Monday, December 17, 2018

'HIH Insurance Report Essay\r'

'Executive Summary\r\nThe take stocking profession plays a epoch-making role in industrialized economies for umteen years. In the redress industry, the manner of take stocking profession is regulated. The scatter of health International Holdings (HIH) was recorded as the biggest merged devote in the history of Australia. similarly an investigation of majestic cathexis was warranted by the HIH give out. Two questions considered in the failures of HIH insurance: Did the take stocked accountors implement their responsibilities and roles? Did the analyseors fulfil their analyzeing work respectablely? This composing provides an analysis of audited accounting issues arising from the collapse of HIH restitution. Among factors that have gave rise to the corporal failure of HIH amends, that of the ethics of auditing profession, roles of auditors and effectiveness of audit military commission have regarded as particular significance.\r\nContents\r\n1. basis\r\nHIH da mages was established when MW Payne Liability Agencies Pty Ltd was in unifiedd by Michael Payne and Ray Williams joining together to do course of insurance down the stairswriter in Australia in 1968. Their trading operations were throughout the world, accompanied with businesses working in numerous countries such as the get together Kingdom, New Zealand, Hong Kong, and the United States (Peursem, Zhou, Flood &type A; Buttimore, 2007). at that place are many varieties of insurances in the markets of UK, the USA and Australia, involving compulsory insurance (for ex adenosine monophosphatele, workers’ payment and third party motor vehicle insurance) and non-compulsory insurance (for instance, home contents and travel insurance) (Kehl, 2001). More than 250 secondary companies comprised of HIH Insurance concourse in a highly complicated structure at the time of closure. With last assets of $939 million at 31st June 2000, HIH Insurance use to be the second biggest under writing insurance in Australia.\r\nWith debts of just about mingled with $3.6 billion and $5.3 billion, HIH Insurance was placed into doubtful liquidation on 15th March, 2001 (Peursem et al., 2007). The collapse of the HIH Insurance was considered the largest corporate failure in the history of Australian business. Subsequently, the collapse contributed to the establishment of a Royal Commission to make an investigation on ‘the degree of which behaviours of employees, directors, auditors, advisors and actuaries maintain rise to HIH failure or concerned inapplicable company practices’ appointed by the Australian federal government (Mirshekary, Yaftian & Cross, 2004). Be give HIH Insurance was a major(ip) insurer in Australia, its collapse had a far-flung impact on society (Leung & Cooper, 2003). The project of this constitution is to analyse the audit issues arising from the HIH Insurance collapse. A brief of HIH profile is provided prior to the auditing analysis of HIH Insurance collapse. The next part of this paper is devoted to try issues related to HIH audit practices with respect to audit emancipation, audit delegacy and estimable considerations.\r\n2. Discussion\r\n2.1 Audit freedom\r\nThe issue of audit freedom is fundamental strong in the collapse of HIH Insurance. Audit independency carry ons to with child(p) an unbiased and objective perspective in the estimation of the results, the performance of audit tests, and the release of the audit report. This is 1 of the auditor’s characteristics of most crucial importance. In addition, independence is basic principles of objectiveness and integrity (Arens, Best, Shailer, Fiedler, elderberry bush & Beasley, 2010). According to HIH Royal Commission (as cited in Mak, Deo & Cooper, 2005), the Royal Commissioner discovered that Andersen was not autonomous and had not accomplished the hopes and expectations about the role and responsibilities of playacting as an auditor. From when HIH Insurance joined the Health group in 1971, Arthur Anderson performed the audit of HIH Insurance until the planningal liquidation of HIH Insurance in 2001(The HIH Royal Commission, 2003). In the fresh of HIH Royal Commission (as cited in Johnson, 2004), Justice Owen assemble out that the following facts were involved in evaluating the independence of Arthur Andersen.\r\nThe HIH Board of directors included three reason assistants of Andersen: â€Å"an Andersen render was a chair of the HIH climb on and continued receiving fees under a consultancy agreement; an Andersen partner was removed from the audit team after impact with non-executive directors in the absence seizure of management and the chief fiscal officer (CFO) was an ex-Andersen partner” (Mak, Cooper, Deo & Funnell, 2007). â€Å"Since HIH management were reluctant to development the heart of audit fees paid to Arthur Andersen, Arthur Andersen sought to concentrate the bea t of work performed on the HIH audit…” were tell in comments of Mr Martin, instruction to the Royal Commission (Peursem et al., 2007). Arthur Andersen paid the consultancy fees to Geoffrey Cohen, who was the former Arthur Andersen partner and Chairman of HIH board. With including the function of a monument and the utilization of Andersen office, these payments totalled at $190,877.60 over a diaphragm of nine years (Peursem et al., 2007). Recognised in government agency B of the Code of moral philosophy, classifications of threats to independence include the threats of intimidation, familiarity, advocacy, self-review and self- post.\r\nnether the Corporations Act, situations generating from any relationship that is possible pull through, has existed, or exist should are necessary considered in the possibility of a conflict of interest (Arens et al., 2010). The above facts indicated that a exclude personal relationship developed and it could be a familiarity threa t to the independence of the auditor. In respect of these matters, Arthur Andersen mightiness have leave outed independence. Moreover, the declaration by Mr Martin might cause people to question whether the duties with master copy scepticism and objectivity were fulfilled by auditors and whether the directors have effect on or put pressure to the auditors (Mirshekary et al., 2004). This similarly enabled the independence of Andersen be doubted. In addition, the auditing practice statements (AUP) 32 tell â€Å"no officer of the company to be audited shall nail any remuneration from the firm for acting in an advisory capacity to it on accounting or auditing matters”. Nevertheless, the payments of consultancy fees were not unwrap in the general meeting of the board. This may result in a lack of independence in question (Mirshekary et al., 2004).