Auditing and Assurance Services for Corporations Law

Discuss about the Auditing and Assurance Services for Corporations Law.

1 Assessing the Business and Inherent Risk

a) HIH and its Business Risk

The merger of CE Health and Swiss based Insurer named as Winterthur Insurance Company led to the formation of HIH. The merger led to establishment of HIH Winterthur, however in the year 1998, the name of the company was changed to HIH Insurance Limited and it was mainly because of the fact that Winterthur withdrew itself from the operations of the company. The withdrawal was because of the fact that Winterthur was not confident about the operations of the company and due to lack of confidence in the company; he sold all its shares. So, the insurance areas that HIH entered into came to be looked upon as a high risk areas since it include the aviation, marine, film financing and natural disaster and it also entered the area of the highly competitive workers’ compensation insurance market in California and so it can be said that HIH was exposed to high risk operations and these actions resulted to losses (Cruz, Peters and Shevchenko, 2008). The company made a loss to the tune of $100 million from the film financing vertical. There was significant damages claim from the FAI takeover undertaken by the company resulting from the Sydney hailstorm. Similarly the typhoon in Florida that occurred in 1999 resulted in huge losses for HIH. The industry deregulation in California resulted in huge compensation claims on the part of the workers. In fact the court of California modifying the award scale for worker benefits was the reason behind the significant hike in the claim amount for companies dealing in insurance like HIH.

b) Risk factors affecting HIH at the financial report level

At the financial report, it was observed that HIH failed to adequately provide amount for the future claims because of mismanagement and inadequate response to the pressure that emerged in the international insurance market.

HIH also faced the risk of falling price of its shares which was due to the factors like the poor financial results and asset sales conducted for improving the position of the balance sheet and the company also accused to fraud the insurance claims (Helliar, 2007). The company was also accused of paying an amount of $1.7 million for the auditing service and $1.631 million for the consulting service which was suspicious and thus exposed the company to high risk of undergoing investigations related to fraud and misrepresentations.         

2 Legal Liability

a) Court Cases: Facts and Findings

The legal considerations involved in HIH collapse:

Criminal misconduct

The Corporation Act 2001 puts forward the fact that when money is attuned on the part of an organizational member then this code of conduct can be termed as criminal and this mainly because of the fact that this type of conduct tends to degrade the value and the interest that the stakeholders possess within the company (Ciroet al., 2009). Analysis of the case study reveals the fact that, Mr. Williams was involved in the criminal misconduct since he received $124000 dishonestly from Mr. Brad Cooper against both the direct and the indirect facilitation of the payment to Mr. Cooper and in addition to the above case, it was also observed that Mr. Williams was also found guilty of facilitation of a payment of $737000 towards an organization with which Mr. Cooper was associated.

Breach of Directors duty

It is important of the part of the directors of Australia to perform the duties as has been prescribed by the corporate jurisdictions and they are also to abide by the duty of loyalty and care. Their primary duties include acting in the best interest of the company and create and maximize the value of the shareholders (Davenport and Parker, 2011). Analyzing the case study reveals the fact that, Mr. Williams was not able to discharge his duties as a director of HIH since he was accused of signing a misleading letter.

Financial information: Misrepresentation

The Corporation Act 2001 emphasizes upon the fact that if an organization is observed to be providing false information in its annual report then it is a criminal offence. Moreover, such type of actions of the company also hampers the company’s financial position and the value and the interest of the shareholders is degraded (Clikeman, 2009).

So, in case of HIH, Mr. Williams was observed and found guilty of overstating the operating profit of the company by $92.4 million in the annual report of the company published during 1988 – 99 and in the year 1998 and in addition was also found guilty of material omission in the issued prospectus. 

b) Conditions that need to exist

Taking into consideration the modern law of negligence, there are certain conditions that need to be fulfilled for occurrence of the action of negligence. With a view to ascertain negligence as reason of action with respect to law of torts, it is essential plaintiff needs to establish that the defendant was entrusted with duty towards the plaintiff (Hull, 2012). Further there was a breach of duty on the part of the defendant with his failure to maintain the standard of code of conduct. In addition it was the negligence of the defendant’s conduct that was directly responsible for the harm cause to the plaintiff. Based on law of negligence the below mentioned condition are cited for the action of negligence.

