Auditing And Assurance Services of Insurance Company

Question: Discuss about the Auditing and Assurance Services for HIH Insurance Company. Answer: Introduction: Analysis of business risk of HIH indicated that such risks are linked with global, environmental and local factors. Such risks are deemed to be relied on the understanding of insurance sector and the ways in which HIH is capable to adjust itself within the parameters of risk evaluation (Abbas and Iqbal 2012). Insolvency Risk Determination: Several measures are available for insolvency determination in which the roles of evaluating risk are dependent on the auditing risk evaluation. Here exists certain general agreement that is necessary to have the capacity for addressing the debts of the organization under which it is encompassed. Along with support of insolvency risk and profitability structure there is a requirement concentrate more on business that will include limited consumers to launch the sector (Bagshaw 2013). The conceptual framework is based on the organizations capacity to address its existing debt. For this reason, it is vital to determine companys solvency that further analyses non-financial along with financial considerations. Profitability Evaluation and Related Structure: Among the suitable approaches for evaluating HIHs business risk in order to further analyze the competitive environment of the sector concerning the increase in competition along with price range enhancement. For risk evaluation, insurance handling within the Australian industry turns out to be relatively simpler those are fresh to the regulations of the industry (Bebbington et al. 2014). The Insurance and the Superannuation Commission serves as an Australian regulatory body holding the Australian Prudential Regulatory Authority. Certain risks that HIH is capable to deal with include auditing risk factors as this facilitates the company to issue an unqualified audit relied on some financial statements. Such aspects are generally relied on holding the procedure along with planning in alignment with some risks namely control, detection and inherent risk (Glover et al. 2016). Control risks encompass certain material inaccuracy that the company failed to detect in its internal control systems. It was observed from the case of HIH the accuracy and completeness of the general ledger for the ledger recognition and the bank account, which is not yet performed by the company. Organizational performance is relied on the process of substantive differential that offers a huge dependence on the process of external documentation (Griffiths 2012). Ledger accounts inclusion and the distinct bank accounts assist in organizations tangible assets valuation. Risk detection includes several techniques of auditing that is performance based and does not tend to detect the material inaccuracies or any assertions. This indicates that it is necessary for HIH to focus on timely planning and decreasing the situations of not detecting material misstatement very effectively. From the internal documents of HIH, it is gathered that the company was not capable of conducting suitable substantive procedures that is intended to address issues related with superior performance concerning the inadequate planning and goodwill for upcoming tax benefits (Kogan et al. 2014). Inherent risk can be understood as uncertainties related to a companys financial statement in which HIH Insurance Company accepts the solvency margin maintenance, charging adequate premiums along with the organizations liquidity factors. This includes reinsuring several different policies along with offering the record of marine insurance practices that hugely belongs to insurance professions. Legal Liability The issue is associated to unqualified audit procedure that includes audit risk those are inefficiently managed by the organization. Auditors are seemed to have less awareness regarding inherent risk that is unrecognized by modifications made by HIH in the previous year. Huge focus is observed to be on auditing report that signifies auditing practices implemented by HIH. The auditor remained inefficient in investigating the companys auditing practices that it can notify to various practices. Such issues are generally associated to inadequate auditors independence in alignment with the non-auditing work performance and realizing the HIH operations for enhanced business risk. Such cases are linked to certain auditing procedures with estimated auditing risk (Messier Jr 2016). For creditors it is essential that they require put huge focus on the minimum solvency needs that is deemed that organization can stay solvent at the declaration time of the director. The reports are linked with the determination of management lied on increasing concern. It is essential to indicate that HIH requires directing its focus on an organizations liquidity position where the liquidity position is generally concerned with financial as well as operational conducts of HIH. Such risks were related with pricing capability and outstanding claims of companies in alliance with HIHs reservation policy for dealing and working on investment decisions (Pitt 2014). Such representations are relied on provision handing where there is a requirement for prudential margins. For clients the focus is greatly on organizational performance illustrating inefficient goodwill planning and for deferred acquisition expenses and increase tax advantages. For this reason, if the consumers hire former auditors than it might have adverse impact on the independence of eternal auditing. It can be gathered that these auditors continues holding effective partnership with the auditing team. This includes holding increased influenced on the recent auditors based on the authority (Rikhardsson and Dull 2016). Considerably it can be stated that there is a strong association among former along with the existing auditors as they are capable to recognize and deal with issues related with parties that they hold and influence. Certain conditions that have surfaced the process of negligence actions of HIH insurance is generally related with the alterations accelerations made in the legislations. It is gathered from the case of the company that combinations of high risk pricing capability, uncontrolled investments and under-reserving the policies resulting in depletion of the companys financial resources (Schmidt et al. 