Chapter 5

Article

Summary

ABC Learning's former acting chief financial officer, John Gadsby, told the Federal Court that in min-2008, the company's internal accountants were instructed to prepare a cashflow statement for the rest of the year, because the company's debts are still increasing. The original cashflow statement showed the group was not expecting any "compensation fees" paid to ABC Learning Centers from childcare center operators and developers from June to December 2008. However, Former chief executive and founder Eddy Groves reviewed the second cut of the statement, and found that there could be $44.79 million in fees received over that six-month period. It was also stated in court that other substantial changes was made to the original statement, including an increase in the value of childcare payment receipts from parents in that time.

Connections

The textbook states that a cashflow statement is to be prepared to measure the company's performance on a cash basis, it cannot replace the income statement as it summarizes the cash flows. Owners and potential investors look at cashflow statements to see roughly how well the company is doing over a fiscal period. The cashflow statement cannot replace an income statement just because they both show how well the company is doing. An income statement provides information on the company's profit for a year, while a cashflow statement shows the company's everyday cash flow. David Blanche, an accountant in the company, basically lied about the cashflow statement by altering the values on it; This would mislead potential investors because they would think the company is doing very well and would continue to invest in ABC Learnings Centers.

Reflection

I believe it is very unethical to put fake values on the cashflow statement as it is very important for investors and owners. Putting incorrect values on the cashflow statement would also make the company look bad, and may encourage existing investors to stop investing. As an investor, I would definitely want the correct cashflow statement; If I found out the company was lying after I started investing in them, I may stop investing immediately, but I would ultimately lose money because of their dishonesty. Once again, I think it is important to provide an income statement and a cashflow statement, not just one statement that is combined.