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A Case Study on HIH Insurance Limited

Task: Provide a case study on HIH Insurance Limited

Introduction: The primary aim of this case study on HIH Insurance Limited is to bring to light the various theft and fraud which was committed by its directors. The study clearly illustrates the active implementation of the HIH insurance Limited’s various types of risk management techniques. This study carefully analyses the various details and miscalculations which led to major complications in the company. The different forms of tactics and unethical use of confidential information by the directors of the HIH insurance company have been identified in report, which led to legal liabilities and investigations. The last section of the study outlines the different forms of ethical concerns that have to be addressed before the vulnerability level rises.

Financial risk evaluations and associated risk analysis

Evaluation of Business Risk: Insolvency is the predominant risk which is faced by HIH Insurance Limited. This is due to the overall structure of operations which the company utilizes. Insurance companies are generally believed to use low-risk management model. Where the yield is strong and there is a low risk of loss. The firms' total business analysis is presented as below:

Insolvency Risk: Auditing is the main contributor to risks affiliated with the firm. This was due to the auditor which was appointed by the organization. In fact, the key detail about the financial data, according to the firm's report, strongly implies a decrease in the firm's total debt. By analysing the balance sheet, it was found that there are many deceptions in it, that demonstrate a false decline in the debt ratio of the organization. Therefore, the financial report shows the problems related to accounting methods as well as the ability to attract new investors (Seguí-Mas, 2018)

Structural Risk: This case study on HIH Insurance Limited highlights that the company has exhibited improvements in the protection framework by including the risk areas associated with movie finance coverage, maritime aerospace and various kinds of natural calamities. In contrast, the insurance company's various types of questionable activities repeatedly show avoidance with respect to methodologies which are not covered by firm. The increased risk architecture has culminated in economic decline as is being witnessed in the scenario of investment in marine aviation resulting in $60 million of negative returns. It was also noted that perhaps the organisation did not comply with the APRA standards (Glover, 2016)

Reviewing of the element of risk that impacts the HIH coverage and the risk level assessment: As per the case study on HIH insurance limited in question, the different forms of inherent risk metrics were mostly the cheating and misstatement recorded in the financial statement. It was also found that the various forms of risk factors influence the report's credibility, which the shareholders could be using to determine a company's solvency situation. The organisations are able to represent the debts in the annual report with the assistance of auditors, which could also depict liquidity. It must be mentioned that the insurer's inherent risk should've been in line with other firms, but the auditors didn't disclose the company's participation in any other financial services industry that might have raised the overall risk variables. (Simnett, 2016)

It must be recognized that monitoring and identification related risk factors have weakened the effect they used to have in heavy-risk areas of coverage. The monitoring risk has been helpful in determining the financial statement's inconsistency. The incorporation of risky investments, though, decreased the efficacy of the auditors ' inherent risk policies. Risk analysis was also seen to significantly reduce the execution of green share plans adopted by HIH to provide greater risk insurance plans. It was further observed in many instances that auditors employ immoral methods for their individual gain and have access to businesses by pumping up their balance sheets (William Jr, 2016).

Legal Liability:

Identification of the court cases to be recommended by Andersen to determine the prospect of collaboration: In the case in question, the HIH controversy is applicable to various legal proceedings that could be applied to examine both clients' and lenders ' prospects of collaboration. According to the case at hand, the judge barred the administrators for a period of ten years on accounts of deception and made them pay a sum of $7million as damages incurred. Without an insolvency statement, it is a complicated process to uncover the firm's scam via its financial statement (Kassem, 2016).

The client's point of view: It was seen as involving the HIH insurance limited, particularly Mr. Brad Cooper, in questionable practices linked to defrauding the insurer's broker and ensuring heavy-risk resources. In fact, everything was confirmed when HIH defendants were found to have earned higher than $100,000 through explicit or implicit ways to make $737,000 in compensation. Consequently, such corrupt practices carried out by HIH were put before the tribunal which served to prove the wrongdoing. There were also numerous instances that perhaps the firm received illegal quantities of money as bribes to make unwarranted consumer insurance claims (Vinson, 2018)

The Lender’s point of view: It was found that Mr. Stephen Burroughs, an agent of FAI General Insurance Company Limited, was put under examination as he was incapable of demonstrating integrity in describing the corrupt methods adopted by the HIH Insurance Company. According to the case study Mr. Daniel Wilkie, Mr. T Cassidy, and Mr. T Maxwell were attributed to deception and improper disclosure of the firm's information (Koretz, 2016)

Evaluation of the causes that may arise to acknowledge the behaviour of incompetence Decreased freedom from knowledge: The vague information dictated by HIH insurance Limited can be ruled as an operation of neglect against the organization towards its auditors and few other agencies. In contrast, the auditors seem unable to adhere with adjustments in the firm's inherent risk variables owing to the insufficient information, which in turn raised the perceived risk of liquidation. It was found in many situations that the corporation's apprehension of revoking the auditing license, organizations use moral principles in the declaration of financial reports (Naaraayanan, 2016)

Tainted HIH management procedure: The governance misconduct found in HIH insurance is largely responsible for the firm's ultimate decline. In fact, the numerous shifts in flesh coverage and the implementation of high-risk policies were not adequately addressed to the relevant leadership responsibility and the firm's high-risk ventures. (Vaitkevicius, 2019)

Assessment of the issues that led to the selection of former participants in the HIH group of external auditors The external auditors were expected in many forms to accept the firm's rapidly changing viewpoint to validate their claim. In relation, the presence of independent auditors with the firm's former members was found beneficial in protecting their sensitive information. However, independent auditors were found to raise the advice on assets by a couple of different forms of questionable means culminating in the non-disclosure of the firm's critical financial situation. In this context, the appropriate learning needed by the external auditors is found to be beneficial in verifying the auditors ' overall report and reducing the firm's management relationships. A few other explanations for previous members to be appointed as auditors are defined as:

Introduction of former adherents as outside auditors that can benefit the firm to reduce misrepresentations by reviewing financial accounts
However, it was found that outside auditors might be capable of comprehending the procedures and specifications of different forms of approaches with regard to operational expertise.
In addition, it was noted that the former directors’ presence and support aided shareholders in retaining the company's interest.
The different forms of exclusions of external auditors were regarded to have been beneficial to HIH insurance limited in achieving shady practices that could assist the participants to gain further income. (Foxall, 2015)

Analysis of the benefits, which might be offered by the company assessing the expertise of auditing and consultation: The internal inspection system and consultancy were mainly used to help improve the firm's procedures. In fact, it was discovered that service teamwork could have allowed the organisation to identify issues and vulnerabilities. It reported enhancing the firm's overall efficiency of operations. The following are among the benefits of using an audit or consultancy structure:

The rewards are shown in helping businesses find flaws in the overall investigative process, which could minimize the financial report's validity.
Steps that a company could take to bring the total spending under check
It can also serve to preserve the firm's inside secrets and shield them from rivals.