  • It should be proven fact that the breach of duty has resulted in significant damage.
  • It should be proven fact that the accused is responsible for duty of the care (Hull, 2012).
  • The evidences prove that damage done is not remote.

3 Ethics

a) Hiring prior members of External Audit Team

It has been observed many a time that, the business organizations in order to practice fraudulent financial and accounting actions strive towards hiring and appointing the prior members of the external audit team in the board of director’s team. So, on the basis of the above aspects, it can be said that the process of hiring of the former members of the audit team in the board of directors of the company was the first step on the part of HIH towards practicing financial frauds in an easy and efficient manner. The external auditors are responsible to analyze the materiality of the financial statements that the company publishes and the audit is conducted to analyze whether there exist any material error or not and whether the company is getting involved in any kind of fraud or not (Evans, 2006). After the findings have been collected from the auditing, the report is prepared. So this proves the fact that external auditors need to be knowledgeable in context to the ways in which the financial statements can be interpreted and should have sound knowledge of what is called fraud and how it is executed. So in relation to the above facts it becomes obvious that if the management of an organization appoints a member of the external auditors as a member of the board of director of the company then they can easily be convinced to become an active member of the fraud together with the fact that involvement of the auditor in the fraudulent activities also minimizes the chance of exposure and revelation of the fraud. So, in case of HIH, the main motive was to practice fraud and do not get exposed and this was the major reason for hiring the prior members of the external audit team.

b) Appointing same firm for auditing and consulting: Advantages

Complexity reductions

Complexity can be considered to be a major issue if separate forms are hired to provide consuming and auditing services and thus if both the services are availed from the same firm then it would simplify the process and ensure efficiency.

High quality personnel

Auditors and management accountants are appointed by the public accounting firms and the professionals are highly qualified and are also talented and possess a knack for continuous learning and improvement (Goodwin and Kent, 2006). So it leads to increased efficiency on the part of the audit team which in turn leads to enhanced consulting and auditing services.

Complexity reductions

Complexity can be considered to be a major issue if separate forms are hired to provide consuming and auditing services and thus if both the services are availed from the same firm then it would simplify the process and ensure efficiency.

High quality services

The auditing firms being a part of the public accounting industry strive towards including talented, qualified and knowledgeable individuals in the audit team and thus if the same firm is used to consulting and auditing services, it is obvious that the organization would be facilitated with high quality services from the talented professionals (Hatherly, 2008).

Handling ease

A firm in favor of appointing the same firm from which it seeks the auditing services as a firm from which it can seek consulting services mainly because of the confidence in the provided services. The degree of confidence is high because, the organization has prior knowledge and experience of the services being rendered by the firm.

c) Violation of Ethical Standards

Taking into consideration the case of hiring and appointing the same firm for the provision of both the services that include the consulting and the auditing services, cannot be considered as unethical. However, the above mentioned in order to be an unethical practice need to fulfill certain specific conditions.

The above described action can be looked upon as an unethical practice if it tends to pose threat to the independence for which there are no available safeguards. Thus decisions need to be taken in context to whether auditing or conducting service need to be stopped (Vona, 2011).

Again as per the Combined Code of Corporate Governance, if the organizational committee observes suspicions in the objectivity and independence of the auditors then the decision can be taken in context to either stopping both auditing and consulting services or stop anyone (Clikeman, 2013).

Moreover, as per ethical codes, the shareholders possess the right of assessing the extents of the consulting services being provided and so it becomes mandatory on the part of the organizations to mention the total amount of consultation fees in the annual report.

d) Recommendations

The draft legislation was released in 2003 and it is considered as the next stage of the Corporate Law Economic Reform Program and it strives towards proposing certain reforms as follows:

Shareholders’ empowerment

The proposal with respect to the inclusion of director’s remuneration report is made available in the draft bill. There is two separate provision mentioned. In the context of the listed companies there is need to provide the remuneration report of their five highest paid executives and in case of consolidated groups, the company needs to publish the remuneration report of at least 10 group executives. In addition to this there is a need to make a proposal that needs to be presented in the AGM of listed company whereby there is a resolution to adopt the remuneration report by the company.

