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STUDENT ID: XXX

Shubham Rana
WORD COUNT  1060

Table of contents
QUESTION 1A) CORPORATE GOVERNANCE AND ETHICAL DECISIONS.............................................................1
QUESTION 1B) BOEING’S CORPORATE GOVERNANCE AND ETHICAL PROBLEMS.............................................1
QUESTION 1C) PAST EXAMPLE OF POOR CORPORATE GOVERNANCE AND UNETHICAL DECISION...................2
QUESTION 2A) PURPOSE AND USES OF VARIOUS FINANCIAL STATEMENTS....................................................2
QUESTION 2B) BUSINESS STRUCTURES.......................................................................................................... 2
QUESTION 3 FACTORS THAT LED TO DSH’S COLLAPSE....................................................................................3
REFERENCES................................................................................................................................................. 4
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Question 1a) Corporate governance and ethical decisions.

According to The Age, 2020, the employees who designed the aircraft were not satisfied with the
safety protocols adopted by the company. Although it was well known that the faulty sensors on the
plane, known as the MCAS was responsible for the crash of the plane, it was further discovered after
a detailed analysis by the parliamentary committee that the company assumed that the pilots in
charge could take care of the situation in case there was a faulty reading by the sensors of the MCAS
software. The fact that these shortcomings led to two fatal accidents, it points out that the company
lacked strong corporate governance. Corporate governance provides controls and procedures by
which individual companies are managed and it delineates the roles and responsibilities of
individuals within the organization. Adherence to a strong corporate governance framework might
have avoided this disaster as that would have ensured suitable checks and balances at every step of
the production of the aircraft.

As the report suggests, the company has close ties with the regulatory authority, FAA. In accounting
terms, managers in the FAA are equivalent to an auditor of the accounting statements. Also, the
company tried to get the plane certified without bringing into light the complex automated software
that was introduced in the new plane to speed up the certification process by the FAA. This was
highly unethical which subsequently led to disaster. Had the company duly disclosed these details,
the FAA could have duly studied the pros and cons of the new system. So, it can be concluded that
weak internal controls and unethical behavior led to the crashes.

Question 1b) Boeing’s corporate governance and ethical problems.

The primary focus of a system of corporate governance should be all its stakeholders, rather than
just the shareholders. By not addressing employees grievances regarding the safety of the new
aircraft, the management failed in its responsibility of keeping the products of a company of good
quality. This disadvantaged another stakeholder, that is, the customers, who were given a faulty
product which ultimately needed up taking their lives. Also, aircraft are tested internally before they
are sent for certification, a failure to detect issues in the aircraft points out to poor delegation of
responsibilities.

On the ethical front, not disclosing the complex automation tool to the certifying authority to fasten
the automation process meant that the company failed to disclose all relevant information to the
concerned authority. This was probably done to get the plane certified quickly for flying as a delayed
certification would mean a loss of profit for the company.
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Question 1c) Past example of poor corporate governance and

unethical decision.
According to Kim, 2016, poor oversight by the board and a highly leveraged asset in Lehman
Brothers ultimately led to its bankruptcy in 2008. The management kept on buying subprime loans
even when the underlying house owners had started to default on their payments. As these
positions were created by taking short term loans, it leveraged the firm thereby making it highly
risky. Its leverage ratio was very high as compared to the industry average. The fact that the
management knew about these positions as being highly risky, but still they chose to take it. It
exposed its several stakeholders globally to high risks, which is highly unethical.

Question 2a) Purpose and uses of various financial statements.

The statement of profit and loss is used to report all the revenues earned by a firm and the expenses
incurred by it and it is used to value firms and check the ability to repay its lenders. The balance
sheet reports a firm’s financial position at a point in time and shows the amount of assets and
liabilities that a firm has. The statement of cash flows shows the cash inflows and outflows of a firm
and provides additional information that is not present in the income statement.

A cash flow statement shows the revenue and expenses of a firm when its accounting is done based
on cash accounting, rather than accrual accounting. When a firm enters into a transaction, it is
immediately recorded on the income statement, whether or not the cash has changed hands.
However, a transaction is only recorded on the cash flow statement when there is an inflow or
outflow of cash.

Question 2b) Business structures.

Sole trader: It is a structure under which an individual is the owner of the business and is financed by
the owner and by bank loans. Its advantage is that it is easy to set up and has a lower tax rate than a
company.

Partnership: It is owned by more than one person. Its ways of getting finance are similar to that of a
sole trader. Its advantage is more flexible than a sole trader. Its disadvantage is that the action of
one partner is not independent of the other partners.

Company: it is a separate legal entity from its owners. It is financed by the issuance of stocks and
bonds. Its advantage is that the company’s liabilities are separate from the owner’s liabilities. Its
disadvantage is higher tax rates.
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Question 3 Factors that led to DSH’s collapse.

A decrease in EBITDA implies that a company would find it difficult in paying its debts, especially
when there is a substantial increase in the debt levels simultaneously. According to its chairman and
the MD, the company’s outlook remained positive due to strong sales and transition from a private
company to a public listed company. An increase in the net income in 2015 as compared to 2014
vindicated their statements. However, the financials painted a different picture.

Some of the major red flags were as follows:

 The company’s value of unsold inventory had gone up $253,814,000 to $293,044,000, an

increase of about 15%. This would have happened due to a decreased demand or an
increase in the supply of the inventory.
 Other current assets, which also include supplies for the company have fallen drastically
from $3,439,000 to $1,886,000, which is a decrease of close to 50%. An increase in the
current liabilities in the same period, which was due to a very high borrowing of
$70,000,000, showed that the company’s current ratio had fallen too, which would have
created problems in meeting its short-term obligations.
 In the same year, its cash flow from operations had vanished and become negative, which
implied that the company was burning too much cash. It was a decline of about
$57,177,000.

References
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Kim, Y. A. (2016). The Agency Problem of Lehman Brothers’ Board of Directors. Illinois Business Law
Journal. Retrieved from Illinois Business Law Journal.

The Age. (2020, March 07). Congressional panel says Boeing has 'culture of concealment'. Retrieved
from The Age: https://www.theage.com.au/world/north-america/congressional-panel-says-
boeing-has-culture-of-concealment-20200307-p547sg.html