The consulting company's auditing was found primarily useful in finding blunders throughout the firm's financial statement, which, in effect, could impede the financial report's credibility. It is also reported that the consulting conversation is valuable for companies to cut their taxes by coming up with solutions to raise current liabilities. (Babri, 2016) .

Reason for a company's breach of moral standards For the intention of successful assessment of the "HIH insurance Limited", it must be acknowledged that the directors, executives of the organization and external auditors have made many forms of ethical breaches. In fact, Arthur Anderson was named as the prime perpetrator blamed for reaping the benefits of this situation. It was found that for auditing and consulting services, more than $1.7 m and $1.6 million were estimated to be charged. It has been claimed that the various kinds of ethical breach happened only when the organization was not able to maintain the internal control resulting in a higher concentration of liquidity Furthermore, it should be noted that the external auditors deteriorated their ranking, and did not abide by the auditing regulations of the AA. It was also reported that auditors didn't perform their tasks in compliance with the "Australian Accounting Standards Council" regulations. (Mellichamp, 2019)

The different sorts of situations that the HIH insurer submitted to review the outside audit and create modifications to the guidelines recommended by the possible filing indicated that its auditors and directors had carried out the degree of non-violations. To increase the overall capital gains, the above-mentioned moral infringements were recorded.

Suggestions made by Ramsay and CLERP 9 report According to the CLERP 9 as well as the Ramsay report, the support was described specifically by recognizing the policies that caused the use of moral financial reporting and management. Several of the report's findings involve:

Rise in the average waiting period for the senior management of the retired private external audit department to 4 years from 2 years
Introduction of accounting programs to senior staff and business performance statement
Improved replacement policy for representatives, particularly external auditors, between 2 and 5 years (Nartea, 2017)

Conclusion The final assessment in this case study on HIH Insurance Limited stipulates that the company is carrying out various types of immoral initiatives. The analysis also helps find liquidation and management structure combined with risk leveraging as the firm's serious issue. It was also observed that the inherent risk primarily limits the legitimacy of the firm's annual report. This once again highlights the legal obligations that could be applicable to Mr. Andersen for presenting the immoral practices found in the audit statement. HIH Insurance Case Study assignments are being prepared by our management assignment help experts from top universities which let us to provide you a reliable online assignment help service.

References Babri, M. (2016). The Corporate Code of Ethics at Home, Far Away and in Between. Sociomaterial Translations of a Traveling Code (Doctoral dissertation, Umeå University).

Foxall, G. R. (2015). The Routledge companion to consumer behavior analysis. Routledge.

Glover, S. M. (2016). Current practices and challenges in auditing fair value measurements and complex estimates: Implications for auditing standards and the academy. Auditing: A Journal of Practice & Theory, 36(1), 63-84.

Kassem, R. &. (2016). External auditors and corporate corruption: Implications for external audit regulators. Current Issues in Auditing, 10(1), 1-10.

Koretz, D. J. (2016). Auditing for score inflation using self-monitoring assessments: Findings from three pilot studies. Educational Assessment, 21(4), 231-247.

Mellichamp, D. A. (2019). Profitability, Risk, and Investment in Conceptual Plant Design: Optimizing Key Financial Parameters Rigorously Using NPV%. Computers & Chemical Engineering.

Naaraayanan, S. L. (2016). Does accountability deter individuals from serving as independent directors? Evidence from a corporate governance reform in India.

Nartea, G. V. (2017). Does idiosyncratic risk matter? Evidence from the Philippine stock market. Asian Journal of Business and Accounting, 47-67.

Seguí-Mas, E. B.-A.-G. (2018). Assurance on Corporate Governance Reports in Spain: Towards an Enhanced Accountability or a New Form of Public Relations? Administrative Sciences, 8(3), 32.

Simnett, R. C. (2016). International archival auditing and assurance research: Trends, methodological issues, and opportunities. Auditing: A Journal of Practice & Theory, 35(3), 1-32.

Vaitkevicius, S. A. (2019). Integrated Risk Assessment: Case Study of Lithuanian Family Farms. Engineering Economics, 30(4), 402-410.

Vinson, J. M. (2018). The Effects of Critical Audit Matter Removal and Duration on Jurors' Assessments of Auditor Negligence. Auditing: A Journal of Practice and Theory.

William Jr, M. G. (2016). Auditing and assurance services: A systematic approach. McGraw-Hill Education.

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Corporate Governance Failures - A Case Study of HIH Insurance Group, Australia

The paper examines corporate governance failures from a practical perspective using one of the world's most epic corporate collapse cases in history. It dissects the case of Australia's former largest insurance firm, HIH Insurance Group, whose massive corporate governance scandals and subsequent collapse shook the world at the time of demise in 2001. The write-up focuses on the classic corporate governance failures that occurred within the company over several years of its operation and ends by looking at whether these could have been averted to save the firm from its catastrophic ending.

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A CASE STUDY FOR THE HIH INSURANCE

Assignment 1 - Problem-Solving for ACC8801: A Case Study for the HIH Insurance. The assignment involves being appointed as the Chair of the board of directors for a private company and dealing with the legal process of incorporating a new company to offer its shares to the public through the ASX.

Added on 2022-08-08

About This Document

Problem Solving - A Case Study for the HIH Insurance Please make sure to follow the attached assignment requirement and marking criteria on Page1, 2, 4 & 5 (especially page 4 &5) of the attached requirement file Ref. linkage: PDF & Zip Files as Attached ===================================== Assessment task Currently, you have been appointed to be the Chair of the board of directors for a private company (JR services Pty Ltd) that has bene operating for several years. The legal process of incorporation of a new company (Financial Services Ltd) to offer its shares to the public for purchase through the Australian Stock exchange (ASX). You have been assigned the task of preparing an internal report for non-executive and independent non-executive board of directors. The report must be a maximum word limit of 2,000 words. The report must identify and critically analyse, systematically, the non-compliance of

Added on 2022-08-08

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BULAW2611 Assignment on Organisation Law lg ...

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Two years ago as Royal Commissioner of the HIH Corporate Investigation, Owen J handed down the Final Report — The Collapse of HIH Insurance, which examined with forensic detail Australia’s largest corporate collapse of $5.3b. The report ran to over 500 pages, involved three volumes in 24 chapters and had 61 policy recommendations and numerous referrals to regulators for further investigation. The Royal Commission involved 52 parties, over 100 witnesses, 228 hearing days, 19,771 pages of transcript and over 44 million documents. The information had to be examined by 120 staff including the Royal Commissioner, the 26 lawyers assisting and the 20 forensic accountants and actuaries. After all this time and money spent on a single investigation, what was the final verdict?

