Auditing HIH disaster Essay Example | Topics and Well Written Essays - 2500 words

Auditing HIH disaster - Essay ExampleIn spite of major events which took place in succession in the HIH, some social occasion was lurking behind. By January 1999, the HIH acquired FAI insurance for A$ 300 cardinal which later turned out be worth onlyA$100 gazillion though the external inspect of Arthur Andersen for the year 2000 did not make any issue of it. On the other hand the union was lauded to be worth A$ 939 million. Soon after in September, it sold half of its profitable retail general insurance business for cash liquidity and as a result its share prices fell overmatch from A$ 1.05 to A$ 0.45 when the company announced losses. Yet the regulatory authority did not think fit to inspect the accounts as it relied on the external scrutinise report had painted a healthy picture. This was followed by the resignation of the CEO founder of the company for 30+ years, with a compensation of A$ 5 million in December 2000. As the company had not filled its December statements, whe n they became overdue by February 2001, the regulator APRA was concerned for the first time. Meanwhile on 27 February Australian Securities & Investments Commission (ASIC) took the initiative by suspending HIHs share trading soon followed by the APRAs fire fighting act of transferring the companys risk portfolio to other insurance companies to the completion possible. On 15 March 2001 HIH declared provisional liquidation with Government agencies covering some of its obligations which might cost the tax payer about A$ 1 billion to bail out policy holders. On 16 March, finally APRA started inspection of the HIH affairs. Government of Australia lost no time to set up an independent Royal Commission by August 2001 as already announced in May 2001 to investigate into the failure of the company. It took 6 months for the liquidator to generate at the losses as between A$ 3.6 billion and A$ 5.3 billion. It has been stated that not only the settlement of policies and the companys creditors could not be made in full but also it would take ten years for disbursement which might be in the ratio of 1 0.5.This was how the second largest Australian insurers bodily bubble burst representing the biggest collapse in the corporate history of Australia to date. The whole imbroglio was attributed to poor management by under pricing of policies and overestimation of its assets generally non tangible rather than frauds. Soon after the companys fall, the allowance market shot up steeply.While the APRA conceded that it was because of not provisioning the company with sufficient capital to cover its risks for quite an a number of years that this had happened, the Australian Prime Minister had to rebut the public accusations that political donations siphoned off the companys resources. (Sungard Banc ware Erisk). Actually the company had indulged in encyclopedism spree of more than 200 subsidiaries which only made the companys size unwieldy in an already overcrowded and competitiv e insurance market though the acquisitions accounted for 26% premium growth per annum for a decade. Most controversial of all was the acquisition of FAI insurance for A$ 300 million which was worth hardly A$ 100 million and that too the company had borrowed money for the settlement. Rodney Adler the major stock holder of FAI who also became a member of HIH Board however clarified that the purchase price of his company was too high by stating that the price was set, by definition,