hih insurance survey essay

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Financial reports

Executive Synopsis

The auditing profession takes on a significant role in industrialized economies for many years. In the insurance industry, the way of auditing profession can be regulated. The collapse of Health Worldwide Holdings (HIH) was recorded since the biggest corporate and business collapse inside the history of Quotes. Also an investigation of Noble Commission was warranted by HIH failure. Two questions considered in the failures of HIH Insurance: Did the auditors implement their tasks and functions? Did the auditors satisfy their auditing work ethically? This record provides an examination of auditing issues as a result of the fall of HIH Insurance.

Among factors which may have gave climb to the business failure of HIH Insurance, that of the ethics of auditing career, roles of auditors and effectiveness of audit panel have thought to be particular value.


1 . Introduction

HIH Insurance was established when MW Payne The liability Agencies Pty Ltd was incorporated by Michael Payne and Beam Williams getting started with together to dobusiness of insurance expert in Australia in 1968.

Their procedures were all over the world, accompanied with businesses working in many countries such as the United Kingdom, Fresh Zealand, Hk, and the United states of america (Peursem, Zhou, Flood & Buttimore, 2007). There are many varieties of insurances in the markets of UK, the USA and Sydney, involving required insurance (for example, workers’ compensation and third party car insurance) and non-compulsory insurance (for illustration, home items and travel and leisure insurance) (Kehl, 2001). More than 250 additional companies made up of HIH Insurance group in a highly complicated structure at the time of liquidation. With net possessions of $939 million in 31st 06 2000, HIH Insurance used to be the other biggest underwriting insurance in Australia.

With financial obligations of about among $3. 6th billion and $5. three or more billion, HIH Insurance was placed into interino liquidation about 15th 03, 2001 (Peursem et approach., 2007). The collapse from the HIH Insurance was considered as the largest corporate failure in the history of Aussie business. Subsequently, the failure contributed to the establishment of a Royal Percentage to make a study on ‘the degree of which will behaviours of employees, company directors, auditors, experts and actuaries give rise to HIH failure or concerned unfavorable company practices’ appointed by the Australian authorities (Mirshekary, Yaftian & Combination, 2004). Because HIH Insurance was a key insurer nationwide, its collapse had a widespread impact on world (Leung & Cooper, 2003). The purpose of this kind of report is to analyse the audit concerns arising from the HIH Insurance collapse. A short of HIH profile is usually provided before the auditing research of HIH Insurance fall. The next element of this newspaper is dedicated to examine issues related to HIH audit techniques with respect to review independence, taxation committee and ethical things to consider.

2 . Dialogue

installment payments on your 1 Examine Independence

The issue of audit self-reliance is fundamental significant in the collapse of HIH Insurance. Audit freedom refers to giving an unbiased and objective perspective in the evaluation of the benefits, the overall performance of taxation tests, plus the release of the audit record. This is one of many auditor’s qualities of most crucial importance. In addition , independence isbasic principles of objectivity and integrity (Arens, Best, Shailer, Fiedler, Older & Beasley, 2010). In accordance to HIH Royal Percentage (as reported in Produc, Deo & Cooper, 2005), the Hoheitsvoll Commissioner discovered that Andersen has not been independent together not completed the hopes and targets about the role and responsibilities of behaving as an auditor. Coming from when HIH Insurance signed up with the Health group in 1971, Arthur Anderson performed the examine of HIH Insurance until the provisional liquidation of HIH Insurance in 2001(The HIH Royal Percentage, 2003). In the light of HIH Hoheitsvoll Commission (as cited in Johnson, 2004), Justice Owen found out the fact that following details were associated with evaluating the independence of Arthur Andersen.

