In 2000s, Australian economy has witnessed many corporate collapsed such as One Tel, HIH Insurance and the others collapsed company. There is an issue raise from what is the auditor's responsibility of HIH's financial report, why such that companies closed down but their auditor did not inform anything. With the case of HIH Company, this essay will discuss the role of auditor in the corporate collapse and the shortages of audit service.
HIH Company is one of the largest insurance companies in Australia. However, it was collapsed in 2001 with the losses of about A$5.3 billion (Walker, K 2003, p.5). Therefore, the federal government established the Royal Commission to investigate the reasons and extent of which actions of directors, employees, auditor contributed to HIH failure (Owen J 2003). Auditor plays an important role in the failure of HIH Insurance. Auditors have responsibility to provide a reasonable level of assurance through the issue of a positive expression of opinion that enhances the credibility of an assertion about an accountability matter (Gay, G 2012, p.12).
In other words, auditor provides appropriate opinion about financial report, whether it comply with Accounting Standard and Corporation Act. With the good opinion, the shareholder or investor can trust the number in financial report. Therefore, if the company have financial difficulties, the auditor should have issue the qualified or adverse opinion instead of unqualified opinion. HIH Company was collapsed with the accumulated loss of total A$5.3 million, but the HIH audit firm did not said anything about that. ASA 570.10 states that the auditor must consider the appropriateness of the going concern assumption that base on the financial report when planning and performing audit procedures and evaluating the results. As at 30 June 2000, Andersen signed off HIH audit report state that the company could continue...