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Copy of The Collapse of HIH Insurance
Transcript of Copy of 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
Audit and Auditor Independence
What is CLERP?
Possible Remedies & Best Practice
Based on Jim Harvey's speech structures
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
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
Enhanced penalty provisions
Australian Prudential Regulation Authority(APRA)
Australian Securities Exchange (ASX)
Australian Securities Investment Commision
Three key implications of HIH on APRA:
Corporate Governance Principles and Best Practice Recommendations
Civil Penalties Regime
Corporation Act Amendment
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
Non- Auditing Service
Internal Auditing Comitee
Non- Executive Directors