It is the procedure used for assessing the business risk that dedicates method of determination on matters relating to given uncertain events that has the potential for threatening the overall business operations of a group (Watts and Zimmerman 2013). The part explains the business risk that is faced by HIH Insurance Limited where it is necessary to review the business risk that specify the chance of a trade unit that have lower level of proceeds than the first estimation. Addition to that, business risk looks at the uncertain events that are mainly affiliated to a given state of affair that can make the trade not curable as well as cause fiscal insecurities for a given trade business. As per the given case study, it is understood that HIH Insurance Limited had penetrated into various markets that are actually highly competitive and filled to capacity at the same time. HIH Insurance Limited faces several issues that need to be taken into consideration. It is thereby required to review the trade danger that will help HIH Insurance Limited for identifying the risk aspect that prevails in a business organization. Furthermore, HIH Insurance Limited faces strategic business risk that owes to their entry into a highly competitive and overcrowded market. It is also noted that HIH Insurance Limited has inadequate knowledge on matters relating to legal terms and this is the reason why they faces business challenges that are existent in the present market. In that case, business entity faces different types of compliance risks. In the given case study, HIH Insurance Limited faces diverse issues as well as business concerns on matters relating to pricing policies and insufficient reserve. From the given case study on HIH Insurance Limited, it is needed to look upon the business risk appraisal that HIH Insurance might countenance It may occur that a trade challenges after realizing varied and expansive policies (Simunic 2014).
There are a number of inherent risk factors that are recognized and faced by trade entity because of nonexistence of any action that is likelihood and collision of the risk (Porter, Simon and Hatherly 2014). It is due to this reason why inherent risk arises from the overstatement of the debtors of the corporation that leads to the working capital development of a trade organization such as HIH Insurance Limited. In the given case study, it is viewed that administration of HIH Insurance Limited had been falsely affirmed that the company had achieved productivity, competence, and solvency as well as given profits targets where the business could not achieve with the target in realism. It is necessary to review the risk of HIH Insurance Limited as it replicates poor fiscal health that actually compels the administration to inflate the data on revenue from sales. There are different trade concerns that really classify ways as well as understand the intrinsic risk level. In the given case study on HIH Insurance Limited, it helps in gaining insights of information on the inherent risks that is connected with the process of the corporation. There are various acknowledged inherent factors that HIH Insurance Limited may consider that takes into consideration overstatement of cash balance that majorly reflects upon the amplified working capital. Furthermore, the inherent risk factors take into thought understatement of the creditors that can be even misinterpreted with the whole working capital of trade firm (Lord 2012).
Auditor plans an important role in the process of maintaining business controls as well as abiding by the rules and guidelines. It has been extracted from the contract laws, general regulations on auditing that has various types of regulation on different cases. In the give case study, it can be stated that Royal Commission of the commerce Corporation HIH Insurance Limited disclose the fact there are many facets of commerce that has secretarial plan and principles in total with auditing that are evenly answerable for the failure of HIH Insurance Limited (Kinney and Martin 2014). The case study explains that the Arthur Anderson had carried out the task external auditing from the year 1971 till there was collapse that was noted in the year 2001. It explains the fact that talented auditing of operations explains the destructive use of secretarial plan of monetary secretarial for the business HIH Insurance Limited.
Auditor need to execute various prescribed duties with due diligence in case of the company named as Kingston Cotton Mill. It is the auditor who need to poses the adequate competence as well as skills for executing relevant duties. It owes to the huge number of users who involve in financial declaration of the corporation where the auditor becomes liable for extension of the financial declarations to the various creditors and financiers. It is the auditor who performs critical functions in a given organization after implementing effective measures that aims at identification as well as shielding from the same errors. As far as Pacific Acceptance Corporation Limited is concerned, it is against Forsyth where the function of the auditor used to communicate the opinion that concerns compliance of financial declarations as per the financial accounting standard (Ismail et al. 2016).
Though, it can also be hereby determined that the applicant might avert the option of suffering from damage in case if the assessor has failed to execute the behavior. Again, the auditor is also responsible for dissimilar compensation that the auditor might have forecasted earlier. Lastly, the petitioner also needs to give proof for the negligent activities of the assessor that might lead to real costs. In the given case study, it is important to ascertain the fact that there are various components in the case on negligence (Flint 2015). There are various factors that include the duty that cause violation of duties as well as responsibilities and immediate cause and harm. In that case, the motivation helps in determining the assessor with the regards of execution of a given performance obligations to the main applicant.
Addition to that, the assessors should have the required experience that has proper knowledge of financial matters of the Business Corporation. In other words, inclusion of external audit team will help the management for operating together with the assessor so that the administration of the business enterprise has a fair association with the respective auditor in the most appropriate way. There are several reasons that can be taken into consideration by any business organization while appointing a member of external audit team. The reason behind the appointment is member of external audit tea, has the necessary knowledge, skill as well as competency that make them an experienced auditors who follows the given rules as well as directives of the Business Corporation (Dye 2013).
In that case, management of the corporation can save both time and effort for having the same firm that gives auditing as well as consulting services (Chow 2012). Therefore, the auditor should be capable of offering unique solutions to various problems. It is the auditor who can save cost when they play a unique role as a consultant. There are numerous benefits of having the same corporation that offers both auditing as well as consulting services (Arens et al. 2016). It is since the assessor possesses considerable knowledge that concerns business as well as operations of the client. Furthermore, the engagement of external auditor for a given service of consulting will prove to be very effective. In that case, the assessors of the corporation are familiar to that given business.
After analyzing the case study on HIH Insurance Limited, it is understood that audit payments provided by the management did not increase. In that case, Anderson diminishes the work that assumes various audit services for elevating the fees. Therefore, there is close association between the audit corporations Anderson with the HIH Insurance Limited that looks into the process and following the aggressive strategies of accounting (Boynton, Kell and Johnson 2014). It is thereby necessary for the auditor to provide a judgment on matters relating to financial declarations as well as contract of Anderson is immoral as the assessor in a stressful condition. There are different ethical standards that are associated to the operations of HIH Insurance Limited. This can be properly linked with the auditing aspects that were a reason of collapse of the corporation. In that case, the ethical factors means assortment of moral values where the management require maintaining ethical conduct. Furthermore, it is the auditors who fail to carry out the performance obligations where it leads to different ethical dilemmas. According to the norms of auditing standards, it is noted that the auditor required acting according to the five ethical standards that involve privacy, reliability, expert actions as well as objectivity and expert competence for meeting the best interests of the shareholders.
The declarations of Ramsay as well as CLEWRP 9 represent the various recommendations for enhancing the different auditing functions. As far as primary recommendations are concerned, it enhances the auditing functions who points out the facts where it meets the individual needs that states the independency of an auditor. Addition to that, there needs to be suitable disclosures that is used in the yearly statement as well as the audit committee needs to have a statement on matters connecting to non-audit services. It is since of the appointment of connect that reviews the waiting period around 2 years where the audit associate joins the Business Corporation as a Senior Executive (Bédard et al. 2013).
The given conversation paper properly recommends the behavior that can influence the auditing operations in an effectual way (Arens, Elder and Mark 2012). In that case, a self-governing audit professionals need to carry out the presentation obligations on matters relating to monetary declarations. It is optional to help ways for improving the audit functions as well as modification that help optimistic feature of auditing perform.
References
Arens, A.A., Best, P., Shailer, G., Fiedler, B., Elder, R.J. and Beasley, M., 2016. Auditing and assurance services in Australia: an integrated approach. Pearson Education Australia.
Arens, A.A., Elder, R.J. and Mark, B., 2012. Auditing and assurance services: an integrated approach. Boston: Prentice Hall.
Bédard, J., Chi, M.T., Graham, L.E. and Shanteau, J., 2013. Expertise in auditing; Discussion. Auditing, 12, p.21.
Boynton, W.C., Kell, W.G. and Johnson, R., 2014. Modern auditing. Wiley.
Chow, C.W., 2012. The demand for external auditing: Size, debt and ownership influences. Accounting review, pp.272-291.
Dye, R.A., 2013. Auditing standards, legal liability, and auditor wealth. Journal of political Economy, 101(5), pp.887-914.
Flint, D., 2015. Philosophy and principles of auditing: an introduction. Macmillan Education.
Ismail, I., Haron, H., Nasir Ibrahim, D. and Mohd Isa, S., 2016. Service quality, client satisfaction and loyalty towards audit firms: Perceptions of Malaysian public listed companies. Managerial auditing journal, 21(7), pp.738-756.
Kinney Jr, W.R. and Martin, R.D., 2014. Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies. Auditing, 13(1), p.149.
Lord, A.T., 2012. Pressure: A methodological consideration for behavioral research in auditing. Auditing, 11(2), p.90.
Porter, B., Simon, J. and Hatherly, D., 2014. Principles of external auditing. John Wiley & Sons.
Simunic, D.A., 2014. Auditing, consulting, and auditor independence. Journal of Accounting research, pp.679-702.
Watts, R.L. and Zimmerman, J.L., 2013. Agency problems, auditing, and the theory of the firm: Some evidence. The Journal of Law and Economics, 26(3), pp.613-633.
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