2. The rise and fall of HIH Insurance Group

The origins of HIH Insurance Limited can be traced back to 1968 with the establishment of M W Payne Liability Agencies, a workers’ compensation underwriter. Subsequently acquired by a United Kingdom (UK) insurer, the company was restructured and later renamed CE Heath International Holdings, and partially listed on the Australian Stock Exchange (ASX) in 1992. The partial float was the first by a general insurer on the ASX. 4

In 1995, the company entered into a merger with Swiss-owned CIC Insurance Group and soon after was renamed HIH Winterthur. The company then experienced rapid growth through a series of acquisitions, including: Heath Cal and Great States Insurance in the United States (US); Colonial Mutual General Insurance in Australia and New Zealand (NZ); Solart in Argentina; and Cotesworth Group in the UK. Some of these offshore businesses were to later encounter financial trouble.

Concerned about HIH Winterthur’s performance and financial position, Winterthur, the Swiss-based majority shareholder in HIH Winterthur, decided to divest its 51 per cent stake through a public share offer on the ASX. 5 The offer was fully subscribed and the offering took place in August 1998. Two months later, the company changed its name to HIH Insurance Limited (HIH). Shortly afterward, the now fully publicly-owned HIH acquired UK insurer World Marine & General Insurance and Australian insurer FAI Insurance (the latter for $295 million); 6 FAI being a company which was under intense financial pressure at the time, unbeknownst to the directors of HIH.

Not long after the acquisition of FAI, HIH’s aggressive growth strategy began to falter, with losses reported in its UK and US businesses (which together contributed nearly 30 per cent of HIH’s total Group-wide income). 7 Its NZ business was also losing money and its Australian operation, which generated the bulk of its revenue, was struggling, recording a $21 million loss for the 18 months to 31 June 1999. In order to stem its losses, HIH placed its UK operations into run-off. 8

Financial analysts grew uneasy about HIH’s performance, and some were blacklisted (frozen out of access to the management team) by HIH because of their negative assessments of the company. The market responded, with the price of HIH shares falling precipitously (Figure 1).

Figure 1: HIH’s share price

Source: HIH Royal Commission, Final Report, Vol. 1

Following the April 2000 release by APRA of draft reforms to the prudential regulation of Australia’s general insurance industry (proposing stricter standards for capital adequacy, liability valuation, reinsurance and risk management), 9 HIH sought to bolster its regulatory capital levels by entering into strategic joint ventures and selling off some of its underperforming businesses and property assets. 10 Parts of HIH’s Argentinian and Asian operations were sold off.

A routine external audit completed in July 2000 by Arthur Andersen failed to raise alarm bells, instead concluding that HIH was in a healthy financial state. At this time, HIH accounted for 9.3 per cent of all gross written premiums in Australia by Australian Prudential Regulation Authority (APRA) regulated general insurers — it wrote $1.65 billion out of an industry total of $17.7 billion, for the financial year to 30 June 2000. 11 Its annual report for that financial year showed total assets of $8.3 billion and total liabilities of $7.4 billion, a net asset position of $900 million.

In September 2000 it announced it had entered into an agreement to sell, for $200 million, a 51 per cent share of its domestic personal lines business, 12 excluding its workers’ compensation, travel, professional indemnity, public liability and corporate broking lines, into an unincorporated joint venture with German-owned insurer Allianz Australia called Allianz Australia Advantage. 13 HIH’s share price dropped sharply following the announcement. Its troubled US operation was placed into run-off the following month.

Concerned about its exposure to HIH, Westpac, HIH’s banker, requested in October 2000 that the company appoint Ernst & Young to conduct an audit of its finances. The audit report, presented to HIH a month later, concluded that its financial position was ‘delicately poised’. Apprehensions about HIH’s financial troubles intensified when it announced that its interim result to 31 December 2000 was likely to be a loss, coupled with its failure to lodge its December 2000 quarterly statement with APRA.

The final months of 2000 and the early months of 2001 were a tumultuous period, with a number of HIH’s directors resigning from the Board, including the company’s founder and Chief Executive Officer, Ray Williams. The company’s share price, and credit rating (Table 1), continued to decline.

The commencement of the Allianz Australia Advantage joint venture on 1 January 2001 marked the beginning of the end for HIH. The structure of the joint venture required that HIH’s share of the premium income earned by the joint venture be placed under trust. Excess funds were to be distributed on a quarterly basis to the joint venture partners according to their ownership shares, but only after an actuarial assessment confirmed that there were sufficient funds over required reserves. The first actuarial assessment was due in May 2001. Needing to pay claims arising from business written prior to the commencement of the joint venture, HIH, already short of money, was deprived of desperately-needed funds. Soon after, it was forced to delay paying some claims as its liquidity problems became acute.

On 22 February 2001, at the company’s request, trading in HIH shares was halted on the ASX. Trading briefly resumed on 26 February, but was halted again on 27 February. Around the same time, the Australian Securities and Investments Commission (ASIC) served a notice on HIH concerning its investigation of a suspected contravention of HIH’s obligation to disclose price-sensitive information t o the market. HIH shares were suspended from trading a final time on 1 March 2001.

On 6 March 2001, HIH announced that it would establish a joint venture company with QBE Insurance (QBE), QBE Corporate Insurance, which would offer to renew all corporate insurances written through major brokers by HIH and QBE in both Australia and NZ. The joint venture would see QBE, which had management control of the joint venture company, in effect take over 60 per cent of all of HIH’s corporate insurance business written in Australia and NZ. 14

On the same day as the QBE announcement, HIH formally appointed KPMG to undertake a review of its financial position. Armed with the findings of this review, the Board of HIH took the decision on 15 March 2001 to place the company into provisional liquidation, only days after it sold the remaining 49 per cent stake of its domestic personal lines business to Allianz Australia and one day after selling its workers’ compensation business to NRMA Insurance. On appointment, the Provisional Liquidators, Messrs AG McGrath and ARM Macintosh, estimated that HIH had lost over $800 million over the six months to 31 December 2000. The Provisional Liquidators also declared that each of the major Australian insurance licence-holding companies within the HIH Group was clearly insolvent. 15

At the time of its failure, the HIH Group consisted of more than 240 individual companies, of which eight were licensed or formerly licensed general insurance companies incorporated in Australia. The majority of the remainder were holding and investment companies, or in some cases licensed insurance companies incorporated in other jurisdictions. 16 On 27 August 2001, the Australian companies in provisional liquidation were placed into formal liquidation, with Messrs AG McGrath and ARM Macintosh taking on the role of Liquidators (hereafter ‘the Liquidator’). By then, the deficiency in the HIH Group was estimated to be between $3.6 billion and $5.3 billion, making it the largest corporate failure in Australian history.

4 Clarke (2007), page 434.

5 Winterthur commissioned independent reports to assess the UK branch and its activities. Concerned with some of the findings (conflicts of interest, lax guidelines, poor financial reporting, huge losses in aviation and marine insurance) it decided to divest its interest in HIH Winterthur (s. The offering memorandum contained a claims-development table that was the first public revelation of HIH’s historical under-reserving. Nevertheless, the response from the investment community was favourable and the public offering was oversubscribed (see HIH Royal Commission (2003), Vol. 2, Chapter 12.

