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Abstract 'Australia's current financial reporting framework is recognised as amongst the world's best, but this obviously did not and cannot offer immunity from corporate failure'.1 There are numerous individual factors that can have and are having an impact on the reporting framework and should be addressed. Specifically, the auditor's role is to add credibility to the financial reports prepared and signed off by the company's directors and to provide a high level of assurance that the financial reports are free from material misstatement. Auditors may be unfairly or harshly judged for not foreseeing the collapse and warning the market and shareholders. In some instances there are clear cases of complacency on the auditors' part or outright negligence on the part of the auditor.
The HIH Insurance collapse in 2001 has significantly influenced the audit profession, especially in the area of audit independence, audit committee and the legal liabilities of auditors and this case leads to a number of lessons that need to be learnt regarding the audit profession and the responsibilities of auditors.
Keywords Corporate collapse, audit independence, auditor negligence, legal liability, audit committee, reputational effects on accountants
INTRODUCTION
In recent years the Australian corporate sector has witnessed the failure of a number of corporations, including HIH Insurance, One.Tel, Ansctt Australia and Harris Scarfe. These collapses definitely will have long-term effects on different aspects of Australian business and the audit profession is one of the core issues. This paper focuses on the financial audit of HIH Insurance, which collapsed on 15th March, 2001, and was the largest failure in Australian business history.
HIH Insurance collapsed with debts estimated at AS5.3bn and resulted in the federal government announcing that a Royal Commission was required to investigate 'the extent to which actions of directors, employees, auditors, actuaries and advisors contributed to HIH failure or involved undesirable corporate practices'.2 The prime purpose of this paper is to introduce financial auditing-rclatcd matters in the case of the HIH collapse and to discuss the present and future implications to the audit professions, which arise in the post HIH environment. In the case of the HIH collapse, corporate governance as well as directors' and actuaries' liabilities have been highlighted.
The first part of this paper is devoted to a...