the other of the chief executive were managed by the same person, by late David Coe. Media determine Coe as the executive chairman although later Bob Mansfield was the chairman and David Clarke, the chief executive (Walters, 2013). Financial purlieu worldwide was particularly not conducive otherwise but Allco suffered from the deficiency in corporate mechanics as board of corporate governance behaved like a private company. Criticality of Board independence Board independence is genuinely critical factor in the scheme of corporate things. The Australian Securities sub (A SX) has very clearly advised not to lead the two roles of chairman and chief executive military officer by the ditto person. There has never been any ambiguity over this recommendation. Freedom of the board has been from the very beginning the leading principle of good corporate governance, as defined in the preamble of ASX. This loose is linked to the sound health of the chapiter markets, which has been central to the Australian economy. Take for example the case of Enron where the positions of the CEO and the chairman were managed by Kenneth Lay. Enron collapsed because of cheating and corruption of 18 years in securities (Walters, 2013). The same cannot be verbalise about Allco that it cheated and practised corrupt practices but members of the board were found to be in compromising positions when it came to the content of loan to one of its associate companies, the Allco Principles Trust ( apt(p)). Corporate Mechanism at Allco Former chief executive of Allco, David Clarke re vealed the complicated corporate mechanism of the Company, which at one time had a market value of $5 billion and in 2008 it came rolling down to owing above $1 billion, affecting 50 tie in companies, facing settlement. The fall back in structured finance reduced the share price to almost half in late 2007. An associate company APT was given a loan of $50 million to ensure that margin calls do not bring down Allco share price. The leading shareholders of APT were holding senior executive level positions in Allco with Allco shares as capital (Lannin, 2010). Connection between tired Prices and Earnings The relation between stock prices and suckings inspire managers to practice earning management. Generally, it is observed that public firms test increased discretionary accruals. Managers are additionally inspired to fulfil the stock market expectations of shareholders. They are motivated to leverage income before listing in stock market, for securing investors interests and outco mes of earning management can reflect on the capital market (Soffer et al., 2000). Functions of Allco Board A companys board caters to the stakes of its shareholders, as executives are alike busy in day-to-day management of the company. It is the responsibility of the chairperson to ensure that shareholders funds are invested to earn nice dividends. In the present condition, shareholders felt very unrelated and ignorant where their funds were invested and what role their ace funds were playing in corporate governance (Walters, 2013).