6 Kehl (2001). See Box 1 for further discussion of the FAI acquisition.

7 At this time, HIH’s Australian portfolio accounted for 64 per cent of HIH Group revenue, the Americas 16 per cent, the UK 13 per cent, NZ 4 per cent and Asia 3 per cent.

8 During run-off, an insurer ceases to write new policies, and any existing liabilities are ‘run off’ to conclusion.

9 Australian Prudential Regulation Authority (2000). This discussion paper followed three previous policy discussion papers released by APRA in September 1999 setting out the scope for modernising the prudential supervisory requirements for general insurers in Australia.

10 Now-defunct US investment bank Merrill Lynch analysed HIH’s financial position and concluded that under APRA’s proposed new capital standards for general insurers, HIH would be ‘significantly capital

11 Australian Competition and Consumer Commission (2002), page 101.

12 This was a largely profitable business acquired from FAI, and included home, home and contents and motor vehicle insurance.

13 The joint venture company issued private motor, compulsory third party, private pleasure craft, home building and home contents insurance policies. It also issued small business packages, rural packages and small commercial insurances (such as commercial motor, fleet motor less than 150 vehicles, property with asset value less than $20 million, public and product liability policies with turnover of less than $5 million, and marine) previously arranged by HIH through distributors other than international brokers. HIH would later sell its remaining 49 per cent stake for $125 million.

14 Profits from the joint venture company would be split according to ownership stakes, with QBE receiving 60 per cent and HIH 40 per cent. Soon after HIH was placed into provisional liquidation, and following discussions with the Provisional Liquidators, QBE decided to absorb 100 per cent of the joint venture business, thereby assuming HIH’s entire corporate insurance book.

15 Kehl (2001), op. cit .

16 HIH Insurance (2013). For a corporate chart of the companies in liquidation, visit the HIH website .

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Financial Reporting Assignment: Accounting Scandal Practiced By HIH Insurance

Task: Write a financial reporting assignment discussing about the accounting scandal and financial reporting of an organisation (of your choice) in detail.

Executive Summary The report on financial reporting assignment aims to provide meaningful insight into the accounting scandal practiced by the HIH insurance. The issues in financial reporting together with low financial reporting were the reason for HIH downfall. Further, the report discusses regarding the financial reporting quality, manipulation, effect of the scandal and the overall impact of the scandal on HIH. The report gives an emphasis that reforms and regulation of the insurance sector is highly needed.

Introduction The accounting standards are prepared to keep a general reporting at par in the Industry so that every stakeholder of the company would be able to get the desired information and take its investment and other decisions accordingly. The system of auditing is there to ensure that the financial statements are per guidelines and show a true and fair view of the accounts. In the time when the accounts are showing some negative trend about the company which will impact its share price and goodwill, in the long run, the management of the company would like to hide such issues and window dress the accounts. This window dressing leads to low financial reporting quality and financial scandals.

HIH description The HIH Insurance was the second-largest insurance company in Australia. In just 10 years the company was expanding at a very high rate. It was a public listed company. The main reason for its growth was continuous acquisitions of the other insurance companies. It has the policy of acquiring another company which was the reason for its growth and also become the reason for its fall (Andon, Free & Scard 2015). The last major acquisition of the company leads to its downfall due to its aggressive accounting practices.

Reasons for the downfall The company didn’t fail to any fraud or theft but due to the absence of due diligence of the company. The accountants and supervisors were unable to evaluate the company is doing under-provisioning of its claims. As per Andon, Free & Scard (2015) the insurance companies are required to keep a minimum provision on the insurance policy as claimable. Due to this under-provisioning when the actual claims occurred the company has to pay such claims from the current profits which also lead to the accumulation of losses over the period. The company was having the required capital base to absorb such losses (Livne 2015). Thus continuous acquisitions and under-provisioning were covered with faulty accounting disclosure quality.
Manipulations by HIH The company could hide or disguise such poor quality reporting as the regulations were supporting technical provisions to be manipulated as there was no compulsory actuarial advice, safety margin requirements, discount factor mechanism to control the provisioning pattern (Murphy, 2015). Even the capital requirements of the insurance companies were not on the risk factors associated with it. This helped manipulate and failure by the regulators in detecting the actual accounting position of the company (Westfield 2003).
Absence of Due Diligence The motive of the company was to grow and thus multiple acquisitions were done of various insurance companies some of which were listed companies. But this policy of acquisition was not backed by proper due diligence (Westfield 2003). The acquisitions were not done prudently and to increase its market share the income was inflated with less provisioning and actual claims come to be higher than expected. The aggressive policy to grow at any cost has resulted in the loss of money from various insurers. The company which was incurring losses was showing huge profits in its books and thus the senior officials were drawing huge reimbursements from the company (Cernusca & Balaciu 2015). The company which was in requirement of the capital introduction, the capital was withdrawn in the form of reimbursements.

The major creditors of the company included the Australian and state governments thus the government money was at stake. The retail policyholders were largely impacted due to non-payments of the claims. Even the claim for the Professional Indemnity, Public Liability, Home Warranty, Accident and disability as well as travel claims of the groups like professional, community, business owners, house owners, individuals were halted and not paid (Westfield 2003). There was no protection for policyholders and no compensation scheme was framed except for workers. This was the largest financial scam in Australia. It left many policyholders uninsured. The business of the company was continued for ongoing policies and no new business was undertaken during liquidation.

Impact on the financial information The financial aspects which were most impacted were the income statement as two major reasons for the downfall were unregulated acquisitions and under-provisioning of the claims. The under-provisioning of the claims leads to higher income levels and thus supports additional acquisitions which again increase the market share and policy premium income of the company (Tepalagul & Lin 2015). Thus this will impact the profitability ratios of the company. Thus the ratios like earning per share, return on equity, return on assets and similar ratios were customized. If the company properly reported its financial position then such a downfall could be averted and revival of the company as possible.

Conclusion The collapse of the company leads to many difficulties in the insurance sector. Many of the policies which were mostly covered by the company were not available or if available were at a high premium making it unaffordable for many. The policies most affected are Professional Indemnity, Public Liability, and Home Warranty Insurance. The insurers have to resort to unregulated insurance sectors to cover their asset. This also makes way for the introduction of various insurance reforms and regulating the insurance sector more stringently. The provisioning manner was redefined and even capital requirements were changed based on the risk covered. Some insurance core principles were introduced covering various areas such as the Suitability of the persons, Corporate Governance, Internal Control, Enforcement or Sanctions, etc. which provides guidelines over various issues related to the insurance sector. Thus these measures will make sure that in future such circumstances do not arise and public money is not kept at stake.

References Andon, P., Free, C. and Scard, B., 2015. Pathways to accountant fraud: Australian evidence and analysis. Accounting Research Journal, 28(1), pp.10-44.

