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HIH case study

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1.0 Executive Summary
Firstly, an introduction and background relating to HIH insurance company will be given. Then the cause of HIH collapse is going to be discuss in the following part, mainly focused on the failure of financial risk management, the failure of auditor, the failure of regulation and the lack of independence for non-executive director. Thirdly, according to the analysis of the problem, the paper offers suggestions as to deal with those problems，followed by a brief conclusion at the end of this paper.
2.0 Introduction and background
Prior to its collapse in 2011, HIH insurance was Australia 's second largest insurance company. It was placed into provisional…show more content…
HIH has both the internal and external audit committee, however, the internal audit committee fail to consider the important factors such as risk management and internal control. For the structure of audit committee, the audit meeting of HIH attended by all directors including executive director and the chairman of HIH, Geoffrey Cohen, was also the chairman of the audit committee of HIH, which make the audit committee lose the independence. Audit committees, who supervise the management reporting process and communicate with the external auditors, should be consist of a majority of non-executive directors thereby eliminating the conflict of interest. Furthermore, Andersen as the audit institution, it accepted the actuary 's reports without any query. In particular, Andersen relied extensively on HIH 's internal business audit processes. (The case, 2007)
3.3 The failure of regulation
Two main regulatory institutions are responsible for the regulation of insurance company in Australia which are APRA and ASIC. Although APRA did not cause or contribute to the collapse of HIH, it failed to detect warning signs, follow up information gaps and make effective use of its powers. The collapse of HIH is a chronic process, however ASIC and APRA as the regulation institution fail to fulfill its liability of supervision.

3.4 The failure of accounting method
HIH did not provide adequate reserve margin for future claim
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