Auditing: Analysis of HIH and OneTel Collapse

This report analyzes the collapse of HIH and OneTel, focusing on the role of auditors and management. It discusses the audit procedures, ethical behavior, and improvements in auditing standards. Recommended actions for better corporate governance are also provided.

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AUDITING

HIH & OneTel
Executive Summary
In the past three decades there has been glaring examples of corporate failure. Such failures
shed light on the performance and the role of the auditors. In this report two of the major
organization that is the HIH and OneTel has been considered for the purpose of study. The
major reason for the downfall can be cited due to the failure on the part of the auditor and the
management. The report stress upon why the failure happened. The report is divided into
various parts from the introduction followed by the reasons of the auditor in the collapse.
Further, the auditor independence and code of conduct is even discussed in the report.
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Contents
1. Introduction to the downfall of HIH and OneTel...........................................................................3
2. Auditors of the companies collapsed.............................................................................................3
3. An analysis of how has the audit procedures contributed towards the collapses............................4
4. Independence and professional and ethical behaviour within the cases discussed.........................5
5. Improvements that may have taken place in auditing standards and principles since then.............6
Recommendations.................................................................................................................................6
Conclusion.............................................................................................................................................6
References.............................................................................................................................................8
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HIH & OneTel
1. Introduction to the downfall of HIH and OneTel
Some of the accounts like an aging report, trial balance, debtors account, etc. should be
analyzed by the management so that they can give attention on the statements which may
have led to the closure of the Onetel. Because of the irregular behaviour and inattentiveness
of the organization, it has been observed that this type of cases will be posing a major threat
to the whole company. The value of fate and aggression in an organization is very necessary
so that it can survive in the situations of the environment. Also, the company was observed to
make changes in the decision policy that was in relation to the accounts of the intangible
assets and the deferred expenditure policy of the company which was to be changed in every
2 years. The entire full management and the irregular policies and decisions have led the cost
of the operations to increase thus making it hard for the form to sustain in the environment
(Livne, 2015). Because of the manipulated decisions everywhere in the management of the
company, there have been many optimum uses of the illegal methods by the auditor which
have helped the company to make the fake report to represent its financial condition.
The main objective that was taken into consideration by the HIH Company was to expand the
parameters so that it can create a base of the organization which can operate with the help of
more funds than usual. According to the plan, the company was not able to fulfil the
decisions and it faced a very high increase in the liability with respect to the assets which
decrease the current ratio of the firm (Westfield, 2003). The matter became much worse for
the company after the assessment of this plan. All other assessment of the data of the
organization clearly stated that the growth of liability was negligible in front of the
parametric growth rate of the organization which was not actually the reality of the
environment. Also, there were no changes made by the organization so that a systematic
method of management can be adopted (Mock et. al, 2013). Even after the less time that is
given to the company in order to cater with the needs, it hasn’t made any additional changes
your introduction in the programs that may help the company to cope with the problems.
2. Auditors of the companies collapsed
There was a revaluation of many ethical issues that were observed while the assessment of
the audit plan generated towards the HIH collapse. Also, these ethical issues were said to be
the reason for the mismanagement of the organization. Ethics are the major principles and
moral values that should be used by an organization to keep the environment of company
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HIH & OneTel
clean. The changes in the ethical values of the organization may prove to change the
situations thus leading to the confusion between auditors. It should be clearly stated that the
auditor should try and work for the best interest of the companies and shareholder so proper
and desert information can be obtained and further used for assessment of decisions. For the
HIH limited or was observed that the major 5 ethical principles which were not kept in mind
your integrity, objectivity, confidentiality, professional behaviour, and competence. Also,
payment of dollar 5.1 million and 2.8 million was observed to be made for audit and non-
audit fees by the organization.
The use operating cash deficits of the OneTel Limited customer billing and cash collection
problems and employed large positive accruals and neoconservative accounting policies to
minimize losses were observed. It was also seen that BDNP had never played any role in the
assessment of these kinds of risks. Also, there have been many pieces of evidence found in
relation to the Purchase of many types of non-audit services by the external auditor which
was hired by the organization. The audit fees which were paid by the organization to the
auditor was stated to be 41%, 54%, 52% and 46% for the years 1997, 1998, 1999 and 2000. If
an organization is involved with NAS, then it should have much-evaluated client internal
control information and the plan of the audit so that prosecution can be held in a particular
and specific manner (Cook, 2001).
3. An analysis of how has the audit procedures contributed towards the
collapses
The evidence which was presented towards the malfunctioning of the Onetel Limited stated
that the form was not running in a faithful manner by the use of its fundamental earning
process. The quality of financial reporting that was presented by the organization was also
low like the quality of earning. There are no concerns in which it can be stated that all red
quality which was provided by the firm was having a nice quality (Parker et. al, 2011).
Therefore, because of the low financial performance and bad quality of forgetting the
concealment of one tells real financial performance was not being able to be provided to the
shareholders. Also, this resulted in blockage of any of the opportunities that may arise as a
business operation for the organization in future.
It should be clearly noticed that the type of audit services that have been provided by the
organization to its shareholders is fully unethical in nature because of the unidentified and
attentive information that may mislead the shareholders. Because of the unethical nature
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HIH & OneTel
which was seen by the organization, it is very hard for the shareholders to invest in its share.
It was also observed that the increase in the audit we have reduced the work performance of
