Reflection on Ethics, Governance & Accounting in Corporate Context

This essay reflects on the critical importance of corporate governance and ethical conduct in the accounting profession, particularly in light of corporate collapses such as the HIH Insurance case in Australia. It discusses how creative accounting and a lack of auditor independence contributed to the misrepresentation of financial information and concealed significant losses. The reflection highlights the implementation of the ASX's corporate governance principles and the introduction of APES 110 to strengthen internal and external controls, promote ethical values, and improve board structuring. The essay emphasizes the ongoing need to update regulations based on global developments to prevent corporate fraud and protect minority shareholder interests, noting that while changes to strengthen corporate governance have been implemented, continuous improvement is essential.

A T T TCCOUN ING IN CON EX
TREFLEC ION
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In the recent times, there has been growing emphasis on the importance of corporate
governance practices along with ensuring ethical conduct of the accounting professionals.
One of the main reasons for the high emphasis on these aspects is the potential role of
accountants and auditors in the corporate collapses that have been witnessed in Australia in
the recent times. One such case corresponds to HIH Insurance and the role played by the
auditor of the company. Through the use of creative accounting the various losses made by
the company were concealed and thus misrepresentation of material financial information
was performed.
One of the key reasons for the use of creative accounting was the loss if independence on the
part of external auditors. This was because there was a quid pro relationship between the
directors and the external auditors. The net result was that the auditors failed to highlight any
issue with regards to the company policies especially with regards to risk management until
the bankruptcy of the company became eminent. HIH Insurance used the reinsurance model
for management of risk which was considered quite risky and thereby not adhered by other
players in the insurance industry. This clearly led to highlighted business risks which the
investors were never made aware of and hence they had to take huge losses when the stock
price tanked.
While the major cause of corporate failures is often highlighted as liabilities but usually this
is not the cause of failure. It typically lies in the continuation of faulty fraudulent practices on
the part of the management since long which is almost always associated with firm support
from the accounting and auditing professionals which tend to exploit the various loopholes in
the related legislations. The case in HIH insurance was no different.
As a result, in the aftermath of this collapse, measures to plug this loophole have been taken.
The ASX as part of the listing agreement has inserted the eight principles of corporate
governance. One of the principles relates to ensuring that independence of the external
auditor and internal audit committee must be maintained through requisite measures. As a
result, this ensures the strengthening of both internal and external controls. Besides, the
requisite disclosures are also required to be made by the company in a timely manner which
also prevents the possibility of corporate frauds. Additionally, code of ethics in the form of
APES 110 has also been introduced so that the relevant values of the accounting profession
can be highlighted.

Also, the recent corporate governance also emphasize on the importance of board structuring
which is meant to increase the role of non-executive directors which is critical for protection
of interest of minority shareholders. Besides, presence of non-executive independent directors
ensures that the independence of board from the management is maintained along with
independence of the internal committees which form a critical internal defence against any
fraudulent conduct. These changes for strengthening the corporate governance framework
seems to have been working but it is essential to continue strengthen the same through
updated regulations based on global developments.