Cernusca, L. & Balaciu, D.E., 2015. The Perception of the Accounting Students on the Image of the Accountant and the Accounting Profession. Journal of Economics and Business Research, 21(1), pp.7-24.

Kleinman ,G., Anandarajan, A & Palmon, D 2012, Who's to Judge? Understanding Issues of Auditor Independence Versus Judicial Independence, Financial reporting assignment Accounting, Economics, and Law: A Convivium 2(1), pp. 1-50

Livne, G 2015, Threats to Auditor Independence and Possible Remedies. Available from: http://www.financepractitioner.com/auditing-best-practice/threats-to-auditor-independence-and-possible-remedies?full [Accessed 30 March 2020]

Murphy, G., 2015. A vision for the future: by using the most current technology and keeping their skills up to date, management accountants can enhance their careers and their organizations. Strategic Finance, 97(4), pp.62-64.

Tepalagul, N. & Lin, L 2015, Auditor Independence and Audit Quality A Literature Review’ Journal of Accounting, Auditing & Finance, 30(1), pp.101-121.

Westfield, M 2003, HIH : The Inside Story Of Australia's Biggest Corporate Collapse. Available from: https://www.smh.com.au/entertainment/books/hih-the-inside-story-of-australias-biggest-corporate-collapse-20030315-gdgff3.html [Accessed 30 March 2020]

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HA3032: Holmes Institute- HIH Insurance- Auditing Case Study Assignment Solution

Assignment Sample

Solution Code: 1BD

Question:Auditing Case Study

This assignment is related to ” Auditing Case Study ” and experts at My Assignment Services AU successfully delivered HD quality work within the given deadline.

Auditing Case Study Assignment

Company history.

In 1968, Ray Williams and Michael Payne formed CE Health International. As a result of a merger in 1995 between CE Heath and the Swiss based insurer Winterthur Insurance Company, the company HIH Winterthur was established. In 1998 the name of the company was changed again, this time to HIH Insurance Limited. This last name change had been brought about by the withdrawal of Winterthur from the operations. Winterthur had become increasingly nervous about the operations of the company and consequently had sold its shares. HIH continued to expand its insurance ventures with the purchase of FAI Insurance, World Marine and General Insurance and Cotesworth, which had direct links with Lloyd's Insurance. However, FAI had been purchased in 1998 at a premium from Rodney Adler (Non-Executive Director of HIH) and without either board consultation or the completion of a due diligence report. Accordingly, in September 2000, HIH was forced to write off its investment in FAI for $400 million.

The insurance arenas entered into by HIH included the high-risk areas of marine, aviation, natural disasters and film financing insurance, in addition to the highly competitive workers' compensation insurance market in California. HIH experienced considerable losses due to its exposure to these high-risk areas. Such losses included:

$100 million from film losses
Considerable damages claims from the major hailstorm in Sydney (from the takeover of FAI)
Large losses from the 1999 Florida typhoon
Extensive workers' compensation claims as a result of the industry deregulation in California. The Californian courts had altered the award scale for benefits, which resulted in a dramatic increase in the cost of claims to insurance companies such as HIH.

Board of Directors

Details regarding notable members of the Board of Directors of HIH and changes to the Board are outlined in the table below.

Background to the Company Failure

In September 1999, Rodney Adler wrote to the Chief Executive Officer, Ray Williams, criticising the direction of the company and raising concerns about the company’s financial position. More than a year later, on Tuesday, 27 February 2001, trading in HIH Insurance Limited shares was halted and ASIC commenced a formal investigation into market disclosure by HIH. Provisional liquidators were appointed to the company on March 15, after the company had flagged a provisional loss of $800 million. In May the assets of the company directors, Adler, Fedora and Williams were frozen, pending further investigation. On 21 May, the Prime Minister, Mr John Howard, announced a Royal Commission into the collapse. ASIC began its investigation into the accounting for reinsurance agreements between HIH and Hannover Re and Swiss Re, and between FAI and National Indemnity and General and Cologne Reinsurance Australasia. The investigation by ASIC has raised many questions as to the role of directors, senior management and auditors.

In the two years preceding the cessation of trading, HIH’s share price had fallen sharply. This was due to a combination of poor financial results and significant asset sales, which were intended to improve the balance sheet position, as well as fund insurance claims. It is interesting to note that during 2000 HIH had paid an amount of

$1.7 million to the auditors for auditing services, together with $1.631 million for the provision of consulting and other services.

The difficulties experienced by HIH were due in part to its policy in regard to prudential margins. The premiums received by insurance companies are invested for long periods of time in anticipation of future claims, and companies (including HIH until 1997) traditionally maintain a prudential margin out of these funds. A prudential

margin means that a proportion of funds received by the company is maintained as a buffer in the event of unpredictable claims, such as those arising out of natural disasters such as earthquakes or floods. Some companies have margins such that there is an 80–90 per cent chance of covering claims. HIH discontinued this practice in

1997, choosing instead to adopt a reinsurance process.

The Aftermath of the Collapse

In September 2001 the independent Royal Commission commenced investigations into the collapse of HIH. The results were published in April 2003. The Commissioner concluded that “the primary reason for the collapse of HIH was the failure to provide properly for future claims. This failure was essentially due to mismanagement and an inadequate response to pressures emerging in insurance markets internationally.”

The Commissioner also concluded that “the Australian Prudential Regulation Authority (APRA) did not cause the collapse of HIH.” However, new legislation for general insurers was enacted in September 2001 and new prudential standards were issued in February 2002 (applicable from 1 July 2002).

In addition to the Royal Commission, was the preparation of the Ramsay Report whose purpose was to review existing requirements for the independence of auditors and to make appropriate recommendations for changes to those requirements. The Ramsay Report was released in September 2002, prior to the findings of the Royal

Commission.

The Corporate Law and Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9 ACT) was passed in June 2004. The recommendations of the Ramsay Report and the Royal Commission are generally consistent with the CLERP 9 proposals with respect to audit reform. (See Text Pages 105-109)

For Arthur Andersen the situation deteriorated with the subsequent collapse of Enron in January 2002. In June the firm was found guilty of obstructing justice for the destruction of work papers. In May 2003 Andersen Australia was integrated into the partners and staff of Ernst and Young.

The result has been a major review of the auditing profession.

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Question 1- Solution

Legal concepts

Fraud refers to the different ways through which human shrewdness can come up with, and which is applied by one to take advantage over another person by erroneous suggestions and suppression of the reality. It entails all the tricks, dissembling or cunning, and any unfair means through which another is deceived (Ghandar, 2014). For one to prove fraud, few elements are put into consideration, they include; a material bogus statement that has been made up with the intent to cheat. Another element that should be considered is the victim reliance that includes the

shareholders’ testimony that they would not spend their money on that particular company if they had known its real financial situation. The final element that should be thought-out is the damages that are usually in terms of cash.