the organization which has depicted of year relationship that we have prevailed between the
management and the auditor. Does after the assessment of all the factors it has been clear that
all the financial statements for highly fabricated and influenced by the management of the
firm. Therefore it can be concluded that the integrity of the auditor was under immense
pressure which has made it create such financial documents.
4. Independence and professional and ethical behaviour within the
cases discussed
It is very important for the corporate governance of the firm to use the principle of full
disclosure for the proper functioning of its board. Therefore the lack of evidence of the one
tells case for the monitoring of the management may have been the contribution towards the
collocation of the organization. It has also been observed that the management has never
asked for such kind of information (Geoffrey et. al 2016). There are also several occasions in
which it was observed that the scrutiny of Onetel management was not being critically done
by the nonexecutive directors. It has also been clearly stated in some statements that there
was no interaction between the bird and the management so that a proper decision-making
process can be taken into account.
It was clearly noticed after the assessment of all the information provided in the report that
the auditors were informed about the mishappenings of the financial position of the company
and was unable to provide a true and fair data are based on it. The auditors also knew the
aggressive accounting approach that was being used by the management of the organization.
There were many inadequate future claims of liability and different decisions that may have
been the result of the collapse of the organization (Cappelleto, 2010). Therefore if the
responsibility of the auditor would have been carried out by him in a proper manner, then
there may have been no such disastrous environment present in the organization (Geoffrey et.
al 2016). The Independence that has been provided to the auditor of the firm has also been
one of the great considerations. There was it should be completely known that the auditor
should always compile to the auditing standards and then make the financial statements of the
company so that there may not be any chances of failure (English et. al, 2010).
It was observed that the Onetel Limited was audited by the same type of audit from the year
1997 to 2000. In this year's all the decisions that were being taken by the auditor for the
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HIH & OneTel
organization were unqualified (Monem, 2009). More than 48 objections were identified in the
reports of the one tell Limited by the analysis conducted by The Institute of Chartered
Accountants of Australia. The details that are in charge of the analysis of the financial
statements of the organizations were criticized for their work by the ICAA. Also, a fine of
dollar 48000 was to be paid by BDNP. Also, the analysis which was made by ICAA for the
financial statements of the organization stated that they were not made in accordance to the
corporation's laws, and the Australian accounting and auditing standards were also not taken
into consideration. It was observed in the year January 2001 that the organization has
changed its auditor and the new auditor Ernst and Young as suggested that the provision of
bad debts that have been created by the organization has been too low (Monem, 2009).
5. Improvements that may have taken place in auditing standards and
principles since then
The auditor will be penalized for all the actions with the laws stated in the acts. All the small
situations summed up to become a very big decision which led to the liquidation of the
company and the cost to compile towards it. The inexistent moral code were rolled back and
new codes such ASA 701 came to the forefront where the auditor need to provide relevant
disclosure of the issues that are present in the company.
Recommendations
This case study different new methods and associations that may be present in the corporate
governance structure of a form and may lead to the collapse of the organization. All other
factors remaining constant if the form is having a very weak corporate governance structure
than others, then it is set to collapse more likely. Therefore the high demand for good
corporate governance structures helps to maintain the integrity of the poor firm’s
performance. It has also been clearly stated that the corporate governance strategies that are
considered by the organization act as “safety net”.
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HIH & OneTel
Conclusion
Overall, it can be commented that the most critical area of a company is that of the audit.
Hence, any differences in this area would lead to governance issue and downfall of the
company. HIH and OneTel failed miserably owing to the acts of auditor. Therefore, it is
imperative that the regulatory bodies must re align the functioning of the auditor and the
board should increase the power so that the companies have better governance. Following the
collapse of HIH and OneTel it can be recommended that the accounting standards needs to be
strict in terms of implementation so that the loopholes are not pointed. The past attempts of
the financial accounting standards have failed to create an impact. Going by the overall study
it is advisable that the detailed rules must be present in the organization and that the auditor
rotation concept must be present in the organization. This will help the organization to
prevent the auditor from creating any familiarity with the organization or the client.
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HIH & OneTel
References
Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia, AFAANZ,
Cook, T. (2001) Collapse of Australia's fourth largest telco adds to growing list of corporate
Available from: https://www.wsws.org/en/articles/2001/06/onte-j08.html [Accessed 24 May
2018]
English, L., Guthrie, J., Broadbent, J. and Laughlin, R. (2010) Performance audit of the
operational stage of long term partnerships for the private sector provision of public services.
Australian Accounting Review. [online]. 20(1), pp. 64-75. DOI: 10.1111/j.1835-
2561.2010.00075.x
Geoffrey D. B., Joleen K., K. K.S., and David A. W. (2016). Attracting Applicants for In-
House and Outsourced Internal Audit Positions: Views from External Auditors. Accounting
Horizons. [online]. 30(1), p.143-156. DOI: https://doi.org/10.2308/acch-51309
Livne, G. (2015) Threats to Auditor Independence and Possible Remedies [online].
Available from: http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-
independence-and-possible-remedies?full [Accessed 24 May 2018]
Mock, T. J., Bedard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. (2013) The audit
reporting model: Current research synthesis and implications. Auditing: A Journal of
Practice and Theory. [online]. 32, pp. 323-351. DOI: https://doi.org/10.2308/ajpt-50294
Monem, R. (2009) The Life and Death of OneTel. Griffith University.
Parker, L., Guthrie, J. and Linacre, S. (2011) The relationship between academic
accounting research and professional practice. Accounting , Auditing &
Accountability Journal. [online]. 24(1), pp. 5-14.
http://media.accountingeducation.com/1304/Parkeraaaj24(1).pdf
Westfield, M. (2003) HIH : The Inside Story Of Australia's Biggest Corporate Collapse
[online]. Available at: http://www.smh.com.au/articles/2003/03/14/1047583693489.html
[Accessed 26 May 2018]
Wood, D A. (2011) The Effect of Using the Internal Audit Function as a Management
Training Ground on the External Auditor's Reliance Decision. The Accounting Review.
[online]. 86(6), pp. 34-56. DOI: https://doi.org/10.2308/accr-10136
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