Report-Cash Converters PDF

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individual assessment...

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Silan Feraset

Cash Converters

S00204876

Contents Executive summary

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Methodology

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Introduction

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Question 1

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Question 2

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Question 3

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Conclusion

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References

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Executive Summary: This report highlights the case of Cash Converters, a public company listed on the Australian Stock Exchange was accused of exploiting and trapping vulnerable low-income customers in a cycle of debt by charging extortionate interest rates up to 633% per annum. It demonstrates the issues and actions that had taken place and the repercussion of their choice to exploit their customers.

Methodology: The research that has been taken on this report is through articles, reports and legislations. the method of research was to find legislation on exploitation and the code of practices. The ACL assisted in the findings for the report. The next approach was to find articles on the issue that had taken place at Cash Convertors. The Sydney Morning Herald had an informative article on the situation and the result of the matter. I also came across theories of exploitation and also on ‘The Theory of Business’, these gave more evidence on the point of the report. Lastly, the report of APES 110 Code of Ethic for Professional Accountants, demonstrated the ethical code of conduct and the important of an accountants’ role for an organisation.

Introduction: Cash convertors is an Australian retail prawning company. It’s services in retail, pawn broking and personal finance sectors. It is listed on the Australian Stock exchange and shares are sold at 0.49 (AUD). The purpose of this report is to state the code of ethics and the implications faced by not abiding by them. Cash Convertors, breach consumer credit laws and their accountants where unethical in the matter. Accountants have an important role, as they assist in the finance of the corporation. Lastly, corporations must focus on who they serve and the importance of why they serve. Cash Convertors failed to follow through on their service and this report highlights the misuses of their services.

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1) Why are we concerned about exploitation of needy and vulnerable by corporations?

“Every exploitative relationship begins with an initial inequality that makes the taking advantage possible. In exploitative relationship the rich get richer and the poor fall further behind. “- Robert Mayer. This statement highlights today’s society and how the economic world functions. The reason there are concerns about exploitation by corporations is that they take advantage of small businesses and consumers who have no knowledge of what the terms are and are easily taken advantage of. Exploitation is defined as the action or fact of treating someone unfairly in order to benefit from their work. Hence, giant corporations such as Nike have been known for using sweatshops, exploiting their employees and gaining more capital. According to Robert Mayer there are two kinds of exploitation; discretionary and structural exploitation. In the case of ‘Cash Converters’ exploiting customers in a cycle of debt by charging extortionate interest rates up to 633% per annum. This follows under the structural exploitation which is organised exploitation by free trade laws or market settings and competitions. This type of exploitation is mostly used by massive corporations and Trans National Corporations to receive more capital. That is why there are laws and regulator set to prevent corporation from exploiting consumers and small businesses. the Australian legal system has implement policies for corporations like cash converters about exploitation, these polices are: 1. Australian consumer law 2. Trades Practice Act 3. Fair trading Act 4. Regulator for Australia is Australia Securities and Investment Commission (ASIC) These laws and regulators prevent corporations from exploiting consumers and business and apply fines and justice for their crimes.

2) Identify ethical issues surrounding Cash Converters’ alleged 4

practices and discuss the role of professional accountants in this problem via ethical standards for accountants. How would you deal with this situation if you were an accountant dealing with loans to customers at Cash Converters? The ethical issues surrounding Cash Coverts’ alleged practice is that they exploited low-income customers that weren’t educated on the terms and conditions of the payout loans and interest rates. It was unethical how they exploited these consumers and knew that they could keep doing it. The article Cash Converters to settle payday lending class action by The Sydney Morning Herald. Explains the consequences of exploiting their customers. The article elaborates on how “Cash Converts to settle payday lending class action alleging it charged exorbitant interest rates to vulnerable customers.” The ethical issue here how they breach consumer credit laws by capping rates at a high rate of 48%. The Australian consumer law is the national law for fair trading and consumer protection. It provides for the national consumer protection and fair trading laws. As well, ASIC is responsible to enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors. The role of professional accountants in this situation of dealing with loans to customers at Cash Converters was done unethical, and those accountants that worked for Cash Converters should be fired. Firstly, all accountants must follow the “APES 110 Code of Ethics for Professional Accountant” this explains the codes of conduct that must be followed by accountants and how they should approach situations such as the Cash Converters case. In section 100 of the report it elaborates on the fundamental principles of the code of ethics: 100.5 A Member shall comply with the following fundamental principles: (a) Integrity – to be straightforward and honest in all professional and business relationships. (b) Objectivity – to not allow bias, conflict of interest or undue influence of others to override professional or business judgments. (c) Professional competence and due care – to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent Professional Services based on current developments in practice, legislation and techniques and act diligently and in accordance with applicable technical and professional standards. (d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships and, therefore, not disclose any such information to third parties without proper and specific authority, unless there is a legal or professional right or duty to disclose, nor use the information for the personal advantage of the Member or third parties.