Under the governorship of MR Ray Williams as the CEO and other senior executives, HIH insurance had allowed the provision of information that presented false statements about the financial position of the subject company. As a result, various investors made decisions to part with their money due to the prior knowledge that the subject company was doing well financially. The directors’ intent was to fraud the investors circumstantially by authorizing a statement in the Annual Report that had overstated the misleading working profit. HIH Insurance was experiencing high losses due to the workers’ compensation and other damages claims that had been caused by natural disasters, and this resulted in the drastic falling of its share price.

From these findings, it is the auditor’s obligation to ensure that various fraud risks are identified, audit procedures and appropriate evidence are performed to address the liabilities and that action is taken in situations where actual fraud is detected. HIH insurance lacked professional skepticism that is necessary for addressing fraud risks. It employed a risk assessment mechanism that was concerned with the internal operations. However, Andersen had policies that ensured that any reports are subjected to rigorous review and also relied on other monthly reports that provided scant details as to the subject company’s assumptions and methodology.

Aggressive Accounting Practices

The Royal Commission found that HIH Insurance did not deal with some accounting anomalies deferred acquisition costs, accounting for the future income-tax benefits, deferred information technology goodwill and costs. The accounting standard demands that any company that incurs a tax loss is subject to doubts about its ability to gain future income-tax benefits in the following periods. Some of Andersen’s partners believed that HIH would be profitable in the future and, therefore, decided to invest in it (Allan, 2006). However, the auditor had failed to

acquire proper evidence and therefore did not issue a qualified opinion.

Similarly, Andersen did not try to recover the deferred acquisition costs and relied on the historical profitability of HIH and therefore, the evidence was inefficient. It is important to ensure the acquisition costs incurred are capable regarding reliable measurement rather than just giving rise to premium revenues or before being recognized as assets. Also, Andersen lacked efficient, appropriate evidence regarding the specific accounting standards that are concerned with the deferred IT costs. As a result, the economic benefits of HIH were neither reliably measurable nor probable.

In addition, the accounting for goodwill done by Andersen was highly questionable. As a result, as from 2000, goodwill kept on staggering a huge percent of the company’s shareholders funds. From these findings, it is important to ensure that financial reports entail the assessment of an item’s capability to continue operating; fairness and the truth of the assessment plays a significant role in the audit function.

Independence

Andersen’s independence was highly questionable because he had appointed former partners of the company to be on the HIH board. These close personal relationships made it possible for him to pressure the appointed individuals and ensure that profits are maximized through non-audit services (Allan, 2006). Also, an audit engagement partner was once replaced after meeting with the non-executive directors without the consent of the senior management.

From these findings, it is evident that it is important to ensure completeness to ensure that the risk of leaving something out of financial statement has been addressed (Ghandar, 2014). It is also essential to ensure documentation of audit procedures, and this will be of benefit if a new auditor with no knowledge of the firm will have information on what has been previously done.

Negligence refers to the act of failing to perform an act that any other prudent individual would exercise in similar circumstances. It is any harm that is caused by a person due to carelessness. For one to prove that an individual was negligent, one has to present the damages, for example, loss, to hold the defendant liable. Another element that should be considered while dealing with negligence is the breach of duty.

In this instance, the CEO and the senior managers of HIH insurance did breach their duty in that they failed to exercise their powers and discharge of their duties as the employees of the subject companies and the associate firms.

Question 2- Solution

Companies mostly use the same auditing firms for a long time. This leads to cozy and friendly relationships between auditor and auditee. The auditor due to being used to the client charge huge amounts of fees and the work done is not worth the charges. The auditor maintains his quality of work each and every time they offer the services. The auditing firm can easily be biased if their ethics is not well governed. Bias is common where information can be interpreted in different ways. Auditors know that they are hired and fired by the companies they audit especially if they deliver unfavorable audits. Many firms also seek approval from the auditing firm and like it when their biased judgment is approved by the auditing firm. Due to being familiar, auditors unconsciously lean

Auditors understand the business of their client. When they offer consultancy, they help the business overcome intractable internal issues in areas on human resource, tax, and management.

The auditing firm provides a holistic view of the business. They focus on particular issues such as organizational change or transactions like acquisitions and mergers as the audit firm is aware of the company financial situation.

The cost of auditing and consulting is usually cheaper when handled by the same company. The auditing firm has considerable knowledge about the client being audited, the industry in which it operates and its personnel and systems. The auditing firm does not need to spend time and cost for familiarization effort. The service provider has sufficient experience in dealing with problems unique to the client’s industry and can come up with the industry’s best practices to benefit the clients systems and operations.

These circumstances represent a violation of the ethical standards. There is a limitation on what services an auditing firm can offer especially where the potential for conflict of interest arises.

The quality of audit is normally questioned when a company fails. The auditors are accused of allowing inappropriate accounting treatment due to their independence being compromised. The compromise rises from the familiarity threat or over-reliance on the income generated from the client.

The Institute of ethical code forbids auditors from providing non-audit service to the audit clients if it may result in the threat to independence that is not well safeguarded. In such conditions, the auditor may not provide non- audits services or resign as the auditor. Under the arrangement of Combined Code of corporate governance, the Audit committee which represents the stakeholders oversees the relationship with the auditors and keeps the structure and extent of the consultations under review. The objectivity and independence of the auditors should not be compromised as per the audit committee. The auditors must approve that in their professional judgment, the organization is independent, and the objectivity of the auditors and audit staff is not compromised. The auditors should put it in writing to the audit committee all relationship that may be viewed to breach the independence and objectivity of the auditing firm.

The distinction between the values of income from various sources is artificial. The ethical code specifies that audit appointment not to be accepted if the client gives an unduly large proportion of firms gross practice income. This means that auditors of particular companies are within this limit.The stakeholders can assess the extent of consultations provided by the auditors.

The objective of the reform incorporated measures to improve the credibility and reliability of financial statements through auditor’s independence. The reforms would also improve enforcement arrangement, allocate and manage risks (Houghton, Kend & Jubb, 2013). The reforms would be also better enforcement mechanism for continuous disclosure and provide particular duty on experts to manage conflicts of interest.

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HIH Insurance Company Risk

HIH Insurance Company Risk - Assignment Example

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HIH Insurance Limited Business Risk, Negligence Action, And Hiring Prior Members

2,231 Words Published On: 17-09-2018

1.How would you assess the business risk of HIH Insurance Limited? List several inherent risk factors effecting HIH.

2.Discuss the facts and findings of relevant court cases that Andersens should refer to in determining the likelihood of the Partnership being held liable to and What Conditions need to exist for a Negligence action to be upheld?

3.Why would HIH have wanted to hire prior members of its External Audit team?

