The rise and fall of ABC Learning
The aspects of the business strategy of ABC Learning resulted in increased business risk for the company including: the rapid expansion of market share, over-indebt, and blinding overseas investment.
Rapid expansion of market share: ABC, which at its peak had almost 2200 centres in four countries, also had a flawed strategy to handle significant and rapid growth. When A.B.C. Learning Centers listed on the stock exchange in March 2001, it was a tiny operation with a market capitalization of just $25m. But five years later that number is approaching $2.5bn as the company has quickly become Australia's leading operator of childcare centers. ABC pursued acquisition after acquisition – buying up as many
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Historical cost depreciation provides a better example of a principles-only standard. Whereas, Rule-based: Alternatively, standards may take the form of a series of rules, limiting the flexibility and use of judgment allowed in their implementation. Rules-based standards often provide “bright-lines” tests which can easily be avoided. As a result, representational faithfulness may be avoided and a low degree of comparability will often result. Numerous exceptions may also result. The advantage of principle-based accounting standard is potentially very flexible with those new and changing products and environments. As such, they should also require less maintenance. For this case, applying principle-based accounting standard would be more flexible with changing conditions, and the trade-off for this flexibility is that strong enforcement is needed to keep the auditors honest; the accountants should be more latitude to address unique situations, and it may reduce manipulation of the rules as it provides financial statements which reflect much closer to the firm’s actual performance. While the rule-based accounting standard may include a lack of flexibility, hence require almost continual maintenance at times. Therefore, the fundamentally change from “bright-line” rules-based accounting standards to principles-based accounting standards help prevent another ABC-like fiasco.
The dangers in