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(e) Professional behavior – to comply with relevant laws and regulations and avoid any action that discredits the profession. http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf Cash Convertors accountants did not abide by these fundamental principles and dishonored the code of ethic for professional accountants. The way that an accountant should of handle this situation would be by abiding by the ‘APES 110 Code of Ethics’ and research the facts, know the ethical issues that involved Cash Convertors and determine the appropriate action in resolving the matter.

3) Who is (are) the corporations supposed to serve? Why? Cash Convertors are to serve their customers, investors and the general public. They serve so that they can make profit and account for their service. Corporations focus on their customers as they keep the business flowing. The Harvard Business Review wrote an article on ‘The Theory of Business’, it states how a business or corporation can handle is by “identifying customers and competitors, their values and behavior.” Stating the important of a customer’s values on what the organization offers them. In the case of Cash Convertors, the corporation shown that they care about profit and not about the value of their customers by exploiting them with payout loans. Hence, the importance of service to customers, investors and the general public.

Conclusion: Cash convertors as a corporation was unethical and didn’t care about the value of their customers. They exploited their customer and breach the codes of practice. The accountants where also unethical about the matter and acted poorly on behalf of the company. Lastly, their service to the customers, investors and general public where exploited and has resulted in them paying a fine of up to $23 million to settle.

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Reference: ABC News. (2011). Bankrupt mum backs protections for borrowers. [online] Available at: http://www.abc.net.au/news/2011-09-21/bankrupt-mother-backsprotections-for-borrowers/2909578 [Accessed 1 May 2016]. APES 110 Code of Ethics for Professional Accountants. (2016). 1st ed. [ebook] December 2010. Available at: http://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf [Accessed 2 May 2016]. Asic.gov.au. (2016). ASIC Home | ASIC - Australian Securities and Investments Commission. [online] Available at: http://asic.gov.au [Accessed 3 May 2016]. Asic.gov.au. (2016). Codes of practice | ASIC - Australian Securities and Investments Commission. [online] Available at: http://asic.gov.au/forconsumers/codes-of-practice/ [Accessed 27 Apr. 2016]. Business.gov.au. (2016). Australian Consumer Law and your business | business.gov.au. [online] Available at: http://www.business.gov.au/businesstopics/selling-products-and-services/fair-trading/Pages/australian-consumer-law.aspx [Accessed 27 Apr. 2016]. Corpgov.law.harvard.edu. (2016). The Role of Accounting in the Financial Crisis. [online] Available at: https://corpgov.law.harvard.edu/2012/03/02/the-role-ofaccounting-in-the-financial-crisis/ [Accessed 29 Apr. 2016]. Corpgov.law.harvard.edu. (2016). The Role of Accounting in the Financial Crisis. [online] Available at: https://corpgov.law.harvard.edu/2012/03/02/the-role-ofaccounting-in-the-financial-crisis/ [Accessed 3 May 2016]. Harvard Business Review. (1994). The Theory of the Business. [online] Available at: https://hbr.org/1994/09/the-theory-of-the-business [Accessed 3 May 2016]. The Sydney Morning Herald. (2015). Cash Converters pays $23m to settle class action. [online] Available at: http://www.smh.com.au/business/banking-andfinance/cash-converters-settles-class-action-20150618-ghr0sx.html [Accessed 1 May 2016].

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