The companies who have faced the corporate collapses are HIH insurance and One tel. The HIH insurance is the Australia’s second largest insurance that have witnessed the largest corporate in the history of Australia, HIH’s losses estimation can be summed up to $5.3 billion. The Investigations found out that the reason for the collapse has led to imprisonment and conviction of a handful of members of HIH management on various charges relating to fraud (Christopher, Leungand Leong2017). It took place in the year 2000, when there was an expansion in the business, a minor asset price change could see the insurance company become insolvent and it occurred. Director Rodney Adler, CEO Ray Williams and others were sentenced to prison for the act of fraud.
One tel. on the other hand, is the group of Telecommunication Company that is based on Australia. The company has faced a severe corporate collapse in Australia in 2001.During the collapse, it was the telecommunications company which is fourth largest in Australia with more than two million operations and customers in eight countries. There was a loss of $290m as reported, the share price was crashed, and it entered the management. In ASIC v Rich the persons to be found guilty of negligence were the directors were (Demirag2018).
In the case of HIH insurance the auditors were Andersen and Justin Gardener who had been auditors the company for many years. In addition to the auditors the Partners had been accountable for the extended period’s audit the cases for, along with the audit team senior members were mostly well known to specific senior executives of the client enterprise. Moreover, the participation at Board level of ex-Andersen Partners gave a clear impression to the Royal Commissioner of continuing and close relationship between the audit firm and its client at the highest levels. Moreover there was a lack of auditor’s independence as per the audit committee report (Hamiltonand Micklethwait2016).
In the case of One Tel. the auditors where auditor Ernst and Young who did not have the outlines responsibilities this is because the board would act on its behalf controlling what the auditors should outline in their reports hence this solely contributed to the collapse of the company. There were many corporate governance practices deficiencies of OneTel that were also responsible for its demise. During the collapse, the OneTel already had been operating in seven countries and had AU$653 million of annual sales.
The case of HIH insurance:
The HIH insurance corporate collapse is considered as the largest corporate failure in Australia due to this a Royal Commission was set by the Liberal Federal Government for examining the various explanations for the failure of HIH.It has been identified that the company of HIH had a corporate culture that was conservative and there was various deficiencies that resulted in the collapse. The CEO was found to be verycompelling and dominatingand used to engage himself into practices that had high risk in the market which was very competitive. According to the auditor’s report of 2001, there was no independent of the auditors of HIH and therefore some of the directors even alleged that they were not aware of the true financial position of the company. The various difficulties that had been faced by HIH was due to its aggressive acquisition strategy, a culture of not giving the bad news and the growth at all cost mentality that often resulted in the conflict between the implantation of profit maximization and the procedures of corporate governance(Du Plessis, Hargovan and Harris 2018).One of the auditors of the audit committee Justin Gardener who was the auditor of the FAI in the year 1980 and in the year 1998 FAI was sold to HIH. This can be said to be the main reason behind the corporate collapse of the HIH Company as this takeover transaction highly influenced HIH Company.
In addition to this the HIH Company had five non-executive directors out of which two are the former partner of the Arthur Andersen which is the auditor of the HIH Company. Therefore, the audit programme was highly influenced. Further, it can be noticed that the Arthur limited has earned $8 million after auditing the HIH business whereas it has earned $7 million from other auditing services. It is very well known fact that the non-auditing services are regarded to be the major distracting source that takes the independence of the auditors. Therefore the key points that can be noted in terms of audit procedures for the case of HIH are the accounting practices adopted by HIH in regard to revenue recognition and expenses, the audits nature conducted by Andersen and the lack of independence of the auditors from HIH.
The case of One tel.:
In the case of corporate collapse of One tel the external auditors act hard has an important role in ensuring the financial reporting of the company especially if the company fulfils the requirements of the public and is a significance in the national economy. An audit that is well-conducted should make the users of the financial reports of a company to rely upon the accounts with confidence. Therefore, it has not proved that if a company is declared as insolvent, that it is the mistake of the external auditors because even the internal auditors have their independence that is well stated (Du Plessis, Hargovanand Harris2018).
