Essay on Independence Issue in Hih Case

2665 WordsJun 3, 200811 Pages
Introduction: This essay discusses about the corporate collapses in the new millennium. In recent years the Australian corporate sector has witnessed the failure of number of corporations, including HIH Insurance, Harris Scarf, One. Tel, Ansctt Australia. This paper focuses on the financial audit of HIH insurance, which collapsed on 15th March 2001. This was the largest failure in Australian business history. Royal commission was appointed investigate re-issue of HIH Insurance collapsed with debt estimated $5.3 billion Australian dollars (Mirshekary, S, 2005). A brief review of the incidence of corporate failure will be provided prior to an analysis of the collapse of Health International Holding (HIH) and the involvement of its auditor,…show more content…
Both Enron and HIH had been audited by Arthur Andersen, interestingly, a Commercial research company, Institutional analysis, has pointed out that there was no independent director in the audit committee from these three collapsed companies (Buffini, 2002a). In order to improvement, it is mandatory for all professional auditors to comply with the Joint Code of Professional Conduct established by the Society of Certified Practicing Accountants (CPA) Australia and the Institute of Chartered Accountants Australia (ICAA). Arthur Andersen has done the financial audit of HIH from 1971 until HIH’s liquidation in March 2001. During this period Arthur Andersen developed a professional relationship with HIH over a 30 year period, whom it considered to be one of its major Australian clients. There were three former partners of Arthur Andersen held positions on the HIH board of directors at the time when the HIH was going in to liquidation. One of them was received the continuing benefits from Andersen. He was made chairman and appointed to the audit committee after the retirement. Andersen paid consultancy fees to HIH chairman (Geoffrey Cohen), which was not disclosed to the board in the general meeting. According to AUP 32, no officer of the company that is not been audited shall receive any salary or fees from the audit firm (Cooper et al., 2006). Aftermath of the collapse, as HIH’s board appointed Dominic Fodera as its chief operating officer
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