The imperfect record of the financial report is responsible for the breakdown of the company which can be a threat to the business. The non-accurate accounting report can be a major reason for the failure of the business deals. When the company becomes able to submit the proper finance report, then that will define the improvement of the business, and the development of the annual finance report can descry the decreasing material quality which can be the cause of the business risk of HIH insurance limited. According to the auditor's lack of professionals can be a cause of the business risk. The infrastructure and the policies which are responsible for the poor and unreasonable decision can be a reason of great loss and the collapse of the HIH Insurance Company that can push the business to a pick of risk. Through the explanation of the factors, it is clear that this matter is responsible for the business risks. If the development of the money power can be demonstrated correctly, then it can be noticed that the implement of the credit is highly responsible for the business failure and the sales of the assets also a reason of the business risks (Bragg, 2013). The presence of unprofessional and inefficient staffs can be a reason of great loss for the business. Often the staffs were unable to find proper clients for investment or sometimes they engulfed all the money and did not submit the amount of money to the company which is truly harmful to any company. When the premium is collected from the clients by companies for a long time, then it required a number of efficient workers which produce the shortage of money for the company the can be a reason of the business risks. When the company faced various kinds of risks, then the collapse situation arrived.

Inherent Risk factors affecting HIH at financial report level

Due to the lack of proper ethical guidelines and the absence of appropriate insurance policies, the increasing budgets become fall which can be a major risk factor that is affecting the HIH at finance report level. The risks occurring in the annual finance report level is one of the factors influencing the growth of the HIH Insurance and caused business risks. To identify the investment tolerance, it is necessary to clearly describe the implementation of the factors affecting the business risks. The proper protocol of the work and the individual investment shows a stability of the accounting theory of the business. The removal of the risk factors of the HIH Insurance Company it is necessary to separate the person based licensed investment which can be critical for the growth of the business finance report (Britton and Waterston, 2013). The replacement of the assets or the sale of the properties can be a factor affecting HIH Insurance annual report level. Many legal issues between the creditors and the clients can also be changing factor oh the business risks. The company needs to recruit dedicated employees because most of the times the lack of efficient and well-experienced members can also be a significant problem for the company which affecting the annual financial report level (Christensen, Cottrell and Budd, 2016). If suddenly any client denies continuing giving their premium then that will be very much affecting the development of the enterprise. The HIH Insurance annual report level is also influenced or affected by this factor.

Insufficient responses to the high pressure and management rising inadequately in the international insurance market were the primary cause of the danger of the company that is the HIH insurance. The interest of many stakeholders that affected the misguiding or false statements was in print. The financial report of the perspective company depicted significant money owing leverage and cover liabilities, the money owing means solution risk of the particular company (Weil, 2017). Now the matter is why this so much irresponsible in such a manner, the directors of act boards are the main responsible for these unjust representations of the financial statements of the company. Only they are not the responsible accountants and auditors are the same responsibility for these false tasks of the monetary declarations of the enterprise (Dauber, 2005). Responsible for this breakdown of these management companies was presented as an evil financial system, the people or group was the same responsibility of this initial failure of the company. The clients were facing an enormous problems or losses for this inadequate responsibility. The company was paid responsible accountable to customers for losing their inadequate amount of money. Not only that if clients think that they can take measures responsibility for the board of directors of the management and cover their insufficient loss of amount. The management's liability to the credit pay was due to the creditors lend money to the company. The company is answerable or pays the due amounts to the suppliers and other creditors.

Negligence action

Defendant owes the applicant on the duty of care then the negligence or careless occurs, when the defeated breaches the duty of attention when the candidate suffers an injury or damage when it occurs when the damage or injury causation by the outcome of the violation of the duty of care. In a state of affairs where a specific person owes another obligation of care, causes several damages, injury, loss to each and the particular person. The action of negligence conducted by the accountants or some auditors was responsible for the collapse of the HIH insurance company as per reports. Determination by the court signifies that the breach of the duty of care by reviewing the standard of care, to avoid some causing injuries or harm is the duty of attention is the legal compulsion (Hill, 2012). The boards of directors were the main responsibility for the failure of the company, and it can be stated as breaching the trust duty of care. Therefore, the regulatory framework is not appropriately followed by the organization HIH due to which company had to make this harsh situation. According to the law, which regulates the business system all across Australia, it is instated that this kind of act is considered as a breach in the regime of an organization and is capable of punishment (Waterston, 2006). The company is liable to answer all its customers for the negligence in their behavioral aspect and this maybe another reason for the loss of trust in this organization of the people.

Facts and findings relevant to the court case

Legislative system of the company needed to exhume for the augmentation of the business system. That is why The HIH wants to re-hire its former members of the external audit team. The abnormal development of the organization can be justified by its time of failure. The organization faced the situation due to the enhancement of work since the structuring of a project and reforms are illogically enhanced. It is very clear from this event that the company The HIH did not abide by the regulatory framework approved by the government of Australia and for this reason the organization had to take such harsh a decision (Horngren, 2013). Quite naturally, due to such disorientations in the construction of work, the auditor has blamed for unsuitable performances regarding his duties towards the company altogether. In such a condition, where the regulatory of the government was being challenged, the company was bound to be in the worst of situations (Shim, Siegel and Shim, 2012). It was only because of this, that the company needs to hire its ex-employees from the audit team to make a better performance out of them, and proper construction of work can be depicted which shows the enhancement of the works done together by the company so far.

In this particular matter, the primary thing that had occurred due to the alteration of the auditing team in the HIH organization is an actual detailed depiction of the amount of work done so far had been reported. The amount of work done and the exact amount of work features can be easily illustrated due to the alteration of the entire auditing team and revamp it with a new team comprising of the ex-employees (Schroeder, Clark and Cathey, 2011). Thus, this new plan of action helps in the improvement of performance and allows proper planning of the research for the further benefit of the company. This had led to the development of profits of the organization in a massive way (Horngren, 2014). Also, the gap that had occurred in the balance of the company was dissolving, and the company was emerging more like a stable structure in the work ethics. The equilibrium that was necessary to maintain as an organization was once again in the process of restoration due to this strategy. Previously, the old auditors had breached many of the laws in presenting the financial accounts to the legislative authorities as they have presented many faulty records that had shown incorrect profit and loss, income, expenditure and balance in the finance system of the company (Horngren, 2013). However, the introduction of the new team of auditors who were previously appointed had a fresh start and new and legalized outlook in the business strategy and financial accounting department.

Circumstances representing ethical standards violation

The government of Australia has some standard laws regarding the practical ethics of an organization. It was reported by case studies that the HIH Company had desecrated these ethical standards (Schroeder, Clark and Cathey, 2011). The Board of Directors along with the auditors had been found guilty of producing unfair financial statements. According to the government of Australia, business ethics deals with the fair and inequitable means in an organization and any illegal or discriminatory conduct regarding the financial accounting of an organization is punishable as it is a vital aspect of an organization (Jones, 2013). It is considered that any illicit means adopted to represent a faulty financial accounting is the open gate in unlawful inflow or outflow of cash, illegal representation of income, expenditure, profit and loss, assets and liabilities. The guidelines regarding running a business organization are strict and breaching any one of them is liable to be punished for an offense. This behavior only represented a lack of integrity and negligence in carrying out the respective duties of the Board of Directors as well as the auditors. This only led to the downfall of the HIH Company. Since the rules and regulations are only meant for the well-being of the company (Libby, Libby and Short, 2012). Hence, it was very clear that the proper image of the company was tarnished and this affected the interest of many people in the organization.

