ABC Learning was one of the biggest providers of early childhood education in Australia. It became a publicly listed company in 2001 and started expanding rapidly from 2001 to 2006. It had 43 childcare centres in 2001 and expanded to over 900 childcare centres in Australia and New Zealand by 2006. It also acquired childcare centres in the United States and other countries around the world. Its growth strategy involved acquisition of competing childcare centres.

At the start of the Global Financial Crises, ABC Learning started struggling with its cash flows. It found itself in a situation where they were defaulting on their debt payments. It went into voluntary liquidation in 2008. ABC Learning had borrowed heavily from many leading banks to finance the acquisition of the childcare centres. In the aftermath of the collapse of ABC Learning Centres, lenders became more cautious of lending to businesses involved in the early childhood education industry.

There were several accounting issues associated with the company that led to its eventual failure. The acquisition process of new childcare centres resulted in the recognition of licenses and goodwill both of which are intangible assets. In 2007, goodwill was recorded at $271m and licenses at $2.4b. These assets were recorded at fair value and accounted for about 70 percent of all assets. Impairment expenses were $2m for goodwill and $8.4 m for licenses in the year 2007. Furthermore, the company revalued its licenses and recognized $390m in revaluation gains between 2001 and 2005. When companies run into trouble, intangible assets lose their value rapidly.

There were other accounting issues at ABC Learning. The June 2007 financial reports showed that ABC Learning was a prosperous company when in fact its cash flows were telling a different story. The company was reporting positive profits but negative cash flows. Pitcher Partners, the external auditors of ABC Learning had given an unqualified audit opinion since 2003-the year they were appointed. They resigned as external auditors of ABC Learning in late 2007. The new auditors found that the accounting treatment of revenue was dubious. Payments that the company received from developers subsidized loss making childcare centres. The payments were treated as revenue which masked the fact that many of the childcare centres were making losses. In fact, the losses indicated for the year ending 30 June 2007 would wipe out any profits the company had ever made.

There were several governance failures at ABC Learning as well. The Board of Directors were all experienced and well-educated, but the founders of the company were driven by an ambition to grow the business. The remuneration policy of the company focused heavily on growth. The company also entered into several related-party transactions (for example, $74.7m was paid in untendered contracts for maintenance in 2006 to a company whose director and shareholder was a former brother-in-law of the Chief Executive Officer of ABC Learning). All these and other issues finally led to the demise of the Company.

ABC Learning was one of the biggest providers of early childhood education in Australia. It became a publicly listed company in 2001 and started expanding rapidly from 2001 to 2006. It had 43 childcare centres in 2001 and expanded to over 900 childcare centres in Australia and New Zealand by 2006. It also acquired childcare centres in the United States and other countries around the world. Its growth strategy involved acquisition of competing childcare centres.

At the start of the Global Financial Crises, ABC Learning started struggling with its cash flows. It found itself in a situation where they were defaulting on their debt payments. It went into voluntary liquidation in 2008. ABC Learning had borrowed heavily from many leading banks to finance the acquisition of the childcare centres. In the aftermath of the collapse of ABC Learning Centres, lenders became more cautious of lending to businesses involved in the early childhood education industry.

There were several accounting issues associated with the company that led to its eventual failure. The acquisition process of new childcare centres resulted in the recognition of licenses and goodwill both of which are intangible assets. In 2007, goodwill was recorded at $271m and licenses at $2.4b. These assets were recorded at fair value and accounted for about 70 percent of all assets. Impairment expenses were $2m for goodwill and $8.4 m for licenses in the year 2007. Furthermore, the company revalued its licenses and recognized $390m in revaluation gains between 2001 and 2005. When companies run into trouble, intangible assets lose their value rapidly.

There were other accounting issues at ABC Learning. The June 2007 financial reports showed that ABC Learning was a prosperous company when in fact its cash flows were telling a different story. The company was reporting positive profits but negative cash flows. Pitcher Partners, the external auditors of ABC Learning had given an unqualified audit opinion since 2003-the year they were appointed. They resigned as external auditors of ABC Learning in late 2007. The new auditors found that the accounting treatment of revenue was dubious. Payments that the company received from developers subsidized loss making childcare centres. The payments were treated as revenue which masked the fact that many of the childcare centres were making losses. In fact, the losses indicated for the year ending 30 June 2007 would wipe out any profits the company had ever made.

There were several governance failures at ABC Learning as well. The Board of Directors were all experienced and well-educated, but the founders of the company were driven by an ambition to grow the business. The remuneration policy of the company focused heavily on growth. The company also entered into several related-party transactions (for example, $74.7m was paid in untendered contracts for maintenance in 2006 to a company whose director and shareholder was a former brother-in-law of the Chief Executive Officer of ABC Learning). All these and other issues finally led to the demise of the Company.