Business Risk and Inherent Risk Assessment - Assignment Example

Business risk and Inherent Risk Assessment Student’s Name Institution Affiliation Business risk and Inherent Risk Assessment Question 1: Business Risk and Inherent Risk Assessments HIH could assess the risk facing it through a series of indicators that the company has been witnessing in its daily operations. For instance, one of the indicators includes deteriorating financial condition. For instance, in 1999, the company’s CEO indentified a scenario in which its financials were dwindling particularly seeing the stop of HIH share trading. The compiling of risks associated with the company was essential for assessment of the mega challenge that would eventually hit the insurance company. The capacity to reduce these errors and the zeal to enhance accurate financial projection is critical to enhanced service delivery capacity of HIH Insurance Company. One of the most undesirable aspects of any business entity is financial risks that are often associated with low returns on investments (Sadgrove, 2016). Secondly, there are some inherent risk factors the HIH faced resulting into significant financial loses. The company had been experiencing recurrent risks from its mechanism of expansion. For instance, its partnership with other agencies to enhance its scope for insurance service delivery seems to have been unwarranted. The losses that occurred in the film market segment of the company were one of the indicators that demonstrated the unwarranted ventures by the company. Similarly, natural risks were also eminent in the company’s business engagement that culminated in the losses accruing from Sydney hailstorm. While the natural occurrences could not be predetermined, the unnecessary takeover of FAI by HIH was the root cause of this loss which could have otherwise been prevented. Thirdly, external factors also played a key role to the downfall of the company. Negative influence of workers’ compensation regulations was elemental to the fall of HIH particularly after the industrial deregulation by California court. Question 2: Legal Liability Andersen was one of the HIH partners in the realm of deteriorating financial condition of the company. Over the period of reduced financial liquidity and overall performance, the company would be held liable to its HIH creditors and clients. Andersen was part of the managerial taskforce inherent to HIH operations. Mr Ray William who had been the former CEO at HIH insurance was investigated by the ASIC and sentenced to a 4.5 years jail term based on criminal charges of poor management style that culminated into losses to both the clients of HIH and the creditors succumbing to the fall of the company. This case scenario should form a major reference point for Andersen in the event of her conviction for failure to provide the best leadership input towards enhancing financial performance capacity of HIH for which it had become part of. As a partner, the company was liable to instituting mechanism that would drive its co-partner into a loss-free cycle. The sentence of Mr William was anchored on his tolerance of dishonesty and acts that violated best interests of the shareholders. In this regard, Andersen is also tolerant of the conditions and happenings at HIH under their watch that could leave them culpable of the offense. In the incident of Williams, his action preceded distortion of financial position of the company. Andersen could be held liable to such offense too, as a co-manager of the new HIH Company. The conformity of business activities are regulations is an important aspect of performance management of any organization. The image of a HIH Insurance Company is very important for progressive excellence in the long-run (Sadgrove, 2016). For negligence action to be taken against Andersen however, Andersen must have breached her duty of care towards the clients and creditors. If Andersen was negligent then, he would be held culpable of the mistake of breaching implicit terms of contract towards exercising their responsibility to recover consequential loss suffered to either the creditors or the clients. The Andersen may also be culpable from tort of negligence for obtaining damages that are sufficient for restoring the customers or the creditors back to their former financial situation. For instance, the Australian Securities and Investment Commission are responsible for the enforcement of laws governing investments. Besides, it provides a comprehensive and precise data of a HIH Insurance Company for purpose of monitoring and evaluation of compliance. In case of investigation outcomes that reveal a business engagement in fraud or unlawful business practices, this scenario may taint the business image in the public discourse which is a major threat to the future of the business as far as customers’ loyalty is concerned. Such threats could be mitigated by efficient accounting operation s that would refrain from unnecessary engagement in frauds (Hayes & Gortemaker, et al 2014). Auditing enhances the risk assessment process and the establishment of prior measures to mitigate losses that may arise from the process. The performance of a business is dependent on different areas of engagements. However, the performance of different departments and areas are interrelated as far as the impact on the overall success of the business. For instance, poor financial performance of HIH Insurance Company experiences progressive fall in share price. On the other hand, auditing does not only focus on the actual financial performances of a firm. On the contrary, auditing may encompass compliance, environmental, and performance. The performance audit is also very essential to the performance of a HIH Insurance Company if taken precisely. All variables in the operations of a HIH Insurance Company must be integrated towards ensuring that a business operates efficiently and effectively over time. The generation of data regarding the performance of a firm could inform the human resource on important mechanisms that could foster development in the long-run. Besides, it would promote resilience of the HIH Insurance Company during economic meltdown and other negative externalities. The determination of errors in the performance audit report also cites areas that need managerial attention to enhance performance. With such reports, it is possible to determine and deliberate on the conscious thoughts of a radical productive business segment. Similarly, some management is flawed and may result in major financial losses that can cripple a HIH Insurance Company’s performance. In particular, many managerial officers are hired from third party and lack the loyalty to the firms they work for. In many instances, this scenario is eminent among firms that practice high employee turnover. When firm accountants make deliberate financial errors for individual gains, this scenario presents an awkward position for the companies involved. Incidentally, this scenario creates an avenue for other externalities to influence the performance of the HIH Insurance Company. Such externalities include business rivals that are in constant interjection into the rival’s market share (Spekman & Davis, 2004). Question 3: Ethics HIH would wish to hire prior members of her external audit teams based on the fact that Andersen among others was familiar with the company’s financial projection. Besides, the company could have also been accosted with the former partners’ loyalty to the firm as well as their embracement for work ethics that are essential for the deliberation of the external audit team as far as the financials of the company are concerned. This process would limit the extent of errors in the financial reporting of the company from the perspective of external audit. The provision of both auditing and consultation services are very important and advantageous