2016). Faulty corporate governance conducts of HIH- From the case study it is gathered that the reasons for a companys bankruptcy generally includes certain agency cost issues resulting from agency conflict between the proprietors, debtors and managers in the company. A huge fraction of the issues is based on the changes that are generally reinforced with the direct liability structure of the government. The beginning of the legislative changes is linked with the public liabilities and insufficient risk management plays the role for ineffective management (Shin et al. 2013). Facts gathered from the case study indicate that inadequate risk management is because of the reason of failure in developing efficient management practices and policies. The directors seem to avoid conducting analysis of strategy for investment along with risk appreciation that is linked with several information sources. Inadequate independence data resources- The case study indicates that an accounting system has a considerable role in the functions of commercial systems of supremacy. For a company like HIH, it does not seem practicable for the non-executive directors to collect and have data vital for them to fulfill their directors responsibilities. For this reason, responsibilities of the companys noon-executive directors requires being compromised for there are no alternatives other than relying on the accounting systems generated and directed by the management. Moreover, this indicates inherent risks of business systems (Gaber and Lusk 2015). Inadequate independence for non-executive director- From the information gathered from the case study it is gathered that the non-executive directors it is justified to be questions and most certainly it does not seem that ideal as it seems to appear. Among the five executive directors, two directors are observed to be partners of Arthur Anderson secretarial company. It was gathered that HIH had experienced an expense of $1.7 million to Anderson for Auditing Services along with an amount of $1.631 million for the provision of non-auditing services. It is gathered that auditing services serve as a major source of extractions from the independent auditor and several related directors (Christensen et al. 2012). Either indirectly or directly corporate governance practices of HIH are held accountable for negligence conducts that effectively defines that the guiding principal or action course because of lack in independent evaluation of the management. Ethics Major focus is observed to be on the inadequate evidence before the audit report release along with changes that has been possible to be made in several accounts. The development of close relationship with the non-auditing services resulted in refusal on the enhancement of paid auditing services (William Jr et al. 2016). HIH Company desired to hire prior to the members of its external audit group are because of following reasons: Auditors remained accustomed to the organization Auditors are deemed to have good experience with distinct monetary and fiscal matters The management is relied on holding audit work for developing an efficient relationship with external auditors. Auditors are required to trust consumers executive to a level, which is not affecting the external auditors independence. Auditors are required to conserve the professional skepticism that implements the managerial conducts of organizations for the auditors and management are not capable to manage the financial statement (Christensen et al. 2013). Auditing organizations are required to offer certain non-auditing services with management consultancy along with offering advices on tax. This will make companies capable to offer non-auditing and auditing services to consumers. Objectivity is relied on dependency handling where consumers information is dependent on income source. Whereas, interest conflict is set to offer auditing and consulting services a set of discrepancies between the executives and management. Auditors have the reports concerning the financial situations with the profit maximization objective of companies (Ricchiute 2012). Benefit of having the identical organization offers both consulting and auditing services, as they are dependent on dealing with the audit activities of business. These facilities facilitate having the change in certain impaired statements. The reports are relied on recognizing company errors as it facilitates auditors and consultant to maintain client information management. These measures facilitate in dealing with mistakes and offer compilation of management reports. The regulatory measures serve as best solution for determining financial reports accuracy where providing these services are advantageous for various accounting companies (Pitt 2014). The case study indicates that organizational members did not accomplish their duties honestly, because they continuously offered misleading or false information. Most of the companys staff indulged themselves in unethical conducts where they failed to complete their organizational duties effectively. Arthur Anderson deteriorated situations with considerable collapse of Enron. The organization observed the person guilty of obstructing justice for some work papers deductions (Messier Jr 2016). These situations indicate a violation of thee organizations ethical standard that is further than the ethical limit of any corporate organization. Organizational staff requires indulging themselves in attaining ethical duties off the organization other than dealing with their clients. Such statement is relied on maintaining regulations with suitable codes and business standards. This encompasses information disclosure for suitable accounting practices (Pitt 2014). Evaluation of the case study recommends certain policies concerned with governance and financial reporting within amendments of CLERP 9, mentioned under: Waiting period for audit partners to join organizational board or some top management requires being extended firm two to four years that should encompass an audit companys senior management engaged in auditing conducts. Guidance is required to be provided to engagement partner and assess partner rotation after five years that must extend to major senior management authority. These recommendations intend to identify and deal with issues concerned with corporate groups. 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