Auditing Essay: Inherent Risk Factors For HIH Financial Report And Legal Liability.

Business Risk Assessment of HIH Insurance Limited

Discuss about the Auditing for Business Risk Pertaining.

“Business Risk Assessment of HIH Insurance Limited”

It is important to assess the business risk pertaining to HIH Insurance Limited. Business risk considers as the factors that prevents and hinders in achieving further organizational goals and objectives (Zadek et al., 2013). These risks are mostly faced by business organization for diverse and wide-ranging attributes. This particular study mainly focus on the ultimate risks that affects running of business enterprise for going-concern issues. Some of the major risks involve contributing factors such as certain business failure for the next financial year. Loss of customers, high financial risk, profitability decline as well as over trading of activities and less product are some of the common business risk faced by top-management firm. Risk is majorly present because of high competition from nearest competitors and in case of litigation activities, which needs proper attention as far as possible (William et al., 2016).

This assignment is based on the case study given on the company named as HIH Insurance Limited. This means that assessment on business risk pertains towards conducting proper judgment for future analysis purpose (Tarca et al., 2013). On analysis, it has been noticed that top-multinational organization faces huge difficulty due to high aggression and usage of expensive strategy in the upcoming financial year.

The main objective of the assignment is to bring out the state of corporate governance of HIH before its collapse. It requires analyzing the waning signals as provided by the supervisory authority in determination of actions for facing difficult scenario. Major focus is on investment of shareholder as well as policyholder funds in identifying and monitoring the asset risk issues as future consequences (Samkin & Deegan, 2012). HIH Insurance Limited investment strategy concerns with the premise whereby Group main business involves assessing risk arising from underwriting performance. It takes place from the reinsurance policies as compounded especially from asset risk for future analysis purpose. It ensures neutral impact from various investment outcomes gathered from overall risk profile named as HIH Board. These attributes are mentioned in the investment guidelines of HIH Insurance Limited (Rahman, 2013). Investment Committee aims at formulating strategic asset allocation recommendations. Current guidelines involve limits as well as exclusions on assets classes as takeover by FAI. Investment Committee meets up formally at each quarter for reviewing current asset allocations. The main objective of the study is to highlight on Board risk tolerance as mentioned in the invested portfolio. HIH asset allocations handles matters on group from Australia based on individual licensed insurer in and within the group. HIH Insurance Limited has experienced Investment Management Group that focus on meeting on monthly basis as well as monitoring on frequent intervals on asset allocation activities (Preiato et al., 2015). It connects directly with investment performances as well as advising the committee members as a whole.

Inherent Risk Factors moving HIH Financial Report

“Inherent risk factors moving HIH financial report”

Inherent risk is the susceptibility of an assertion in relation with material misstatement. It is given in terms of inherent as well as possessing environmental characteristics without any prescribed control procedures for future analysis purpose (Porter et al., 2014). Some of the factors affecting inherent risk at financial levels of HIH Insurance Limited are as follows:

Integrity of Management- If management of HIH Insurance Limited lacks essential integrity, and then they are likely to be prepared for a case of poor reputation especially in the business community (Messier, 2016). Lack of integrity is one of the vital factors that indicate attempts to limit the access of auditors for gaining information.

Management experience, knowledge as well as changes for specified period- It is important to consider the fact that inexperience of management as well as lack of knowledge widely affects the financial report preparation (Hayes et al., 2013). It is the role of the auditor who observe frequent personnel turnover in alignment with management positions. Increase in inherent risk causes when honest individuals resign from their management positions for some type of fraud (Hayes et al., 2014).

Unusual pressure on management- Most of the times, it happens that incentives for management forms misstatement in the financial report. This involves attributes such as facing cash flow problems, poor operating results as well as poor liquidity (Giner & Arce, 2012).

Nature of entity business- HIH Insurance Limited has several potential advantages in establishing reputation as well as reliable revenue source in case of inherent risk. Association with nature of business entity formed these major factors in capital structure policies (Furnham & Gunter, 2015). These are the prime reason for increase in inherent risk for the transactions with the independent party.

Factors affecting the industry in the entity operation- It gives rise to major economic as well as competitive conditions. These factors affect the inherent risk of business entity for evaluating audit-planning framework in the most appropriate way (DeFond & Zhang, 2014).

Part A

“Clients”

HIH Insurance limited focus mainly on the operational activities of Royal Commission on finding out the accounting factors. In the year 1971, Arthur Anderson completes its external audit activities starting from the collapse year, 2001. Clients are likely to take guidance regarding the several audit risk in subject with cases and common laws (Deegan, 2013).

“Creditors”

Auditors play an important role in involving effective control over avoiding related errors as well as mistakes. In case of Pacific Acceptance Corporation Limited Vs Forsyth, auditors believes that audit opinion depends on financial reports in compliance with matters governing required standards and accounting laws in the most appropriate way (Deegan, 2012). An auditor has to view at the points regarding duty performances in due course of time. It relates majorly with the Kingston cotton mill company in indulging in due care intelligence for future analysis purpose. Auditors need the essential skills as well as expertise in carrying out the audit activities. Auditors take into consideration the creditors and investors for any assistance for use of financial statement (Arens et al., 2015).

Facts and Result on Court Case of Andersens

“Situation or conditions required for existing negligence actions”

It is important to understand the fact that there are conditions present in negligent cases. These attributes are as follows:

Auditors majorly faces difficulty I relation with computer informational risk. It involves significant changes in the computer information risk involving conversion of new system for delivery purpose for upcoming financial year (DeFond & Zhang, 2014).

Auditors face difficulty in insufficient computer informational risk for viewing at the in adequate skills as well as inefficient allocation of financial resources (Furnham & Gunter, 2015). Staff members should have adequate skills so that they can operates the operational activities at HIH Insurance Limited

There is further lack of entity support as well as focus in the final audit process and occurs various negligent cases (Zadek et al., 2013). Senior Management is responsible in demonstrating the accountability for computer informational risk by essential appropriate committee as well as involvement.

There is high dependence upon computer informational risk by HIH Insurance Limited Business entity requires computer information risk in supporting core business especially for operational perspectives for higher level of inherent risk (Zadek et al., 2013). It helps in rendering financial information from the annual report of HIH Insurance Limited.

There is reliance present in external computer informational risk involving outsourcing of operations. It mainly occurs that auditors fail in auditing some concept or misstatement of profits due to negligence or time lack issues (DeFond & Zhang, 2014).

There is reliability as well as complexity present that lead to risks of errors or misrepresentation at the same time (Zadek et al., 2013).

HIH Insurance Limited should hire experienced auditors who have the capacity in minimizing the level of risk faced by business organization. Auditors make use of disclaimers enabling ways for liability limitations as accessed from annual financial reports of HIH Insurance Limited. It involves evident taken from the external stakeholders for future analysis purpose. These cases require proper attention by the auditors and reduce negligence cases in every possible form (DeFond & Zhang, 2014).

Part A

HIH Insurance Limited hires members of its audit teams for several reasons. Most of the auditors are accustomed with HIH Insurance Limited and secondly auditors should have enough experience for meeting the financial concerns of the related business organization (Samkin & Deegan, 2012). Management of HIH Insurance Limited has chance in working with the auditor for developing strong relationship with business organization. In case any former auditors become client, then there is several risks associated with interdependence policies. It may happen that former auditors are friend with the existing auditors for several years and working together at the same time. Therefore, current auditors are of the belief that former auditors have high level of integrity and will not lead to any kid of fraudulent activities (DeFond & Zhang, 2014).

Situation or Conditions required for Existing Negligence Actions

“Advantages of auditing and consulting services”

Auditing and consulting services mostly occurs by external auditors as auditor’s plays major role of senior consultant especially for cost-savings for future analysis purpose. Auditors aim at providing unique solutions for diverse problems. Auditors require essential knowledge and advising solutions to the potential clients (Zadek et al., 2013). It is the responsible of the auditor in rendering effective consultancy facilities to potential clients. Auditors should be familiar with the financial activities pertaining at HIH Insurance Limited.

“Indicating circumstances in representation of violation of ethical standards”

HIH Insurance Limited should follow ethical standards in carrying out the operational activities in the most appropriate way (Arens et al., 2015). Major categories of risk involve increased inherent risk arising from nature of relationship in aligning with trading partners. It leads to risks from recording as well as possessing of financial transactions for initiating business activities of HIH Insurance Limited. Pervasive business risks involve attributes like technical competency as needed by staff members. Management of HIH Insurance Limited is majorly responsible in preparing for accurate as well as fair presentation on the financial position of audit firm. Corporate Governance considers as the system as well as process that adheres companies in directly being controlled over the prudential activities. It is essential in considering the fact regarding primary as well as management stewardship issues (Samkin & Deegan, 2012). These aims at maintaining integrity functions over the internal control structure at HIH Insurance Limited.

“Outlining prime recommendations for audit as planned by Ramsay Report and CLERP 9”

In the discussion paper on Ramsay Report and CLERP 9, certain recommendations are pointed out for auditing function enhancement (Zadek et al., 2013). It renders presentation of annual reports with justified corporate disclosures. Statement from audit committee suggests ways in taking into consideration matters regarding non-audit services as a whole. Individuals are advisable in behaving as auditor dependent for carrying out the audit activities in certain way. As far as engagement, partner and review partner are concerned, they deal with serving people for five years of time and designated as Senior Manager. These recommendations give clear understanding of unique auditing functions for upcoming financial years. International professionals often believe in rendering auditing services based upon the financial statements. Auditing functions enhancement checks over the positive influences for several auditing activities in the near future (DeFond & Zhang, 2014).

At the end of the study, it is concluded that HIH Insurance Limited faces business risk like any other audit firms or business organization (Arens et al., 2015). Experienced auditors can easily solve and render professional advices to the clients that will help in attainment of future goals as well as objectives. This means that case study focus mainly on illustrating on the corporate disclosures measures assigned by HIH Insurance Limited. It lists down the several inherent audit risk factors enabling future successful implementation of plans in required way (Samkin & Deegan, 2012).  Entire study focus mainly on the issues and criteria for selection of the case study on HIH Insurance Limited.

Reference List

Arens, A. A., Elder, R. J., Beasley, M. S., & Jones, J. (2015). Auditing: The Art and Science of Assurance Engagements. Pearson Canada.

Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2), 275-326.

Furnham, A., & Gunter, B. (2015). Corporate Assessment (Routledge Revivals): Auditing a Company's Personality. Routledge.

Giner, B., & Arce, M. (2012). Lobbying on accounting standards: Evidence from IFRS 2 on share-based payments. European Accounting Review, 21(4), 655-691.

Hayes, R., Wallage, P., & Gortemaker, H. (2013). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.

Hayes, R., Wallage, P., & Gortemaker, H. (2014). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed.

Messier Jr, W. (2016). Auditing & assurance services: A systematic approach. McGraw-Hill Higher Education.

Porter, B., Simon, J., & Hatherly, D. (2014). Principles of external auditing. John Wiley & Sons.

Preiato, J., Brown, P., & Tarca, A. (2015). A comparison of between‐country measures of legal setting and enforcement of accounting standards. Journal of Business Finance & Accounting, 42(1-2), 1-50.

Rahman, A. R. (2013). The Australian Accounting Standards Review Board (RLE Accounting): The Establishment of Its Participative Review Process. Routledge.

Samkin, G., & Deegan, C. (2012). New Zealand financial accounting. McGraw-Hill Education Australia.

Tarca, A., Morris, R. D., & Moy, M. (2013). An investigation of the relationship between use of international accounting standards and source of company finance in Germany. Abacus, 49(1), 74-98.

William Jr, M., Glover, S., & Prawitt, D. (2016). Auditing and Assurance Services: A Systematic Approach. Auditing and Assurance Services: A Systematic Approach.

Zadek, S., Evans, R., & Pruzan, P. (2013). Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.