Company report disclosure

The reforms in context of the director’s remuneration put forward the fact that the company should publish the remuneration report of its senior officers together with the financial and the operational reviews and the published report should also highlight the consultation fees that it tends to pay for both the non-auditing and auditing services (Vona, 2011).  

Auditing and reforms

The stakeholders enjoy the right to assess the director’s remuneration together with assessing the remuneration of the senior officers of the company. They can also ask for reasons in context to the aspects like the non-compliance of non-auditing services and independence factors (Wolny, 2013). The organizational members also possess the right of assessing the operational and the financial position of the company and analyze the future strategies of the company.

Auditing practice impacting the reforms

The auditing practice has several direct impacts for the stakeholders. Firstly it assists the stakeholder to make proper assessment in regard to the justification of remuneration paid to directors and board members Vona, 2011). Secondly it help stakeholder identify the non –compliance related with non -audited service and the reason for the same. Finally it assists the members of the company to assess the financial and operational position along with the future prospect of the company.

References

Ciro, T., Symes, C. and Woodward, S. (2009). Corporations law. Sydney: Lawbook Co.

Clikeman, P. (2009). Called to account. New York: Routledge.

Cruz, M., Peters, G. and Shevchenko, P. (2008). Fundamental aspects of operational risk and insurance analytics. 3rd ed.

Davenport, S. and Parker, D. (2011). Business and law in Australia. Pyrmont, N.S.W.: Thomson Reuters (Professional) Australia.

Evans, D. (2006). Facts, failures & frauds. New York: A.M. Kelley.

Goodwin-Stewart, J. and Kent, P. (2006). Relation between external audit fees, audit committee characteristics and internal audit. Accounting & Finance, 46(3), pp.387-404.

Hatherly, D. (2008). External examining: An external audit service?. The British Accounting Review, 20(1), pp.21-37.

Helliar, C. (2007). Auditors’ perceptions of inherent risk. 2nd ed. [Dundee, Scotland]: University of Dundee.

Hull, J. (2012). Risk management and financial institutions + website. Hoboken, New Jersey: John Wiley & Sons, Inc.

Vona, L. (2011). The fraud audit. Hoboken, N.J.: Wiley.

Wolny, P. (2013). Understanding financial frauds and scams. New York: Rosen Pub.

 

The writers at BoomGrades.com are known to produce world-class dissertations. Our dissertation writing services are made up of highly talented PhD experts who are extremely knowledgeable and creative. We offer our dissertation help for 100+ subjects and make sure the copy is submitted on time

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with Boom Grades
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Classic English Literature
Great Work as Usual. Thank you . I received an A on the paper!
Customer 452531, November 9th, 2021
English 101
perfect! thanks!
Customer 452543, December 1st, 2021
Exercise Science
Thank you so much for your time.
Customer 452545, December 5th, 2021
Religious studies
I recommend this service they always help. I got an A in this project thanks.
Customer 452507, October 5th, 2021
world civilization
Thank you for the quick response
Customer 452509, June 27th, 2021
Gerontology
Thank you so much this looks great !!!!
Customer 452585, November 4th, 2023
Medicine
Great content.
Customer 452549, February 8th, 2022
Classic English Literature
Absolutely LOVE the essay I received. I really appreciate it so much.
Customer 452529, October 25th, 2021
Literature
Absolutely LOVE having help especially from the person who wrote this last one. THANK YOU
Customer 452529, November 19th, 2021
English comp
Got a 94% thank you!
Customer 452509, June 27th, 2021
english comp
Great paper and done before the deadline. Thank you
Customer 452509, June 15th, 2021
Public Health
Thank you so much !!
Customer 452589, November 28th, 2023
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat