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Copy of The Collapse of HIH Insurance

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Kelly Hulley

on 12 May 2014

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Transcript of Copy of The Collapse of HIH Insurance

The Collapse of HIH Insurance

HIH Insurance Limited
Second Largest insurance company in Australia
Covered several insurance segments
Placed into provisional liquidation on March 15, 2001
Total Loss of A$5.3 billion
Biggest corporate collapse in Australian history

Ethical Dilemmas
Audit Profession
Audit and Auditor Independence
Audit Committee
Auditing Standard
What is CLERP?
Possible Remedies & Best Practice
Corporate Governance
ASX
Based on Jim Harvey's speech structures
ASIC
Thank you!


In 1998, HIH purchased FAI Insurance
Rodney Adler, non-executive director and former CEO of FAI Insurance assured this purchase
Breach of the familiarity threat in Statement F1 and Section 180 of Corporation Act 2001


Arthur Andersen professional relationship with HIH
3 former Arthur Andersen partners held positions on the HIH board of directors
Breach of the familiarity threat in statement F1


Arthur Andersen paid HIH Chairman Geoffrey Cohen consultancy fees
Failed to respond according to auditing practice statements (AUP) 32


Provision of non-audit services by Arthur Andersen
Aggressive Accounting Practices utilized at HIH
Failed to respond with appropriate integrity , resolve and deligence under section B of the Joint Code of Professional Conduct


The assertion that HIH was a 'going concern' as at 30th June 2000 with a net Asset of A$939 million
Collapsed with A$5.3 billion in debt
Failed to respond to the AUS 708


Arthur Andersen Statement to the liquidator
Original Documents classifying HIH as a 'going concern' could not be located
Failed to respond according to AUS 208


Geoffrey Cohen both Chairman of HIH and audit committee
Failed to adhere to the Principle 4 recommendation 4.2 of ASX Corporate Governance Principles and Recommendations
Corporate Law of Economic Reform Program Act 2004

Enforced on 1st of July 2004
Coalition Government's Drive to promote businesses ,economic development and employment
Financial Reporting Council
Audit Profession
Audit Independence
Auditor Independence
Audit Profession
Auditing Profession
Auditing Profession
Audit Committees
Under Subsection 225(2B) :
" to conform with the processes used by Australian auditors to ensure compliance with auditor independence requirements"


Issues relating HIH Insurance
Arthur Andersen relied extensively upon HIH Insurance internal audit process
Without conducting any evaluation or testing of operations
CLERP 9 Act : Negligence
Financial Statements and auditing reviews were severely miscalculated.
There was significant influence over financial affairs of HIH
3 former Arthur Andersen employees held positions on the board of HIH Insurance
CLERP Act proposes:
"a mandatory 4 years following the resignation from an audit company of client to work as a director of the client's company"
CLERP 9 Act: Whistle Blowing
Jeffrey Simpson explained:
"the closeness of the link between Arthur Andersen and HIH , allowed HIH to adopt it's aggressive accounting practices.

Section 1317AA : Protection of employees who engage in whistle blowing.
CLERP includes reforms relating to:
Disclosure of directors remuneration
Financial Reporting
Auditors Independence
Enhanced penalty provisions
Australian Prudential Regulation Authority(APRA)
Australian Securities Exchange (ASX)
Australian Securities Investment Commision
APRA
Three key implications of HIH on APRA:
Powers
Processes
People
Corporate Governance Principles and Best Practice Recommendations
Civil Penalties Regime
Corporation Act Amendment
Source
Ramsay report
2003 Royal Commission Report
Corporate Governance principles and recommendations - ASX
Degree of Separation
Rotation of partners every 7 years
4 years cooling off period
No more than 1 former partner
Disclosure
Non- Auditing Service
Internal Auditing Comitee
Non- Executive Directors
Financially Literate
Full transcript