Bt Group Plc is a telecommunication company which has its head office in London and has an operation in over 180 countries. However, this company found fraud in its accounting statement in the year 2016 where 500 million pounds fraud was made during an Italian operation. Accordingly, this company disclose this scandal to its investors first, and by the following year,2017 investigation has been started.
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Question 1. Discussion About Fraud And Relevant Background Of The Company Bt Group Plc.
Business fraud is one kind of intentionally made false by a company's employee or board to not disclose the company's actual earnings. However, this kind of nature of a company gives false information about the company's financial structure and business performance. Accordingly, the company's audit report does not represent the true and fair value of the company which also has falsification in its report (Forbes.Com, 2023). Along with that, this company had reported a scandal in its business in Italian operation by 500 million pounds. Besides that, this company does not have proper evidence of audit reports, by which this scandal had to be settled by owing 513 million pounds. However, in 2017 BT Group Plc's market value was wiped by 8 billion pounds. According to the FRC "Financial report council," the company BT group PLC's audit report does not reflect the company's current financial position which was made by the company PWC in the financial year 2016. For this FRC charged PWC 1.75 million pounds as a fine and also 42k pounds to Hughes who was the partner of PwC firm (Bt.com, 2023).
Question 2. 3-Day Cumulative Abnormal Returns Announcement Of The Company And Its Effect
Figure 1: BT group share were filled by 19%
DATE
SHARE PRICE
15th January 2017
387.15
22nd January 2017
302.80
29th January 2017
307.45
Table 1: Changes in share price
“Cumulative abnormal returns” is the total calculation of all types of abnormal returns of the required company. When it is necessary to make a decision regarding risk adjustments then the analysis of “Cumulative abnormal returns” helps the financial experts to make the right decision. For identifying the skills of portfolio managers these returns help in various ways.
CAR is used to calculate the impact “lawsuits and different events” hold on reserve costs and is even valuable for defining the accuracy of “asset pricing models” in forecasting the desired implementation. In the year 2016, the BT Group Plc company’s audit report does not make a clear picture of the company’s real financial position. In that year, the higher authority of the company makes an announcement of “3 days cumulative abnormal returns”. In the year 2017, the BT Group Plc company patted a total amount of 8 billion pounds. However, in this situation, the effect of CAR had fallen a positive impact on the organization’s performance as it allows its investors to measure the company’s assets and security in that period.
Question 3. Calculation Of Accruals From The Year 2000 To 2016 Of Bt Group Plc. By Using The Modified Jones Model
“Accrual Accounting” is mostly used by the huge amount holding companies, those companies are mostly sales their products on the basis of credit sales. “Accrual Accounting” helps to measure the total amount of “cash in hand” of the required company. In the year 2000, the total value of the current assets of the company was 236, and the value of change in cash was 151. In that year, the value of the company's total accruals was -9319. In the year 2005, the total value of the current assets of the company was -1229, and the value of the change in cash was 1203. In that year, the value of the company's total accruals was -8682 (Bt.com, 2023). In the year 2013, the total value of the current assets of the company was 143, and the value of the change in cash was 593. In that year, the value of the company's total accruals was 576. In the year 2014, the total value of the current assets of the company was 1032, and the value of the change in cash was -229. In that year, the value of the company's total accruals was 572. In the year 2016, the total value of the current assets of the company was 663, and the value of the change in cash was 63. In that year, the value of the company's total accruals was -3226 (Forbes.Com, 2023).
Question 4. Discussion About The Weaknesses And Strengths Of The Company And Its Governance Structure Which Led To Accounting Fraud
This group is one of the top leading groups among telecommunication providers, with local, international, and other telecommunication services. However, as per the financial report of 2016 where this company faces a fraud case in its business operation, there are some strengths and weaknesses has been found in its performance and structure.
With the key focus of capturing the maximum market in the industry, this company has come up with some new approaches in its business performance to give business strength and to earn a profit, which are,
Customer satisfaction: This Company has had a market over many years, which has been reported with maximum customer support to its business. By providing upper-class customer service and having positive brand value among customers.