The internal audit process is to outline the objective assessment of the performance of the company and the internal controls effectiveness. A revised and well-planned and internal audit function can assist a company avoid risks that are unreasonable. In the scenario of Onetel communications, the internal audit reports received by management was not presented as per the full board or the audit committee. The board was unable to make sure that the proposals made to bring about change were effective because it is only a summary that were presented to the audit committee that was prepared without following the details of the management (Bottenberg, Tuschkeand Flickinger2017). When the board of directors instructed the secretary to eliminate an agenda from the outlined agendas of the audit committee and hence scrapped off from the report. As per the report, the board did not follow actively confirm whether the internal auditors report recommendations were implemented hence leading to the major collapse.
Therefore, in the case is the external and the internal auditors must submit their reports directly to the audit committee and not with the help of directors boards, so that the management do not have an opportunity to delay the reports but submit them to the relevant authorities (Teh, Ong, Adedeji, and Ng2016). There was an interest conflict with the auditor that was compromised for the company’s non-audit services.
Even though in the audit report the audit Commission mentioned that, “…. on balance, the perception of lack of independence (of the auditors from HIH) that I found to exist did not translate to a reality that reflects a susceptibility to undue influence or pressure”. There existed concerns related to the independence of the auditors were considered in significantly. Several auditor independence issues were regarded as too fundamental that the Australian government commissioned the Ramsay Report for seeking enquiry and advices for the issues of independence of the auditor (Billings, Tilbaand Wilson2016). An auditor must be independent both in appearance and in in fact is fundamental to an audit that is effective.
In the case of One tel.company that collapsed in 2001, the audits Report offers many lessons for those who are involved in the running of companies along with the audit bodies a well as their advisers. One of the procedures will be to adopt the strategy that was pointed out by Justice Owen that is also adopted by the government (Arzova, Sismanand Yozgat2016). Evident that the audit committee in Onetel communication was of law quality and lacked proper supervision and organization hence it was of law quality audits. On top of that there was no auditor’s independence provided that led to the collapse.
In case of HIH insurance there were many recommendations related to audit and governance enacted by the HIH Royal regulators commission , ASX and the legislature in the CLERP 9 progress that stands for corporate economic reform program and the release of the principles of ASX in the year 2003 (Siddiquiand Uddin2016). In addition to this there were various considerable guidance provided by the ASX corporate and the CLERP 9 to the HIH insurance companyfor the explanation andfor the compilation of the basis that were stringent than the various Australian disclosure requirements.
There was a major reforms of Australian legislative that responded towards the failure of the HIH was the CLERP 9 which has a significant effect on the auditing process of the Australia that even continues to the present day. The CLERP 9 proposals had a direct influence on the Auditing practices that had made auditor independence mandatory (Jamasband Pollitt2015).Therefore, external auditors of the listed companies were required to compulsorily attend the annual general meetings and answer the questions of the company’s shareholders, there a process of policy for recognizing the various unethical and fraudulent misconduct in the entity and the shareholders participation shall be enhanced in the company’s meeting (Appiahand Amon2017).
In case of Onetel communications the audit process was made much restricted since the time of its collapse (Jones and Beattie2015). Effective Auditing process requires a proper environment where expert is implemented with total ethics and responsibility. This includes that the executive, directors and non-executive to continuously supervise and questions the board chair to ensure a proper flow of information to the Directors. The company has made resolutions for a proper executive balance and non-executive directors along with a flawless responsibilities division between the board chair and the chief executive officer (Ullah et al. 2017). There has been a provision for transparent methods for the appointment of new directors and an understandable balanced and reporting. The maintenance of a proper internal system of control.
The various steps for improving the profession of audit so that the mishaps and the corporate collapses such as the case oh HIH and One tel. can be avoided. The following implementations can help in enhancing a sound and ethical audit procedure:
Conclusion
In order to facilitate a sound financial performance and ultimate maximization of the shareholders returns it is extremely vital to have a sound practice of auditing. From the cases as discussed in the above of the corporate collapses of the two major companies OneTel and HIH in Australia it can be analysed that the process of Auditing is much more than just a normal verification of accounts and report process that involves marking the columns. The monitoring model of the HIH was award winning but it was ineffective while the OneTel omitted the corporate governance guidance. Both the entities were not able to periodically access the Auditing practices. Due to the collapse of the HIH and OneTel various codes and reforms were introduced according to which the board was allowed to review the manner of its operation. The above report has analysed the various misconduct and manipulation of the audit process and the Auditors independence. In the case of HIH though it has a very well developed Auditing model but the actual internal audit practices have been flawed. For the reason of practice improper and manipulative audit process there is a high company’s inherent risk.
References
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