Auditing Case Analysis: HIH and Harris Scarfe Collapse

AUDITING CASE ANALYSIS
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Executive summary
The audit process is basically designed in order to stop as well as disclose aimed and successful
security contravention. The basic business strategy of HIH was to attain a significant market
share position in the insurance industry of Australia. Harris Scarfe attained a significant position
in the market by supplying a wide range of household, agriculture as well as hardware materials.
There were significant changes in legislative structure took place after the failure of HIH
insurance company and Harris Scarfe. This report sheds light on the concept of significant
problems that are faced by two companies named HIH and Harris Scarfe in Australia due to
failure of auditing. In this context, this study has highlighted the role of auditors and their
responsibilities in that collapse. The major issue was related to the independence of auditors in
those cases. This study has also described the impact of those incidents on legal frameworks as
well as auditing standards.
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Table of Contents
Introduction and Background of two companies.............................................................................4
Auditor of companies...................................................................................................................4
Audit procedures contribution for the collapse of HIH insurance...............................................5
Audit procedures contribution for the collapse of Harris Scarfe.................................................5
Discussion on independence of auditor.......................................................................................6
Improvement in auditing standards and principles......................................................................8
Recommendation.........................................................................................................................9
Conclusion.......................................................................................................................................9
Reference list.................................................................................................................................10
Appendix :Auditor’s role in collapse of HIH Insurance................................................................12
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Introduction and Background of two companies
The audit process is basically designed in order to stop as well as disclose aimed and successful
security contravention. This report sheds light on the concept of significant problems that are
faced by two companies named HIH and Harris Scarfe in Australia due to failure of auditing.
Along with that, it also provides analysis of the process of auditing and the roles of auditors in
that collapse. This study is also aiming to highlight the change in auditing standards as a result of
that collapse.
HIH insurance company was founded in the year of 1968, and the company’s business activity
included the repayment of workers insurance in the Victorian market that became a very
effective business activity. The basic business strategy of HIH was to attain a significant market
share position in the insurance industry of Australia. As a result of this strategy after five years,
HIH took FAI insurance for $300 million (hih.com.au, 2019).
Harris Scarfe was established in the year 1850 and attained a significant position in the market
by supplying a wide range of household, agriculture as well as hardware materials. After that,
Harris Scarfe was focused on supplying department store activities by denying all other
processes. However, this company also experienced severe collapse with a total amount of $265
million (bloomberg.com, 2019).
Auditor of companies
The audit committee of Harris Scarfe was significant process innate in having proper corporate
governance as well as the independent and strong board of directors. As audit committees are
generally composed of three to five directors, therefore, the audit committee of the respective
company was consist of JM Patten independent director, AJ Trescowthick the executive
chairman and lastly, A Hodgson was a chief financial officer (abc.net.au, 2019). This company
held an audit committee for three long years, 31st July 1998, 1999 and in the year of 2000
(abc.net.au, 2019).
Arthur Anderson was the auditor for HIH Insurance for a long period. They were working from
1971 to 2001 (treasury.gov.au, 2019). They were engaged with the auditing of this company till
its demise. Alan Davies was the chief auditor for HIH Insurance from 1996 (treasury.gov.au,
2019). Before Davies, Dominic Fodera was playing that role.
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