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Auditing HIH disaster - Essay Example
Author : dorthy19
Pages 10 (2510 words)
Started in 1960s, HIH Insurance Ltd had been in general insurance business enjoying a celebrity status among the corporates of Australia with international presence .It became a listed company in early 1990s. Its premium income in 1999 was A$ 2 billion and was known for its aggressive pricing to win business and was specializing in volatile liability classes…
In spite of major events which took place in succession in the HIH, some thing was lurking behind. By January 1999, the HIH acquired FAI insurance for A$ 300 million which later turned out be worth onlyA$100 million though the external audit of Arthur Andersen for the year 2000 did not make any issue of it. On the other hand the company was lauded to be worth A$ 939 million. Soon after in September, it sold half of its profitable retail general insurance business for cash liquidity and as a result its share prices fell down 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 statements, 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 HIH's share trading soon followed by the APRA's fire fighting act of transferring the company's risk portfolio to other insurance companies to the extent possible. ...