Auditing: Businss And Inherent Risk Essay

Question:

Describe about the Report for Auditing of Businss and Inherent Risk.

Answer:

1 —Business Risk and Inherent Risk Assessments

A) How would you assess the business risk of HIH Insurance Limited?

Business risk of HIH Insurance Limited has been seen to reveal a contradictory pattern since there are more aspects that come into the context of HIH financial report. It is obvious that the business has lost it grounds a trusted source for Insurance as the malign ways of investment has been initiated and practiced by the Insurance Firm. However, the repute of the firm has taken a complete reversal as far as sustaining the company is concerned (Christensen, 2011). Since the only way out is to render a complete and secure transition as with the takeover by FAI towards rebuilding the ways for security and transformation.

B) List several inherent risk factors affecting HIH at the financial report level and whether they would have contributed to an increase or decrease in the inherent risk assessment.

The takeover of FAI, however, confirmed that HIH’s strategies to intensify a major market share position in Australia, and hence change the business mix and to diversify distribution into every available distribution channel. As, HIH Insurance Group is notably the second largest General Insurance Group in Australia, the exposure to trust lines rose substantially as a result of the FAI takeover with commercial facets now representing only about the half of total business and 35% of business that operates inside Australia where the malignity are more widespread than the other means of operation. Moreover, the rationale behind the takeover has to restructure the business thereby, providing lower instability and more resilience to long-term earnings. Hence, it could be seen that there are more variations that revive the stability and sustenance of the HIH have been elevated to a better rate as far as the parameters are concerned (Parrino et. al, 2012).

2. a

The insurance company director made use of the public money by false means by holding the annual rate policies that were of fixed nature so that capitalization can be done with the annuity rates that are prevalent currently. This matter was observed in Equitable Life Assurance Society v Hyman where the society was closed after judgment was given by the House of Lords. In this scenario, the holder of policy were not bankrupt still compensation policy was established for them.
It is to be noted that partnership can assume a strong position as it meets a declaratory wisdom. Therefore, the case law of Raskov vs. Stapke & Harris can be adhered to by Anderson for the matter of justification.
Negligence can be termed as a failure to take a proper stand over anything. It can be intentional or unintentional in nature or can be both. However, ignorance cannot be tagged as a means to get rid of legal and statutory actions. Negligence happens when there are claims, misinterpretation and fraudulent details. It attracts legal actions and is a punishable offence.
3. The HIH board of directors includes three former partners of the audit firm Arthur Andersen. In the past decade, Andersen has earned more than $8 million from auditing HIH books and $7 million for other services.

Required:

a) Why would HIH have wanted to hire prior members of its external audit team?

b) What are the advantages of having the same firm provide both the auditing and consulting services?

c) Indicate whether these circumstances represent a violation of ethical standards and give reasons for your answer.

d) Outline the primary recommendations for audit reform proposed by the Ramsay Report and CLERP 9. What impacts do you feel these changes will have on the practice of auditing?

a) The external auditors, who dealt with the earlier records of the company has more volatile and efficient ways of managing the operative records of the company. However, as reports suggest HIH claims to have the most diverse distribution mix as compared to Australian general insurer. This can also be noted as the central element of the company’s strategy to reduce instability and to improve the earnings of the company. Hence retaining the old editors who dealt with the firm externally could mark the moves and patterns as and when needed (Davies & Crawford, 2011). Moreover, there are reliable sources through the old auditors that form the major asset of the organization when it comes to the acumen of the auditors who base on the varied parameters.

b) Providing same company for audit and consultation allows easy access to the services and options on the better side of the efficacy and operation while considering the needs and resources as intended to be revised by the Firm to the stakeholders (Brealey et.al, 2011). As far as the country of Australia is considered that forms the more component of the activities of HIH Insurance Group. USA and UK along with Australia forms significant contributions in terms of assets and income. Hence maintaining a single firm providing both consultation and auditing can be considered as the better options than otherwise.

c) There are no violations as with the context of the single firm managing the facility since these are external and hence has viable attributes to relate to the services and the other inclusive parameters as and when needed. Since consultation and Auditing go hand in hand; there are many inclusive parameters that lie in the fringe of the comfort zone when the violations attributes are concerned (Albrecht et. al, 2011). The same is reflected in the procedures that are adjusted to provide the better reserves for the organizations to deal with the compliance to the methods. But as far as the regulatory norms enacted, these facilities are bound by external sources that might thereby encourage a better reserve for the organization to deal with the insurance profits and deal with opportunities. Moreover, the inclusion of inclusive options of a single facility firm also decreases the chances of errors that could hinder the processes.

d) In May 2003 Andersen Australia was integrated into the partners and employees of Ernst and Young, thereby the recommendations of the Ramsay Report and the Royal Commission are generally consistent with the CLERP 9 proposals as enacted in 2004. With respect to audit reform. The situation can be seen to deteriorate with the subsequent collapse. The facility provides the following aspects towards the betterment of efficiency for the entities in the recognitions.

A substantial disclosure for offenses.

The change made to financial reporting.

Amendments to fundraising.

The reserved prospects of the organization hence provide distinctive records that describe the compliance of the records within the limits of the parameters included in the better options suited for the finest portrayal of the auditory records with confirmed accuracy (Eugene & Philip, 2011).

References

Albrecht, Steve, Stice, Earl & Stice, James, Financial accounting (Mason, OH: Thomson/South-Western, 2011)

Brealey, Richard, Myers, Stewart, Principles of corporate finance (New York: McGraw-Hill/Irwin, 2011).

Christensen, John, ‘Good analytical research’, European Accounting Review, 20(1), 2011, 41-51

Davies, Tony and Crawford, Ian, Financial accounting (Harlow, England: Pearson, 2011)

Eugene, Brigham & Philip, Daves, Intermediate financial management (USA: Cengage, 2011)

Parrino, Robert, Kidwell, Davis. & Bates, Thomas, Fundamentals of corporate finance (Hoboken, NJ: Wiley, 2012)

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