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1.a) Business Risks and Inherent Risks

Describe about the Auditing and Assurance Services for Implementing Business Database.

There are many threats for the business organizations, which are mainly associating insurance business along with the business organizations. The firm ‘HIH Insurance Limited’ is untaken in order to study of the business risk involved with the organizations and the inherent risks are also detected and discussed to make better understanding (Harrison, 2010). The business risks and the inherent risk are the significant cause of the failure of the business organizations. The insurance companies, which deal in property insurance along with causality insurance, face various diverse types of business risks or threats, which are detected as exposures. The exposures exist for all diverse types of insurance policies offer by a specific insurance company. The most usual form of threats includes payment for the car accidents as well as the payment for the damages of a house or property due to storm. The insurance companies can manage the risks or threats that are exclusively insured by kind of assured coverage from a specific insurance policy (Careers in insurance and risk management, 2009). In the case study, which is undertaken, it is detected that the undertaken insurance company made an entry into the high risk area such as marine firms, aviation projects, and film financing insurance along with natural disaster, which are indeed risk prone area (Shirreff, 2004). The entire insurance policies offered by the undertaken firm HIH insurance Company faced vital business risks of monetary damage if any accidents take place. Marine as well as aviation industries are profitable industries, however, at the same point of time in these particular industries have substantial amount of business risks or threats as there are huge possibilities of accidents. Film producing is also inherited similar types of risks, nobody knows whether the film will be succeeded or not and failure of a film means substantial amount of business risks (Nersesian, 2004). Apart from this, significantly elevated compensation for the insurance workers in California market is also a vital risk. Due to this, the firm HIH experienced considerable amount of losses because of the exposure to the firm’s in a high risk zone.

The inherent risks are mainly the risks or threats of potential wrong or misleading information in a financial statement result of something other than failure of the management in the investigation of managerial accounting or in the lesson of the financial accounting (Vona, 2011). The example can be given for the companies, where the inherent risk are common, it is watched that the accountants use to utilize a bigger than general amount of decision and an estimation or while crucial financial techniques are associated. For understanding the inherent risks or threats the audit risk context should be examined. It is one of main kind of audit risk. Inherent risks or threats are most common in the segment of financial services as the complexity and the dynamism for regulating the financial bodies. In the undertaken case study, it is observed that the HIH Company’s share price dropped harshly for poor economical result along with vital assets sale for improving the position of the company in the balance sheet as well as claim for the insurance fund (Walker, 2012). During the year of 2000 the company made payment of $1.7 million to the auditor firms for their services to the company as well as the company failed to give future claim.    

b) Inherent Risks and HIH's Case Study

In this particular case study that has been taken into consideration, it is because of the failure of management by the senior managers that the financial performance of the company gets degraded. The shares of the company also got stopped and as a result of it the ASIC conducted investigation to find out the real reason behind the degradation in the performance of the company. The fall of price of the shares of the HIH Insurance Limited has a direct negative effect on the returns of the shareholders. It can be said without any doubt that the auditor of the company, HIH was responsible for the downfall of the company (Ben-Natan, 2005). The financial results of the company shown by the auditor is quite poor and the sales of assets done by the company was in order  to better the condition of the balance sheet and also at the same time claim the fund insurance. A great amount of money, about 1.7 million was given to the auditors by HIH Insurance Limited against the services of auditing provided by them. Since the same auditing firm had done the consulting for HIH, it received another $1.631 from the company. The auditing firm misrepresented the values in the balance sheet which showed that the company was performing poorly and thus can be considered to be the main reason behind the failure of the company. The premiums that the insurance companies receive are made for long term investments so that people can make future claims. There are a few organizations who give provision of over 80 to 90 claims. As a result the auditors here misrepresented all the different values and showed that the company is performing in a poor manner. Consequently the claims and interest of the creditors and clients got affected in a negative manner (Handbook of international auditing, assurance, and ethics pronouncements, 2005). Since the creditors had no chance of recovering the money from the company they faced a great amount of loss. As per the financial reports of the company they would not be able to pay its debts as the company had performed in a negative manner. Therefore it can undoubtedly said that the auditors are responsible for showing the poor performance of the company.   

With the consideration of the case study, the breaching of the act of the negligence is seemed to be present in this case and thereby the conducting of the harms is undertaken with the violence of the negligence. The avoidance or breaching is seen in this case and with the consideration of the injury, the findings are discussed with conducting injury to the plaintiff. The facts and the findings discusses the ways of the harm created for the plaintiff and henceforth solicitor Bruce Dennis fought this case in order to provide justice to the HIH creditors and the clients (CASSEL, 2016). For this reason the plaintiff showed the breaching of the duty that provides justification with the creation of the appropriate contract of the duty. The breaching also focuses on the recovered injury and thereby it also helps in the violation of the contract of the duty with bringing variations in the judgments with foreseeing the violation of the acts (Griffith, 2008). The negligence of the damages should not be overlooked or prevented with the provision of the position of plaintiff in this case and henceforth the wrong decision or the information will lead to the wrong justification with the breaching of the laws of duty.  