\r\n2.2 Audit commission\r\nIneffectiveness of the audit commissioning was a damage side in the corporate governance practices of HIH Insurance, which was divulge in the Royal Commission’s report (Johnson, 2014). Arens et al (2010) showed that audit committee is a subcommittee of board of directors in a company, with specific responsibilities relating to supervise the self-supporting audit function. In many modern companies, audit committee is a complete element of the corporate governance. Audit committees can support the Board of Directors to gather about the independence of company, stating by CPA Australia and the give of Chartered Accountants in Australia (2004). Having most of non-executive directors has been common for the audit committee in recent times, enabling the committee to handle matters with a fair mode and non-conflicts of interest (Mirshekary et al., 2004).\r\nAccording to HIH Royal Commission (2003), Geoffrey Cohen who is the chairman of the audit committee and also the chairman of HIH did not to the full read the presentations of auditors. He attended the great absolute majo rity of the audit committee meetings, accompanied with other ranking(prenominal) management. ‘That no occasion on which the auditors met with the members of the audit committee in the absence of management were not disclosed in the evidence’ claimed by Mr White who is counsel to the Royal Commission. This implies that the management of HIH Insurance not acted contrary than usual practice. At the same time, the impartiality of the audit committee is in question (Mirshekary et al., 2004).\r\n2.3 estimable Considerations\r\nThere are some ethical issues involved in the audit profession that generated from the collapse of HIH Insurance. Ethics refer to a series of moral values or principles. Professional auditors can get stuck in many complex flock that produced by ethical predicaments. Ethical predicaments exist when people is in the face of circumstances which have requirement of decisions about the most adapted behaviour whereas when the available choices require a tradeoff ideals or interest (Arens et al, 2010). Auditors must(prenominal) comply with ethical standards whereas acting in the best interests of shareholders. Five ethical principles applying to auditors were identified by the Framework for Assurance Engagements, that is objectivity, integrity, confidentiality, professional behaviour, and professional competence as well as due cares (Arens et al, 2010). Arthur Andersen was paid $5.1 million in audit fees and $2.8 million in non-audit fees from HIH Insurance during the period of 1997 to 2000 (Johnson, 2004).\r\nAlso Andersen earned $5.097 million in terms of auditing the financial statements of HIH Insurance and $2.824 million from offering HIH Insurance with non-audit services during the last three financial years of HIH Insurance. Whether the translate of such non-audit services was ethical towards Andersen with having best interests of shareholders should be considered. As already mentioned above, â€Å"Since HIH management w ere reluctant to increase the amount of audit fees paid to Arthur Andersen, Arthur Andersen sought to reduce the amount of work performed on the HIH audit…” were express in comments of Mr Martin (Peursem et al., 2007). This may means a cosy relationship was utilised by Arthur Andersen to know that change magnitude supply of non-audit services can recoup the qualifying of assurance fees.\r\nThe supply of non-audit services by Andersen must also be taken the ethical dilemma of having a traffic of care to third parties in consideration. A former accountant at HIH Insurance, Jeffrey Simpson stated that the close connection between HIH Insurance and Arthur Andersen enabled HIH Insurance utilization of aggressive accounting policies. He also expressed that Arthur Andersen consent to the application of these policies in hike up statements (Mirshekary et al., 2004). In regard to consider Andersen’s duty of care to give an opinion to shareholders that that the statem ents present a true and fair view, the agreement of Andersen is unethical in question and the auditor’s integrity in pressure situations.\r\n3. Conclusion\r\nIn conclusion, this report discusses the auditing issues of collapse of HIH Insurance in the area of audit independence, audit committee and ethical considerations. In relation to Arthur Andersen’s dealing with HIH Insurance, attention that the audit partners and the relationship between senior HIH management have been centred on the independence of Arthur Andersen. The second issue is taken the role of audit committee of HIH Insurance played in the collapse in consideration. Regarding to the ethical considerations that arose from the collapse of HIH Insurance, in particular, the provision of Arthur Andersen’s non-audit services to HIH Insurance, is the final audit issue.\r\n savoir-faire List\r\nArens, A. A., Best, P., Shailer, G., Fiedler, B., Elder, R. J. & Beasley, M. (2010). Auditing, Assurance wo rk and Ethics in Australia (8th ed.). Frenchs Forest, N.S.W. : Pearson Australia. CPA Australia and the Institute of Chartered Accountants in Australia. (2004). ‘Auditing Handbooks’, Prentice Hall, Sydney. Johnson, R. (2004). READINGS IN AUDITING. Milton, Qld: Wiley. Kehl, D. (2001). HIH Insurance Group collapse. Retrieved 12 January, 2014 from http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/archive/hihinsurance Leung, P. & Cooper, B. J. (2003). The Mad Hatter’s corporate tea party. Managerial Auditing Journal, 18(6-7), 505-516. doi: 10.1108/02686900310482641 Mak, T., Cooper, K., Deo, H. & Funnell, W. (2007). Audit, accountability and an auditor’s ethical dilemma: A case study of HIH Insurance. Asian review of Accounting, 13(2), 18-35. doi: 10.1108/eb060785 Mak, T., Deo, H. & Cooper, K. (2005). Australia’s Major embodied Collapse: Health International Holdings (HIH) Insurance à ¢â‚¬Å"whitethorn The Force Be With You”. The Journal of American honorary society of Business, 6(2), 104-112. Retrieved 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 corporate collapse: The case of HIH Insurance. Journal of Financial Services Marketing, 9(3), 249-258. doi: 10.1057/palgrave.fsm.477015\r\n'

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