Perverse Audit Culture and Accountability

Question: Discuss about thePerverse Audit Culture and Accountability. Answer: Introduction The modern world with a rising economic infrastructure requires new and modern tools and techniques to overcome the constraints of a growing world. The economic condition of the world is booming at its peak and every organization working in this environment needs to keep an innovative tool to evaluate its own nature and condition of the business. The industries need to look after the financial part of the company, which is one of the core areas involved in the smooth movement of a business. The proper analyzing of the income and expenditure is essential through proper evaluation of the statements and information of facts, which are relevant and verified (Geerts et al.2013). This report deals with the basic auditing practices, which are done by every organizations present in an economy in order to evaluate the process of production and set policies and regulations in order to gain competitive edge in the market. The report also emphasizes on the role of auditors and how the work of auditing is important to every organization throughout the world. Brief overview of the topic as covered in the article including the nature of the auditing issue The topic covers the problems arising in HIH insurance leading to its collapse which is stated to be the biggest tragedy in the Australian Market. This article focuses on the auditors independent issue and other ethical considerations that affected the firm badly along with the other parties related with the firm including the policyholders. The problem related with auditors independence is being analyzed and proper recommendations are suggested which HIH insurance could have done to avoid such an issue. Auditors independence- Audit independence issue played a major part in the collapse of HIH insurance. The auditors should be given enough liberty to provide an impartial prospective in the evaluation of results regarding the presentation of audit and its report (Blay and Geiger 2013). According to the reports of HIH Royal Commission, the royal commissioner revealed that Arthur Andersen was not self-regulating himself in his work and had not proficiently enacted the duties of an auditor. Three former partners of Andersen acted as the HIH Board of Directors who continued to receive fees and that generated the threat of familiarity because of a close personal relationship which restricted Arthur Andersen to work independently. APES 110 Code of Ethics takes into account the liberty matter with Section 290.28 of new policy from July 1, stating auditors of listed and public interest firms should converse with governance people in the firm continuously about stuff related to independence (Tepalagul and Lin 2015). Ethical Issues and their financial and non-financial consequences on stakeholders Ethical issues that generated in the audit profession triggered a collapse of HIH insurance. Ethical behavior in corporate world is the values and principals one works on. It so happens that professional auditors do sometimes get stuck midway that crop up from professional predicament. Auditors need to abide themselves by the ethical standards so that the shareholders get a fair deal. Objectivity, confidentiality, integrity, professional behavior and professional competence are the five principles that bind the work frame of auditors (Knechel et al. 2012). During the period from 1997-2000 HIH insurance paid Arthur Andersen around $5.1 million as audit fees and with $2.8 million going in the non-audit section. Adding to that Andersen earned around $5.097 million from auditing the monetary declaration of HIH insurance and $2.824 million from contribution in non-audit services. The issue that strikes here is that was providing Arthur Andersen with non-audit services ethical on the part of the management keeping in mind the best interests of shareholders. The HIH insurance management was uncertain in escalating the total of audit fees supposed to be paid to Arthur Andersen; Andersen wanted to lessen the quantity of service rendered on the HIH audit. Jeffrey Simpson , an ex-accountant of HIH insurance affirmed that the close association of HIH insurance management and Arthur Andersen facilitated HIH insurance to adopt aggressive accounting policies. As Andersen was also assigned to non-audit services, the real job should have been to take care of third party policies and to present the shareholders with a fair value of opinion with real picture existing in companies audit report. In case of HIH insurance, stakeholders were at plenty and the firms downfall did affect them badly. The collapse of HIH insurance was due to major players like Regulators, auditors and the Government. The shareholders of HIH suffered losses on their investment and certain reports that did the rounds after its collapse is that their insurance contracts were not privileged and claims not rewarded. APES 110 Code of ethics states that there should be credentials and recognizing the threats related to independence (Martinov-Bennie and Mladenovic 2015). When safeguards are essential to reduce a threat to an acceptable level, one need to document the nature of threat and reduce it to a satisfactory level. Analysis of the problem in the context of relevant ethical theories and agency theory Agency theory defines that as a consequence of information asymmetries, principal do not have enough reasons to trust their agents. Principal do seek to determine these anxiety by putting accordingly mechanisms to bring into line the iterests of agents as well as principals and to diminish the scope for information asymmetries and opportunistic actions. Difference in motivation and information asymmetries lead to apprehend the dependability of information causing to impact the trust level that principals will have on their agents. It is the duty of the auditor to verify the exactness and accuracy of the information offered by corporations. He plays the role of a mediator between the management and the client of this monetary information. To lessen the information asymmetry the auditor needs to communicate with those in need of the information he presents. Recommendations The above report analyzes the different roles of auditing which is important for all the organizations to overcome the weak links present in a firm. With respect to the company taken into consideration which is HIH, it can be observed that a good governance can be reachable through proper policies and administrative actions. The implementation of the best practice of ethics and governance is also important for the company to achieve its goals. Good corporate governance will be helpful to create a good working environment to reach success and to analyze the main problems which are the reasons for the failure of the company HIH. A good and sound auditor will demolish the poor management and problems resulting out of lack of skills and attention. The liability for performance and integrity in the internal system of the company can be rectified too. The auditing process provides a good administrative policies and regulations which enables the management to differentiate between the diffe rent operations and should act for the best interests of the company (Craig, Amernic, and Tourish2014). The line of authority and delegations and development of code of conduct to cover up the legal and management guidelines is an important way to monitor and review the strategic operational and projects integrated (Gray and Laughlin 2012). Conclusion The report justifies that the best corporate governance practice is required to allow good financial performance and increase the returns for the shareholders. The lapse in the monitoring model is a factor for the disregard of the principles of good corporate administration. HIH failed in attaining the periodical evaluation of the corporate practices and the policies and regulations of the company. This led to the collapse in all the sectors of the company. 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