Auditor Case Study

1100 Words5 Pages
The collapses of large corporations to the global financial crisis in the early years of this decade are linked to the existence and operation of real corporate governance and the ethics in the work of the auditor. The role of an auditor is to obtain evidence and express an opinion on whether the financial report as a whole is free from material misstatement and therefore enhance confidence of intended users (Gay & Simnett 2013, p.12). The purpose of this essay is to discuss the auditor’s role as well as deficiencies that led to the demise of HIH Insurance on the 15th March 2001 in an estimated debt of $3.6 billion to $5.3 billion (Allan, G 2006, p. 137). Andersen’s lack of independence and professional scepticism had compromised the true and…show more content…
Arthur Andersen as HIH auditor has three of its former partners sat as HIH board. Cohen, Fodera and Gardener the three former partners of Arthur Andersen had been appointed as audit committee, chief financial officer and board of director after a few months of their resignation. Moreover, the auditor presentations to the audit committee were discussed with HIH management prior to audit committee meetings. The close relationship between HIH and its auditor cause a threat to the independence of auditing and its assurance engagement. Royal Commission has established the close relationship between clients and auditors could be a threat to the independence of the assurance team. As a result, the requirement of rotation of audit partners after a maximum of seven years was applied (Allan, G 2006, p. 137). In order to improve auditor’s independence, The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, better known as the ‘CLERP 9 Act’ was introduced concerning significant audit reforms and implications arose from cases such as HIH and Ramsay (Allan, G 2006, p.…show more content…
18). However the works of auditors have come into question by many corporations as more financial distress and frauds being found. The case of HIH and Arthur Anderson has proven the need for a professional auditor which expertise, independence and ethics are highly concerned. Deficiencies in the work of auditors may lead to serious results in accordance with stakeholders and investors. Therefore, it is a need for all audit firms to set a standard code of ethics as well as professional expertise to meet society’s requirements as professional
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