Saturday, December 7, 2019

Current Model Synthesis and Implications †MyAssignmenthelp.com

Question: Discuss about the Current Model Synthesis and Implications. Answer: Introduction: HIH Insurance was mainly engaged in the insurance business throughout Australia but its business often seemed quite distinct from how an insurance business must be conducted management. The reason behind this can be attributed to the irregular accounting practices undertaken by the company that resulted in its downfall as a whole (Mock et. al, 2013). It can be observed from the affairs of the company that most of its business acquisitions were overpriced and they expended more than what was the actual valuation, thereby resulting in the depletion of its financial resources. Furthermore, the company also spent enormous resources in various unproductive areas and at the same time, it failed to operate according to the least solvency requirement framed by the Insurance Act 1972 and APRA (Australian Prudential Regulation Authority). Besides, since the year 1992, the company started such aggressive accounting practices that played a key role in exaggerating or undermining the amount of its liabilities or assets prevalent in its financial statements. This altogether hampered the financial strength of the company. Further, this can be proved by the fact that its aggressive accounting practice undermined the value of its liabilities by $18 million and under reserved the same for $41 million while the preparation of due diligence report w as being facilitated by Ernst Young. However, the significant part of such under reserved was a prudential margin that was rejected by the companys CEO (Ray Williams) as a reserve for the operation of normal affairs. In addition to this, after termination of merger betwixt CE Health International and CIC Holdings, the company also attempted various fraudulent accounting treatments within its financials so that various portions of the balance sheet could be efficiently distorted (Saville, 2003). Nevertheless, HIH Insurance also attempted in utilizing its pledged securities in its quarterly financial reports to conceal their real financial position so that negative comments from the external world can be effectively avoided. Even though this attempt was not the real reason behind the collapse of HIH, yet this practice reflected their weaknesses and characteristics in generating income and addressing the expectations of investors. Another inappropriate accounting practice undertaken b y HIH was that it failed to value the companies that it intended to acquire and as a result, it paid more than what was actually needed to be paid. As the company made several acquisitions to enhance their businesses management, more financial resources were destroyed as a whole (Hoffelder, 2012). Further, most of the companys purchases were undertaken debt financing that also put enormous pressure upon the company in terms of payment of interest. For instance, the acquisition of FAI wherein Goldman Sachs valued the company for $20 million but its original value was $200 million. This ineffective accounting practice on the part of the company played a key role in affecting the financial position of the company and at the same time, it was also forced to write-off its contributions in FAI (Westfield, 2003). In addition, the management also used the company resources for self-interest motives that were further not charged to the accounting practices of the company. References Hoffelder, K. (2012). New Audit Standard Encourages More Talking. Harvard Press. Mock, T. J, Bedard, J, Coram, P, Davis, S, Espahbodi, R Warne, R. (2013). The audit reporting model: Current research synthesis and implications. Auditing: A Journal of Practice and Theory 32, 323-351. Saville, M. (2003). HIH : The Inside Story Of Australia's Biggest Corporate Collapse. Accessed October 2, 2017 from https://www.smh.com.au/articles/2003/03/14/1047583693489.html Westfield, M. (2003). HIH : The Inside Story Of Australia's Biggest Corporate Collapse. Accessed October 2, 2017 from https://www.smh.com.au/articles/2003/03/14/1047583693489.html

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.