Each organization entails various dissimilar risks elements as they undertake the businesses. The risk inside the HH had never been identified as well as assessed properly by the firms’ directors, leading to HH losing 5.30 billion alongside an eventual failure. Therefore, I will assess the HH on its financial and operational risk. The financial risk links to risks emerging from the HH transaction, activities as well as financial penalties of the tasks. Therefore, by assessing the HH financial risk, it will assist HH to remain attentive as well as conscious with their corresponding debts, financial situations as well as problems (Allan 2006).
Operational risk is that which arise from the organization’s interior accomplishments of the HH. It examines the additional classes of the risks like scam, legal risk, and physical alongside environment risks. Therefore, by examining how HH runs and procedures could assist the HH to distinguish errors as well as glitches, consequently, the corporation might enhance as well as expound. It remains significant for the risk to be acknowledged, assessed as well as managed correctly to enable controls that are effectively implemented to decrease alongside avoid risks. Could be HH insurance might have never shrunken if such risks underwent assessment. The HH insurance’s business risk was stretched as risks of firm was never recognized as well as managed effectively (Rutty et al. 2017).
The business risk of HH could as well be discussed on the basis of its global, local as well as control environment. It could as well as be discussed with respect to understanding the insurance industry and secondly, how the organization fits into the industry or by performing a SWOT analysis. Whereas I would have wished to address all the three, I have selected the just a few mentioned above to assess the risk. The profitability as well as structure of the insurance industry can as well as enable the assessment of the business risk.
The insurance industry is stiffly competitive and there has been substantial rise in the price competition in the insurance market. Regulation of this industry in Australia remains comparatively novel and there is substantial fluctuations in the regulation level around the globe. Both Insurance and Superannuation Commission remained the original Australian body. It is currently part of the Australian Prudential Regulator Authority (APRA). Many parts of insurance remain high risk and insurance must undertake to proactive business risk assessment using the methods already aforementioned.
Several risks are affecting the firm at the level of financial report. For example, meagre financial outcome, hence, HH was overstretched to exaggerate sales, by making announcement that extraordinary sales and targets of profitability were accomplished where they were really never being achieved. Another inherent risk was the ultimatum to exaggerate cash alongside debtors while understating creditors alongside bad debts to display an upper working capital level. These risk might have accounted for decreased assessment of inherent risk.
The case of ENRON case can be used in this case. It was a breakthrough case, whereby stockholders in ENRON brought the suits anchored on United States federal alongside state securities laws against the ENRON itself, and fraction of its identified directors the firm’s accounting organization Arthur Andersen, along with partners alongside staffs of Andersen. ENRON’s previous law firm Vinson & Elkins was also pursued. The facts were the directors of ENRON had purposely masqueraded losses inside Specially Established Entities (SPE) named Raptors, thereby failing to observe disclosure requirement of yearly reports alongside filings to regulator of stock market of country, the US’ SEC. The Raptors remained established to safeguard the ENRON from market to market losses in its rising arm of equity investment. Such remained partially designed for the minimization of risk, yet further to sidestep accounting treatments which might decline earnings of the ENRON.
The settlement came in the year 2006 with US 7.2 billion or AU 9.3 billion granted the stockholders who had lost all following the breakdown of the company in year 2001. Such stay as the principal settlement to the present-day in a stockholder securities class action. The Arthur Andersen (accountancy firm) departed into insolvency because of the damages. Various executives of ENRON as well were sentenced for fraud.
The relevant case here is Czyzewski v. Jevic Holding Corp., No. 15-649, 2017 U.S. LEXIS 2024 (U.S. Mar. 22, 2017), the United Supreme Court reversed, finding that the bankruptcy court’s decision that WARN plaintiffs might not recover remained questionable and, more importantly, that the bankruptcy court might not change the Bankruptcy Code’s distribution scheme at the expense of the WARN creditors absent their consent.
To prove the negligent action on the part of a defendant and hence liability for the injuries all the elements including duty, cause in fact, proximate cause, duty breach, alongside damages. For the damages, it has to be proven that the complainant must have agonized damages (losses and injuries) for a perpetrator to have a liability. Therefore, where the respondent certainly proceeded negligently, one might never amass damages if no injuries was suffered. The juries have been given instruction to liken facts, testimonies, alongside evidences with the elements aforementioned.
The outcomes from the suits of negligence must prove whether respondent owed the duty to the plaintiff. Such a duty emerges where law acknowledges a connection amid the plaintiff and defendant, and because of such an association, the culprit remains indebted to behave in a given way toward the litigant. The justice, unlike the jury, determines customarily whether the offender owed this duty of care to the complainant. In case a reasonable individual could confirm the existence of a duty within a given set of conditions, court will generally validate the presence of such a duty.
The duty breach must be proven to make the perpetrator accountable for negligence where the respondent breaks the duty owed to the complainant. The respondent will have breached such duty when he fails to work out the sensible care as he fulfils this duty. As opposed to the issue of if there is an existence of duty, the matter of if a perpetrator has broken the duty of care is decided by the underlying jury as a query of fact. The jury must make a decision on whether perpetrator exercised rational care when exercising his duty.
The cause in Fact is another key element that must be validated. The complainant has to demonstrate that the activities of the perpetrator caused injuries to the defendant. This is “but-for” causation. It means but for the actions of offender, the injury of the respondent would never have happened. It must be proven that but for the act of negligent act of defendant, the plaintiff might not have agonized the damage.
Proximate cause is another element that must be validated. This narrates to latitude of accountability of the perpetrator in the negligence instance. The defendant in negligence instance is solely accountable for such damages which could have been foreseen by the defendant through his action. In case the perpetrator has instigated damages that are external the latitude of risk which the respondent might have predicted, then the accuser can never demonstrate that actions of the perpetrator were proximate cause of the damages of litigant.
Damages is another element that must be proven. A plaintiff in the case of negligence has to prove that a lawfully acknowledged damage, often in terms of physical injury to an individual or to possessions. It remains sufficient that the respondent never exercised the sensible care. Inability to exercise the reasonable care has to culminate in real damages to an individual to the person the respondent owes a duty of care.
3. HH may want to employ member of its auditing teams for many reasons: One of such reasons is that the auditor is accustomed with the HH, second is the auditor often have experience with financial matters’ members and that management has had the opportunity to work closely with the auditor and could have developed a strong relationship with them. HH could as well as gain insight into the process of auditors and better devise the methods of hiding the fraud (Sharma 2017).
One of the main merit of maintaining single CPA organization providing consulting and auditing is a higher degree of efficiency acquired by a single organization providing both types of services since the organization is able to undertake leveraging of the auditor’s unfathomable comprehension of client alongside its info systems in provision of the extra services (Robins 2006).
Such a circumstance signify the desecration of the ethical standards based on the several reasons: Where a former auditor is hired or becomes clients, there is often the risk that the auditors’ independence will be compromised. The former auditor could be friends with the existing auditors of the company from all the years they worked on the similar team together. Further, the present auditors likely believe the former one has high integrity and hence would not do anything to mislead them. Due to this, the present auditors could depend too much on the fact the prior auditor is not the kind to commit fraud. Because the prior auditor being very familiar with the audit approach, the likelihood of successfully hiding the accounting fraud could escalate (Parker 2005).
Therefore, hiring the former auditor would substantially compromise and possibly trigger impairment to the current external auditor’s ability to stay independent. Besides having the knowledge regarding the practice of the auditor, the preexisting relationship might trigger bias in the outcome of the audit. Further, it is also inappropriate for the auditors to trust the executives of the client. The AU section 230, mandates the auditors to exercise “due professional care in their work performance”. Accordingly, applying the professional skepticism. The auditors need to remain impartial to the level of the honest of the organization and pursue factual evidence to back the findings as well as conclusions (Gardner 2017).
