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

Auditing HIH disaster - Essay ExampleIn spite of major events which took take aim in succession in the HIH, some thing was lurking behind. By January 1999, the HIH acquired FAI insurance for A$ 300 meg which later turned out be worth onlyA$100 one thousand meg though the external take stock of Arthur Andersen for the year 2000 did not make any issue of it. On the other hand the company was lauded to be worth A$ 939 million. Soon after in September, it sold half of its pro assureable retail planetary insurance business for cash liquidity and as a result its apportion prices fell calibrate 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 audit 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 statemen ts, when 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 expiration possible. On 15 March 2001 HIH declared provisional liquidation with Government agencies covering some of its obligations which strength cost the tax payer about A$ 1 billion to bail out insurance holders. On 16 March, fin every(prenominal)y 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 whitethorn 2001 to investigate into the failure of the company. It took 6 months for the liquidator to arrive at the losses as between A$ 3.6 billion and A$ 5.3 billion. It has been stated that not only the settlement of po licies 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 corporeal 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 largely non tangible rather than frauds. Soon after the companys fall, the premium 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 a number of years that this had happened, the Australian peak 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 eruditeness spree of more than 200 subsidiaries which only made the companys size unwieldy in an already o vercrowded and matched 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 control panel however clarified that the purchase price of his company was too high by stating that the price was set, by definition,