The paper 'Framing Audit Failure' is a great example of a Business Assignment. HIH royal commission (2003) was a result of the liquidation of the HIH insurance company in 2001. The company is based in Australia and according to the liquidators; the total losses amounted to $5.3 billion. Therefore, the prime minister then john Howard called for the need of a royal commission to establish the cause of HIH insurance collapse. The commission was headed by Justice Neville Owen and after much investigation and scrutiny; the royal commission report was tabled to the parliament on 16th April 2003.
According to the royal commission report, there were three key main issues that led to the collapse of the HIH Insurance Company. They included: Stock market manipulation Stock market manipulation fraud was realized after an investigation by the Australian Securities and investment commission (ASIC). According to the report HIH shares were purchased by pacific eagle equities Pty limited a company that was controlled by Adler the director of HIH. Pacific eagle equities had bought 1,873,661 shares and 951,339 shares on 15th June 2000 and 16th June 2000 respectively.
In addition, the purchase was made using HIH insurance funds amounting to $10 million. Dissemination of false information Adler the director of HIH insurance had induced investors to purchase HIH shares in the year 2000 by informing the finance journalist that the share price was undervalued. When shares are undervalued, it means that when the prices in the future rise the investors will make a profit. Apart from the information on the price, the director informed the journalist that he had bought HIH shares of 1,873,661 0n 15th June 2000 and 951,339 on 16th June 2000. Acting dishonestly intentionally It was established that Adler had financed a company he had an interest in.
Business thinking systems (BTS) got $2 million from HIH insurance. HIH board called for a meeting to approve the $2 million investment in the Business thinking system of which Adler attended but failed to disclose his financial interest in the company. How the accounting profession and accounting bodies addressed these concerns As a result of these frauds, the accounting bodies decided from thereon to adopt the international accounting standards by the year 2005.
The main intention was to create a harmonization program so as to create reliability and relevancy in the financial reporting framework. Previously, it was a requirement by the law to use the Australian standards only. There was a debate on whether to use the US GAAP’ s and the IASB standards (Dauber 2009). The government chose the IASB standards as it has several advantages such as being used for cross-border listing and offerings. The US GAAP were considered to be black standard letters developed for the US environment and enforcement regime which the Australians have no influence.
Therefore, the standards cannot fulfill the role in Australia and even in other countries. As part of the reforms, a provision was made in section 228 stating that the accounting standards were to be interpreted by reference of object or purpose of the standards. The Australian government over the years is satisfied with the IASB standards as they have greatly improved the economic substance rather than the form of transactions (Dauber 2009).
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Frank L. Clarke, G.W.Dean, Kyle G. Oliver (2003). Corporate collapse: accounting, regulartory and ethical failure. Cambridge university press.
Mark westfield (2003). HIH: The inside story australia’s biggest corporate collapse. John wiley and sons.
David Elias (2005). Adler guilty on 4 charges. The Age
Spencer Pickett (2010). The internal Auditing Handbook. Wiley & Sons publishers.
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Nick A. Dauber (2009). The complete guide to auditing standards and other professional. Wiley publishers.
Micheal knapp (2008). Contemporary Auditing: real issues and cases. Cengage learning