Workforce: BT Group has invested the maximum of its resource to train its employees, and to provide a quality workforce in its business (Lautsi, 2019). however, this company has highly technical as well as motivated employees who have a key focus on achieving their aim.
Strong network: This group has a strong network support to its business, which earns more customer loyalty and involvement. However, by providing a wide network it also keeps its future and potential customers engaged in its business (Raya and Paramita, 2020).
Brand portfolio: This Company has invested its resources to make its brand stronger; however, this company has a well-built brand portfolio over the year. Therefore, by this, this company has this portfolio as an asset that will help it to expand its business and also invest in new products.
Weakness
Competition: BT group has been in a strong market in Uk over the year with a strong strategy and business planning. However, in this competitive market, there is much competition found in the market, which creates difficulties for this company to run its business. Accordingly, to maintain its position in the market this company makes investments in new products which also creates risks for this company (Dissanayake et al. 2020). If the new products are not too profitable then the company may face losses and it will make an impact on the company brand value.
Financial planning: Financial planning of this company is not too strong and the company faces a major financial loss in its business in the financial year 2016. However, not only financial planning, audit, and other management of the company are also not updated according to the current market condition. If the financial performance of the company is strong then the company will be able to get more investors.
Shifting of the brand: In today's updated market many new entrants come with new and efficient technology which is more accepted by customers. However, these new entrants create more difficulties and reduce the market scope of BT Group and also reduce potential customer involvement. It will make problems for the profit earning of the BT Group Plc company.
UK market: With many countries under its operation, this company has its major market in the UK from where the company earns most of its revenue from the Uk market. However, many businesses from international countries have been stated their business in the UK market, which also falls an effect on this company's market position, as well as weakens the financial condition of that company (Bergmann et al. 2019). Besides that, with the involvement of strong international business, the UK market has created more competition over the year.
Conclusion
On the basis of the scenario the group BT plc has been found in a difficult situation to run its business in the UK market. However, in the year 2016, the audit report of the company has some falsification involvement in its performance. For which the company facade fraud in its business operation in that financial year, which brings a major burden to the company. Accordingly, from the current situation and position of the company’s market, it has been found that the company has some major competition in its business performance. Besides that, with a positive market position over the years, the company can gain back its previous market position and the company will be able to earn more profit by comparing it through the previous year.
References:
Bergmann, A., Fuchs, S. and Schuler, C., 2019. A theoretical basis for public sector accrual accounting research: current state and perspectives. Public Money & Management, 39(8), pp.560-570.
Bt.com. (2023) Annual Report Available at:https://www.bt.com/about/investors/financial-reporting-and-news/annual-reports [Accessed on: 15th January, 2023]
Dissanayake, T., Dellaportas, S. and Yapa, P.S., 2020. The diffusion?adoption of accrual accounting in Sri Lankan local governments. Financial Accountability & Management, 36(3), pp.261-277.
finance.yahoo.com (2023) changes in share price of BT group PLC available at: https://finance.yahoo.com/quote/BT-A.L?p=BT-A.L[Accessed on: 15th January, 2023
Find-and-update.company-information.service.gov.uk. (2023) find and update company information Available at:https://find-and-update.company-information.service.gov.uk/company/04190816 [Accessed on: 15th January, 2023]
Forbes.com. (2023) BT Group Available at:https://www.forbes.com/companies/bt-group/?sh=7756080732a8 [Accessed on: 15th January, 2023]
Lautsi, M., 2019. Green bonds and cumulative abnormal return implications for corporations around green bond announcements.
Raya, C.J. and Paramita, R.S., 2020. Analisisperbedaan abnormal return dan cumulative abnormal return emitensektorkeuangansekitarpemilu 17 April 2019. Jurnalilmumanajemen, 8(3), pp.852-863.
telecomtv.com (2023) BT announces £530 million loss through accounting irregularities, heads to roll available at: https://www.telecomtv.com/content/bt/breaking-news-bt-announces-530-million-fraud-share-price-plunges-14311/ [Accessed on: 15th January, 2023]