2.a) Role of Auditors and the Downfall of HIH Insurance Limited

The three former partners regarding the Arthur Andersen were appointed as the part of the audit team by HIH. The previous ten years, the Andersens had made a lot of money. Andersen consists of the amount of $7million with providing various kinds of the services. Therefore the Arthur Andersen shared strong professional feelings with the creation of the personal relationship with each other. Therefore it can be understood that the personal relationship with each other (Halikiopoulou and Vasilopoulou, 2016). It has created a strong relationship and thereby the consideration of the external audit team is preferred for the creation of consideration and for this reason the financial transactions are made with the creation of the good report. Since Andersen consists of the good relationship with the HIH, therefore the main reason becomes the crucial reason for the creation of hiring as a part of its external audit team. In this way the responsibility is created and thereby the actual report of the financial transactions is provided.   

The main job of the firm of auditing provides the unbiased report of the financial transactions of the company and thereby the consultancy firm is created with the expectation for providing the recommendations with the purpose of maximizing the profitability. With the increment of the profitability, the pay of the taxes increases and thereby the services are also seemed to be increased (Lowry, 2012).  Therefore the jobs are seemed to be quite closely related to the firm with thereby considering the provision of the services and thereby the biasness is generated with the provision of the services. The advantages of having the same firm are that both auditing and the consultancy of the services are seemed to be increased with the financial report as per the needs of the company (Radcliffe, 2010). As it helps in the enhancement of the report of the financial auditing, the company is seemed to be helped by maintaining the image of the market with leading it to an erroneous report.   

As per the facts and figures presented in the present case study it can be said without a hint of doubt that the company is not following the basic ethical practices which it is expected to follow. It is not ethical from the perspective of a company to have a firm with which it has worked before to be a part of the team of external auditors for the company. It is the job of an external auditing team to give the company an unbiased report of the financial performance (Campbell and Houghton, 2005). But since the company is a close acquaintance of the auditing firm, the auditing firm is bound to be biased and thereby deliver a partial report of the business transactions conducted by the company in its balance sheets. HIH Insurance Limited was very well aware of this fact and yet it went on with employing Andersens as its extern al auditors. Thus the decision taken by HIH Insurance Limited is a pure violation of the ethical standards as an auditor is expected to conduct an independent investigation of the financial transactions of a company (Duska and Duska, 2003). 

b) Breaching of Act of Negligence in HIH's Case Study

The primary reason for the collapse of the HIH insurance company is seemed to be collapsing with the provision of the future claims that are seemed to be mentioned in the case study. The mismanagement of the services helps in the consideration of the responses with emerging pressures and henceforth the main purpose of the Ramsay’s report was to review the existing report with the creation of the existing requirements. It becomes the responsibility of the auditor’s report to show the financial position of the company with the creation of the current environment in the market (Yagil and Ben-Zur, 2008). The impact of the Ramsay’s report is to provide the auditing changes as per the consideration of the laws of the corporate reforms. It also helps in rescheduling of the programs and henceforth it provides the additional values to the system with the consideration of the financial report. The strengthening of the financial statements takes place with the consideration of the management of the financial statements and thereby the changes in the capital market take place.  

References

CASSEL, D. (2016). Outlining the Case for a Common Law Duty of Care of Business to Exercise Human Rights Due Diligence. Business and Human Rights Journal, 1(02), pp.179-202.

Griffith, R. (2008). Abuse and the law: a breach of duty. Nurs Residential Care, 10(7), pp.357-361.

Halikiopoulou, D. and Vasilopoulou, S. (2016). Breaching the Social Contract: Crises of Democratic Representation and Patterns of Extreme Right Party Support. Gov. & oppos., pp.1-25.

Lowry, J. (2012). The Irreducible Core of the Duty of Care, Skill and Diligence of Company Directors: Australian Securities and Investments Commission v Healey. Mod. L. Rev., 75(2), pp.249-260.

Radcliffe, S. (2010). Non-rational aspects of the competition state – the case of policy consultancy in Australia. Policy Studies, 31(1), pp.117-128.

Yagil, D. and Ben-Zur, H. (2008). Breaching the Contract: Aggressive Interpersonal Behaviors in Paternalistic Relationships. Journal of Aggression, Maltreatment & Trauma, 16(1), pp.55-71.

Ben-Natan, R. (2005). Implementing database security and auditing. Burlington, MA: Elsevier Digital Press.

Campbell, T. and Houghton, K. (2005). Ethics and auditing. Canberra: ANU E Press.

Duska, R. and Duska, B. (2003). Accounting ethics. Malden, MA: Blackwell Pub.

Handbook of international auditing, assurance, and ethics pronouncements. (2005). New York: International Federation of Accountants.

Careers in insurance and risk management. (2009). San Francisco, CA: WetFeet.

Harrison, C. (2010). Risk. Leicester: Ulverscroft.

Nersesian, R. (2004). Corporate financial risk management. Westport, Conn.: Praeger.

Shirreff, D. (2004). Dealing with financial risk. London: Economist.

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

Walker, R. (2012). Winning with risk management. Singapore: World Scientific.

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