CLERP 9 remains the latest phase in the Government’s reform agenda. It is the discussion paper-Corporate Disclosure: Strengthening the financial reporting framework. It projected an array of measures intended to improve the regulation of audit alongside the over-all framework for corporate disclosure. The Ramsey report focuses on the Independence of Australian Company Audits. The primary objectives of the reforms is to enhance the operation of the market via the promotion of transparency, accountability and shareholders activism (Fogarty and Lansley 2002).
The changes of the CLERP 9 relates to the role of FRC to be extended to contain the audit standard establishment arrangements’ oversight. The audit standards made by the AUASB shall be given the legislative support. The FRC shall further have the functions for oversighting as well as monitoring in connection to independence of audit. Such a role shall comprise advising Minister on nature as well as entire sufficiency of the systems as well as process utilized by: auditors to make sure they comply with the necessities of independence; alongside professional accounting entities to plan as well as perform reviews of quality assurance of the work of audit (Chen, Moroney and Houghton 2005).
The implication of these changes shall on the practice of auditing are substantial. It has both commentary and corporate governance implications. These changes or amendments speak to latest public concerns relating to integrity of the standards of auditing. The audit committees shall need to regard and deliberate the implications of such reforms with their auditors. The CLERP 9 initially projected that solely “core” standards for auditing be provided legislative support. Nevertheless, provided the perspective of investors along with ASIC that it is never feasible to recognize the auditing standards’ selection which entail the important issues which are pertinent to the audits’ Corporation Act, every standard has a legal backing (Heckman et al. 2017).
With respect to the independence of auditors, the CLERP 9 will improve independence by introducing a general independence standard as well as a prerequisite that auditors furnish directors with the yearly declaration (Independence Declaration of Auditors) that they have upheld their independence (Brown et al. 2017). It will also boost auditors’ independence by restricting particular employment as well as financial relationships between clients and auditors and restricting on given individuals joining the audited body as an officer.
References
Allan, G., 2006. The HIH collapse: A costly catalyst for reform. Deakin L. Rev., 11, p.137.
Brown, L., Chopra, K., Patel, P., Diggle, J., Eilhauer, P., Ganier, S. and Dappen, R., 2017. Running the Legal Department with Business Discipline: Applying Business Best Practices to the Corporate Legal Function. In Liquid Legal (pp. 397-421). Springer International Publishing.
Chen, Y.M., Moroney, R. and Houghton, K., 2005. Audit committee composition and the use of an industry specialist audit firm. Accounting & Finance, 45(2), pp.217-239.
Fogarty, M. and Lansley, A., 2002. Sleepers Awake-Future Directions for Auditing in Australia. UNSWLJ, 25, p.408.
Gardner, J., 2017. The Negligence Standard: Political Not Metaphysical. The Modern Law Review, 80(1), pp.1-21.
Heckman, C.J., Handorf, E., Darlow, S.D., Yaroch, A.L. and Raivitch, S., 2017. Refinement of measures to assess psychosocial constructs associated with skin cancer risk and protective behaviors of young adults. Journal of Behavioral Medicine, pp.1-9.
Parker, L.D., 2005. Corporate governance crisis down under: post-Enron accounting education and research inertia. European Accounting Review, 14(2), pp.383-394.
Robins, F., 2006. Corporate governance after Sarbanes-Oxley: an Australian perspective. Corporate Governance: The international journal of business in society, 6(1), pp.34-48.
Rutty, M., Scott, D., Johnson, P., Pons, M., Steiger, R. and Vilella, M., 2017. Using ski industry response to climatic variability to assess climate change risk: An analogue study in Eastern Canada. Tourism Management, 58, pp.196-204.
Sharma, A., 2017. Assigning Liability in an Autonomous World.
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