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  • Subject Name : Auditing

The Critical Analysis of a Australian Company with Audit Issues Which Lead to Its Failure

Executive Summary

Audit professionals have played an important role in the industrialized economy for years. The insurance industry regulates the way professionals are audited. The Health International Holdings (HIH) bankruptcy was recorded as the largest corporate bankruptcy in Australia. The investigation by the Royal Committee was justified by the collapse of the Health International Holdings. Two questions taken into account in the failure of Health International Holdings Health Insurance: Did the auditor perform not only roles but also responsibilities? Did the auditor perform the audit duty ethically? This report provides an analysis of the audit issues resulting from the failure of Health International Holdings insurance.

Among the causes of the corporate bankruptcy of Health International Holdings Health Insurance, auditing ethics are considered particularly important to the role of auditors as well as the effectiveness of the audit committee.

Contents

Executive Summary

Introduction

Discussion on the Audit Issues

Audit Issue 1: Unbiased as well as objective perspective in the assessment of the results

Audit Issue 2: Ineffectiveness of the audit committee

Audit Issue 3: Audit profession that generated from the collapse of Health International Holdings Health Insurance

Conclusion

References

Introduction

Health International Holdings Health Insurance was established when MW Payne Liability Agencies Pty Ltd was established in 1968 when Ray Williams was established jointly by Michael Payne as well as Ray Williams to operate underwriting businesses in Australia.

Their business was located around the world, as well as they were operating in many countries. The U.K., U.S., as well as Australia markets have different types of insurance, including compulsory insurance as well as non-compulsory insurance (e.g., housing insurance) content as well as travel insurance. On June 31, 2000, the net assets were $939 million (Mirshekary, Yaftian and Cross, 2005).

Health International Holdings Health Insurance, with debts of approximately $3.6 billion as well as $5.3 billion, was provisionally liquidated on March 15, 2001. The bankruptcy of Health International Holdings Health Insurance was thought to be Australia's largest corporate bankruptcy. The collapse then contributed to the establishment of the Royal Committee, as well as conducted a survey of the Australian-appointed "How Employees, Directors, Company Auditors, Advisers, as well as Actuaries' Actions Can Lead to Health International Holdings’ failure or Undesired Corporate Practices" (Mirshekary, Yaftian and Cross, 2005).

Discussion on the Audit Issues

Audit Issue 1: Unbiased as well as objective perspective in the assessment of the results

The issue of unbiased as well as objective perspective in the assessment of the results is fundamental to the breakdown of Health International Holdings insurance. Audit independence refers to giving a fair as well as objective perspective in evaluating results, auditing test performance, as well as release of audit reports. This is one of the most important aspects of auditors. In addition, isolation is a fundamental principle of objectivity as well as integrity. According to the Health International Holdings Royal Committee, the Royal Committee found that Andersen was not independent as well as did not meet expectations as well as expectations for its role as well as responsibility. An auditor After Health International Holdings Health Insurance joined the health group in 1971, Arthur Anderson conducted an audit of Health International Holdings Health Insurance as well as in 2001, as well as the interim settlement of Health International Holdings Health Insurance was completed. In light of the Health International Holdings Royal Committee, Judge Owen found the following facts involved in the evaluation of Arthur Andersen's independence (Mak, Cooper, Deo and Funnell, 2005).

Arthur Andersen paid a consultant fee to Geoffrey Cohen, a former Arthur Andersen partner as well as Chairman of Health International Holdings. These payments, including the service of the secretary as well as the use of the Andersen office, totaled $190,877.60 for a total of nine years.

Under the Companies Act, you should consider the potential conflicts of interest as well as situations arising from relationships that may exist, exist, or may exist. Furthermore, Martin's declaration may also cause people to ask if the auditor is performing professional skepticism as well as objectivity obligations as well as whether the director has affected or pressured the auditor (Mak, Cooper, Deo and Funnell, 2005).

Audit Issue 2: Ineffectiveness of the audit committee

The wastefulness of the review panel was a flawed part of the corporate administration practices of Health International Holdings Health Insurance, which was unveiled in the Royal Committee's report it has indicated that the review advisory group is a subcommittee of the organization's top managerial staff just as has a particular obligation identified with the oversight of autonomous review capacities. In numerous organizations today, the review advisory group is a finished part of corporate administration. As per CPA Australia just as Australia's Institute of Certified Public Accountants (2004), the review advisory group can bolster a top managerial staff meeting fulfilling the organization's autonomy. As of late, most low maintenance chiefs have gotten normal to the review board, just as the council can deal with issues in a reasonable mode just as no irreconcilable circumstance (Baranoff, 2014).

Audit Issue 3: Audit profession that generated from the collapse of Health International Holdings Health Insurance

There are a few moral issues with examiners coming about because of the breakdown of Health International Holdings protection. Morals are a lot of virtues or standards. Proficient inspectors can be stuck in numerous unpredictable circumstances made by moral situations. There is a moral predicament when the accessible decisions require the perfect or enthusiasm of exchange off, while individuals are confronting a circumstance where choices are required for the most proper conduct. Examiners must conform to moral guidelines while representing the eventual benefits of investors. The five moral rules that apply to the review practice—objectivity, trustworthiness, classification, proficient conduct, master capacity, just as appropriate thought were recognized by the structure of the guarantee exertion. Arthur Andersen got $5.1 million for review just as $2.8 million for non-review from Health International Holdings Health Insurance between 1997 just as 2000 (Baranoff, 2014).

Andersen earned $5.107 million to audit Health International Holdings Health Insurance financial statements as well as $2.824 million to provide non-audit services to Health International Holdings Health Insurance during the past three fiscal years. It is necessary to consider whether such non-audit services were ethical to Andersen to maximize shareholder profit. As mentioned above, "Health International Holdings management was reluctant to increase the amount of audit fees paid to Arthur Andersen, so Arthur Andersen sought to reduce the amount of work done in the Health International Holdings audit...", said Martin in a comment., 2007).This may mean that Arthur Andersen used a cozy relationship to learn that the increase in the supply of non-audit services can recover from the loss of warranty fees.

The Andersen agreement is a problem as well as the integrity of the auditors in the pressure situation is also a problem in considering Andersen's duty of care to state the shareholders' opinion that the statement presents true as well as fair opinions (Baranoff, 2014).

Conclusion

As a conclusion, this report discusses the audit issues of Health International Holdings insurance failures in the areas of audit independence, audit committee, as well as ethical considerations. Note that the relationship between the audit partner as well as the senior Health International Holdings manager is concentrated on Arthur Andersen's independence in relation to Arthur Andersen's Health International Holdings insurance response. The second problem is taking into account the role of the Health International Holdings Health Insurance Audit Committee in consideration of the collapse. The provision of Arthur Andersen's non-audit services to Health International Holdings Health Insurance is the last audit issue, particularly for ethical considerations arising from the bankruptcy of Health International Holdings Health Insurance.

References

Baranoff, E., 2014. The Underwriting Cycles Model for Insurers’ Financial Stability vs. Systemic Risk Using the Case of the 2001 Hih Insurance Failure in Australia. SSRN Electronic Journal,.

Mak, T., Cooper, K., Deo, H. and Funnell, W., 2005. Audit, accountability and an auditor's ethical dilemma: A case study of HIH Insurance. Asian Review of Accounting, 13(2), pp.18-35.

Mirshekary, S., Yaftian, A. and Cross, D., 2005. Australian corporate collapse: The case of HIH Insurance. Journal of Financial Services Marketing, 9(3), pp.249-258.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Auditing Assignment Help

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