The HIH Board of directors included three past partners of Andersen: “an Andersen spouse was a couch of the HIH board and continued getting fees within consultancy contract; an Andersen partner was removed from the audit staff after ending up in non-executive owners in the a shortage of management as well as the chief monetary officer (CFO) was an ex-Andersen partner (Mak, Cooper, Deo & Funnell, 2007). “Since HIH management had been reluctant to improve the amount of audit fees paid to Arthur Andersen, Arthur Andersen searched for to reduce the amount of work performed on the HIH audit¦ were stated in feedback of Mr Martin, suggest to the Hoheitsvoll Commission (Peursem et ing., 2007). Arthur Andersen paid out the agency fees to Geoffrey Cohen, who was the previous Arthur Andersen partner and Chairman of HIH plank. With including the services of a secretary plus the utilization of Andersen office, these kinds of payments totalled at $190, 877. 62 over a period of seven years (Peursem et ing., 2007). Recognized in Part W of the Code of Integrity, classifications of threats to independence range from the threats of intimidation, understanding, advocacy, self-review and self-interest.

Under the Companies Act, circumstances generating via any relationship that is conceivable exist, offers existed, or perhaps exist will need to are necessary regarded as in the chance of a conflict with client positions (Arens ou al., 2010). The above facts indicated that the close personal relationship designed and it can be a familiarity threat towards the independence from the auditor. In regards to these things, Arthur Andersen might have was missing independence. Furthermore, the announcement by Mr Martin might cause people to query whether the tasks with professional scepticism and objectivity were fulfilled simply by auditors and whether the company directors have influence on or place pressure towards the auditors (Mirshekary et ‘s., 2004). This also allowed the self-reliance of Andersen be doubted. In addition , the auditing practice statements (AUP) 32 announced “no officer of the company to be audited shall get any remuneration from the organization for operating in an advisory capacity to this on accounting or auditing matters. Even so, the payments of consultancy fees are not disclosed in the general appointment of the panel. This may cause a lack of independence in question (Mirshekary et al., 2004).

installment payments on your 2 Examine Committee

Ineffectiveness of the taxation committee was obviously a flawed side in the corporate governance techniques of HIH Insurance, which was disclosed in the Royal Commission’s report (Johnson, 2014). Arens et ‘s (2010) demonstrated that examine committee is known as a subcommittee of board of directors within a company, with specific responsibilities relating to supervise the self-employed audit function. In many modern companies, review committee is known as a complete element of the corporate governance. Audit committees can support the Board of Directors to satisfy about the independence of company, stating by CPA Australia and the Institute of Chartered Accountancy firm in Australia (2004). Having the majority of non-executive administrators has been prevalent for the audit committee in recent times, permitting the panel to handle issues with a good mode and non-conflicts interesting (Mirshekary ainsi que al., 2004).

According to HIH Hoheitsvoll Commission (2003), Geoffrey Cohen who is the chairman in the audit panel and also the chairman of HIH did not fully read the demonstrations of auditors. He joined the great majority in the audit panel meetings, accompanied with other mature management. ‘That no event on which the auditors met with the users of the examine committee in the absence of supervision were not unveiled in the evidence’ claimed simply by Mr White who is advice to the Noble Commission. It indicates that the managing of HIH Insurance not really acted opposing than usual practice. At the same time, the impartiality from the audit panel is in question (Mirshekary ou al., 2004).

2 . a few Ethical Things to consider

There are some ethical issues active in the audit career that produced from the failure of HIH Insurance. Integrity refer to a number of moral valuesor principles. Professional auditors could get stuck in numerous complex circumstances that created by ethical issues. Ethical issues exist when folks is in the face of instances which have dependence on decisions regarding the most suitable behavior whereas if the available alternatives require a trade-off ideals or interest (Arens et al, 2010). Auditors must conform to ethical standards whereas behaving in the needs of investors. Five ethical principles signing up to auditors were identified by Framework for Assurance Events, that is objectivity, integrity, privacy, professional behavior, and professional competence and also due cares (Arens ou al, 2010). Arthur Andersen was paid $5. 1 million in audit fees and $2. 8 , 000, 000 in non-audit fees coming from HIH Insurance during the period of 97 to 2k (Johnson, 2004).