to the firm HIH. In particular, consultation services are informed by historical narratives that are generated from the financial reporting especially from audit reports that are essentially important to the development of a robust financial freedom. In essence, the provision of consultation services by the same company undertaking auditing is advantageous in the sense that the firm offering consultation services deliver its consultation services having an in-depth understanding of the financial challenges facing the recipient firm. The identification of financial errors and omission that could cripple the performance of a company is the foundation for enhanced service delivery for any company. In this regard, twin consultation and auditing Services Company provides comprehensive reviews and service delivery prospects for the firm involved. This deliberation could be enhanced from the perspective of enhanced work ethics by the company’s auditors and consultation experts through maintenance of regarded confidentiality. While the hiring internally may be an important move by the company, this move might contradict the professional ethical standard of company. For instance, the firm would eventually fall victim of influencing independence of both minds and appearances. The auditors and the consultants must operate free from coercion of any kind to provide a valid determination of the outcome of a company’s stance in the long-run. It is important to note that independence of mind allows expression of conclusion free from compromise of professional judgment. The Ramsy report reform agenda is consistent with CLERP 9 reform. It provides recommendation to the financial and governance reporting considered in the amendment of corporations Act. The reform includes progressive disclosures that entails introduction of personal liability for the breach, independence of auditors as well as the accounting standards. Other inclusions are compliance controls and enhanced participation of shareholders in meetings. Inefficient accountants or other financial appropriators of HIH Insurance Company could be sensitized on matters of work ethics. These ethical considerations are values that are inherent to the delivery of business projections of a HIH Insurance Company. The ethical considerations of an accountant include professional behaviors, integrity and objectivity which are responsible for the realization of an effective deliberation of excellence in the long-run. Business entities are responsible for tapping into professionals of good conduct that can express professionalism in their service delivery throughout their service period in an organization without compromise (Brooks & Dunn, 2011). Any compromise to service delivery by professional accountants is a risk element to the firm involved as it constitutes scenario intolerance to business performance capacity and quality as well as consideration of future potential of a firm. Every firm seeking to mitigate personal errors arising from erotic performance of their accounting officers should integrate a sense of account ethics into their daily business operations. Self-interest threats are critical side effects of flawed accounting professionals in a firm. With such interests, the accountant may ignore some of the consistent internal operational rules from an organization that has been set to enhance operations and mitigate threats from errors. These errors may arise from some of the selfish interest that individuals may consistently engage. These threats can results into serious losses by the victim firm. However, firms may reduce these risks through a number of approaches and mitigation processes commonly referred to as safeguards (Sadgrove, 2016). One of the most practical safeguard includes progressive professional development demands, regulations of corporate governance and professional standards while working at the firms. The performance of business auditors is also an essential aspect of any business. The financial excellence of a business is pegged on its potential to manipulate its financial performance capacity. In particular, consistency in financial determinations is very essential. Subsequently, the appointment and removal of HIH Insurance Company’s auditors may spearhead significant losses associated with the specific product. In this regard, the process of recruitment and employment of new editors must be flawless and efficient. Flawed auditor’s report is detrimental to the financial performance of HIH Insurance Company in future. Effective audit process is a path to enhanced financial health of HIH Insurance Company and must be upheld all the time within firms that have a long-term growth projection. Many business entities insure their operations to reduce financial losses that may accrue from the business operations in the long-run. The potential of businesses to shift their financial responsibilities on reported data to their editors also reduced the anticipated loss arising from litigations or other related settlements to creditors, managers and other professionals within the security market segment. When the capacity of litigation awards rise, there is an expected growth in assurance requires audit from professional stakeholders and manages within the financial activities of the firm (Thibodeau & Freier, 2014). From the audit findings of HIH Insurance Company, the challenges were a product of prudential margins. Audit failures are some of the issues that are associated with critical losses to a firm and have caused significant concerns to the audit profession. Professional auditors must be engaged in practice by a firm to avoid flaws related to lack of professionalisms or capacities to deliver flawless services. Series of litigations have been identified in many cases where audit failures result in significant financial losses to HIH Insurance Company. In such instances, if the litigations are proven true, the auditors are culpable to the losses accrued to the HIH Insurance Company. However, there are numerous mechanisms that have been adopted towards reducing rampancy of incidences associated with audit failures. In many instances, non-professional auditors could be the subject cause of these failures. Any auditor with a practicing certificate are also required to possess a professional indemnity insurance covers that would stand in place of losses attributable to audit-related losses to the auditor’s clients as well as the public. Finally, during the hiring process, companies must ensure that their auditors have valid professional indemnity Insurance covers. This cover would cater for any financial losses that may arise in the event of audit errors or failures. Although the risks taken by businesses in the event of audit failures are minimize through insurance, these compensations have been exploited in the past. The companies hiring auditors have a perception that auditors have the capacity to deliver any size of compensation regardless of its timing. However, this process has posed good results by reducing the risk that audit errors pose to the firm as far as its operations successive production is concerned. References Brooks, L. J., & Dunn, P. (2011). Business & professional ethics. Cengage Learning. Hayes, R., Wallage, P., & Gortemaker, H. (2014). Principles of auditing: an introduction to international standards on auditing. Pearson Higher Ed. Sadgrove, K. (2016). The complete guide to business risk management. Routledge. Spekman, R. E., & Davis, E. W. (2004). Risky business: expanding the discussion on risk and the extended enterprise. International Journal of Physical Distribution & Logistics Management, 34(5), 414-433. Thibodeau, J. C., & Freier, D. (2014). Auditing and accounting cases: Investigating issues of fraud and professional ethics. McGraw-Hill, a business unit of The McGraw-Hill Companies, Incorporated. Read More