Auditor Independence and Professional and Ethical Behaviour in Corporate Collapse Cases

This article discusses the failures of auditors in preventing the collapses of AWA and HIH, highlighting issues of professionalism and ethical behaviour. It also explores the improvements in auditing standards and principles since then, including the emphasis on audit quality, professional scepticism, rotation of audit firms, and risk management.

e) Comment on the auditor independence and professional and ethical behaviour within the cases
discussed.
There are two case studies of corporate collapse–AWA and HIH. Both the cases endorse the
inference of auditor’s failure to prevent those collapses. For AWA, the auditors were Deloitte
and for HIH the auditors were Arthur Anderson.
In case of AWA, the auditors failed to understand the basic issue of collapse, which was
misinterpretation of foreign exchange with subsequent manipulation in books of accounts. For
HIH, the auditor failed to find the risk factors for this business and improper risk management of
the company, which resulted to its collapse with huge monetary impact for stakeholders.
For the case of AWA, the professionalism of auditor was put in question, as lack of practical
knowledge and identification of the hidden goof-up related to foreign exchange matter was not
found by them. They were not able to understand the risk factors of the business. Hence, they
were not in a position to suggest the management the risks of the business with subsequent
suggestion of internal control to avoid them. The ethical behaviour of the auditors is also under
scanner, as they have not performed their duties with proper execution of accountability.
For the case of HIH, the professional behaviour of the auditor is under scanner, as they could not
find the gradual manipulation in the accounting system of the company, which ultimately pushed
the company to collapse. Their ethical behaviour is also questionable, as the scrutiny of the
financial information was not done with proper accountability, to identify the future problem of
the company, which was not happened suddenly. Being the auditor of the company for long-
term, they did not highlight their lack of independence in discharging duties and deliver required
level of deliverables to the controlling bodies. (George & Malane, nd)
Both the auditors cannot avoid their responsibilities in regard to the collapses and it is
highlighted by different authorities that if they would be strong enough to show their
professionalism and loyalty to the ethical practice of the profession, the fate of the stakeholders
would not be in such disaster. (Wiley, 2003)
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f) Improvements that have taken place in the auditing standards and principles since then
Post AWA and HIH, substantial changes were observed in audit practice of Australia. The
regulatory Board has introduced many reforms in this practice through different regulations.
ASIC had emphasized on this subject by researching certain areas. They are:
 Awareness of audit quality and its importance;
 Professional scepticism;
 Requirement of rotation of audit firms;
 Proper assessment of the staffs’ knowledge undertake the audit;
 Need of forensic audit;
 Need for implementing proper audit plan;
 Acceptance of assignment after receipt of Proper appointment letter;
 Fixed parameter of deliverance by auditor;
 Internal control practice;
 Risk management.
The ASIC along with APESB had emphasized on the auditors to deliver effectively with no
loose ends left for the assignment. The above steps are taken by the regulators, through which the
professional accountants should be guided. The auditors are accountable to the regulators and the
stakeholders to ensure proper projection of financial report of the business entities with proper
detection of risk factors and lacks of internal control. Basic objective of these changes is to
mitigate audit risks of any organization. Different audit standards are enforced since the
happening of AWA and HIH by Auditing Standard Australia. The need of reforming the
guideline of this profession had forced the regulator to implement different standards right under
the guideline of Corporation Act 2001 and ASIC. (AUASB, 2019)
Main objective of these reforms is to ensure provision of prudence to the stakeholders with
showing respect to the profession through professional and ethical attitude. The demand of the
situation is to encourage the need of forensic audit if it is required. The regulators have to act
strong with the defaulters of this profession with further thinking of their license seizure. Strong
audit culture of any country can ensure the security of the investors and other stakeholders.
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When they approve any financial report, the audience accept with good faith. Hence it is to be
ensured that this faith should not be destroyed and the auditors should perform their duties with
perfect professionalism and ethical behaviour. (Hecimovic et al., 2009)
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Bibliography
AUASB, 2019. Auditing Standards Made Under Section 336 of the Corporations Act 2001.
[Online] Available at: https://www.auasb.gov.au/Pronouncements/Australian-Auditing-
Standards.aspx [Accessed 14 May 2019].
George, G. & Malane, F., nd. Auditors and Corporate Failure: An Analysis of the AWA and HIH
failures in Australia and the Role of the Auditors. citeseer.
Hecimovic, A., Martinov Bennie, N. & Roebuck, P., 2009. The Force of Law: Australian Auditing‐
Standards and Their Impact on the Auditing Profession. Australian Accounting Review No 48,
19(1), pp.1-10.
Wiley, J., 2003. HIH : The Inside Story Of Australia's Biggest Corporate Collapse. The Sydney
Morning Herald, 15 March.
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