Also Andersen earned $5. 097 mil in terms of auditing the financial statements of HIH Insurance and $2. 824 mil from offering HIH Insurance with non-audit services during the last three monetary years of HIH Insurance. Perhaps the supply of this kind of non-audit services was moral towards Andersen with having best interests of shareholders should be thought about. As already stated above, “Since HIH management were reluctant to increase how much audit costs paid to Arthur Andersen, Arthur Andersen sought to lessen the amount of work performed around the HIH audit¦ were set by comments of Mr Martin (Peursem ain al., 2007). This may means a cosy marriage was put to use by Arthur Andersen to find out that increasing supply of non-audit services may recoup losing assurance charges.

The supply of non-audit providers by Andersen must also be studied the ethical dilemma of obtaining a duty of care to third parties in consideration. A former accountant at HIH Insurance, Jeffrey Simpson stated the close interconnection between HIH Insurance and Arthur Andersen enabled HIH Insurance utilization of aggressive accounting policies. He also portrayed that Arthur Andersen agreement to the putting on these procedures in even more statements (Mirshekary et approach., 2004). In regards to consider Andersen’s duty of care to provide an opinion to shareholders that that the assertions present a genuine and good view, the agreement of Andersen is definitely unethical involved and the auditor’s integrity in pressure situations.

3. Conclusion

In conclusion, this kind of report discusses the auditing issues of collapse of HIHInsurance in the area of audit self-reliance, audit committee and honest considerations. Regarding Arthur Andersen’s dealing with HIH Insurance, interest that the audit partners plus the relationship among senior HIH management have been completely centred within the independence of Arthur Andersen. The second issue is considered the function of examine committee of HIH Insurance played inside the collapse in consideration. Relating to to the moral considerations that arose from the collapse of HIH Insurance, in particular, the provision of Arthur Andersen’s non-audit solutions to HIH Insurance, is a final review issue.

Reference List

Arens, A. A., Best, G., Shailer, G., Fiedler, M., Elder, L. J. & Beasley, Meters. (2010). Auditing, Assurance Providers and Integrity in Australia (8th ed. ). Frenchs Forest, N. S i9000. W.: Pearson Australia. CPA (CERTIFIED PUBLIC ACCOUNTANT) Australia plus the Institute of Chartered Accountants in Australia. (2004). ‘Auditing Handbooks’, Prentice Corridor, Sydney. Manley, R. (2004). READINGS IN AUDITING. Milton, Qld: Wiley. Kehl, D. (2001). HIH Insurance Group collapse. Retrieved 12 January, 2014 by http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/hihinsurance Leung, P. & Cooper, N. J. (2003). The Angry Hatter’s corporate and business tea get together. Managerial Auditing Journal, 18(6-7), 505-516. doi: 10. 1108/02686900310482641 Mak, To., Cooper, E., Deo, They would. & Funnell, W. (2007). Audit, accountability and an auditor’s ethical dilemma: An instance study of HIH Insurance. Asian Overview of Accounting, 13(2), 18-35. doi: 10. 1108/eb060785 Mak, T., Deo, They would. & Cooper, K. (2005). Australia’s Main Corporate Collapse: Health International Holdings (HIH) Insurance “May The Push Be With You. The Record of American Academy of Organization, 6(2), 104-112. Retrieved coming from http://eds.a.ebscohost.com.ezproxy-m.deakin.edu.au/ehost/detail?sid=7e243edc-d09e-4c37-9206-a24fa7ae207a%40sessionmgr4002&vid=1&hid=4205&bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#db=bth&AN=15674522 Mirshekary, S., Yaftian, A. M. & Cross, D. (2004). Australian company collapse: The truth of HIH Insurance. Diary of Financial Companies Marketing, 9(3), 249-258. doi: 10. 1057/palgrave. fsm. 477015


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