Outlining Primary recommendations

CLERP 9 and Ramsay Report provide government approved guidelines on the proper preparation of a company’s financial statements and corporate ascendancy. The CLERP 9 is responsible for providing the information on the appropriate standards in the liabilities that occurs due to breaches in the system, the independence of an auditor, compliance controls, and the accounting standards (Oppermann, 2009). The auditors are to bridge the gap between the perspective and expectation of a user on the financial statement of an organization because an accountant prepares the financial declarations of the company and gives it a real standardization. Legislation will always provide clear concepts of representing the account practices of a company, and in no ways, these can be breached. As per the government authorized rules, both the internal and external auditors are equally responsible for maintaining the proper financial statements and the correct valuation of the company, but if these line of action is breached in any way, then they are to be blamed for failing in eliminating the misstatements found within the financial accounting (Powers and Needles, 2012).

Bragg, S. (2013). Accounting best practices, seventh edition. Hoboken, N.J.: John Wiley & Sons.

Britton, A. and Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice Hall.

Christensen, T., Cottrell, D. and Budd, C. (2016). Advanced financial accounting. New York, NY: McGraw-Hill Education.

Dauber, N. (2005). Generally accepted auditing standards. Mason, OH: Texere.

Hill, J. (2012). Colloidal Silver Medical Uses, Toxicology & Manufacture.

Horngren, C. (2013). Accounting. Frenchs Forest, N.S.W.: Pearson Australia.

Horngren, C. (2013). Financial accounting. Frenchs Forest, N.S.W.: Pearson Australia Group.

Horngren, C. (2014). Accounting. Toronto: Pearson Canada.

Jones, M. (2013). Accounting. Chichester: Wiley.

Libby, R., Libby, P. and Short, D. (2012). Financial accounting.

Oppermann, H. (2009). Accounting standards. Lansdowne: Juta.

Powers, M. and Needles, B. (2012). Financial accounting. [Mason]: South-Western, Cengage Learning.

Schroeder, R., Clark, M. and Cathey, J. (2011). Financial accounting theory and analysis. Hoboken, NJ: Wiley.

Shim, J., Siegel, J. and Shim, J. (2012). Financial accounting. New York: McGraw-Hill.

Waterston, C. (2006). Financial Accounting. Pearson Education UK.

Weil, R. (2017). Financial accounting. [Place of publication not identified]: Cengage Learning.

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TravelNursing

Enjoy Your New Home but Don’t Forget the One Year Rule

By Joseph Smith EA / MTax, contributor

One great benefit to travel assignments is the opportunity to experience a community for a longer stretch of time and absorb the local culture. Week-long vacations never provide the intimate knowledge of an area that a three-month assignment does, and if a traveler enjoys the work at the facility and the community, there is often an opportunity to extend.

Additionally, if the traveler has a tax residence, he or she can continue to enjoy the benefits of tax-free travel reimbursements. As great as that sounds, the party cannot continue forever, as tax regulations prohibit a traveler from receiving tax-free housing or reimbursements for more than a year in one geographical area.

The One Year Rule

Tax-free travel benefits like provided housing, per diems, tax advantage programs and allowances are only available to those that are working away from their tax home temporarily . Temporary is defined as an assignment not to exceed 12 months in one metropolitan area. This was not the case prior to 1992. Prior to 1992 and the legislative provisions that changed the rule, temporary was defined as work away from home for less than 2 years, regardless of the location of the assignment. The focus shifted to the location rather than the length of transitory job sites.

Applied to travel nurses and other healthcare travelers

The One Year Rule has a broad application. Tax homes are defined as where an individual earns the majority of their income unless they fall under the exceptions for temporary assignments and the engagement does not exceed a year in one location. The 12-month measurement focuses on the continual income in the area to avoid creating a tax home at the temporary job site. Working on a different floor, with a different agency, a different facility across town or taking up another temporary residence within the same metropolitan area does not change the fact that the taxpayer is receiving a continual stream of income in the same area. Additionally, the fact that each contract is for a term less than twelve months, does not “restart the clock”. All assignment extensions in the same area are considered a continuation of the first.

The rationale that Congress had when establishing this benchmark is that it would be unreasonable to expect someone to move their residence to work only for a year. Even though one year may seem short term, a line had to be drawn to prevent abuse of the benefit.

Agency due diligence

A staffing agency is required to question a traveler about their work history to determine if there is a possibility that the one year rule will be broken during the engagement. In addition to the work history that a traveler submits to the agency, many Tax Home Declaration statements will contain a question about the traveler’s work history. Failing to review this could result in some harsh penalties assessed on the agency by the IRS in an audit.

Occasionally, a traveler works multiple contracts that orbit a particular area. For example, if a traveler works in Thousand Oaks, Calif., then Long Beach and Pomona, even though these towns may be construed as different areas, they are still considered the same tax base as one could live in the middle of the assignments and have a reasonable commute. Additionally, if a traveler continues to do this multiple years, the business necessity of maintaining a home in another part of the country ceases as it would be more reasonable for the taxpayer to move their residence closer to the long-term source of income since it was all earned in the same region.

After a year

Once the 12-month time is reached, all reimbursements are to be treated as taxable income subject to Social Security and Medicare taxes. This includes the fair market value of any housing provided by the agency. Just because the agency pays for the lodging, it is still a constructive receipt of income to the recipient/beneficiary as it is a substitute for wages.

What restarts the clock?

In our next article, we will explore the break-in-service rules and what is necessary to restart the clock.

About the author: Joseph Smith is an IRS Enrolled Agent (EA) and former travel respiratory therapist whose firm, TravelTax, provides tax preparation and audit representation for the mobile professional.

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# 9,909 in National Rankings
# 1,111 in California High Schools
# 55 in San Jose, CA Metro Area High Schools
# 11 in East Side Union High School District High Schools

Took at Least One AP® Exam

Passed at Least One AP® Exam

Mathematics Proficiency

Reading Proficiency

Science Proficiency

Graduation Rate

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Ranking Factors

How Andrew P. Hill High School performed nationally and statewide out of 17,680 nationally ranked schools and 1,536 schools ranked in California.

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Students/Teachers at Andrew P. Hill High School

These counts and percentages of students and teachers are from data reported by schools to the government.

Student Enrollment by Grade :

Student Diversity :

Minority Enrollment

Two or More Races

Native Hawaiian/Pacific Islander

American Indian/Alaska Native

Gender Distribution :

Total Economically Disadvantaged (% of total)

Free Lunch Program (% of total)

Reduced-Price Lunch Program (% of total)

Full-Time Equivalent Teachers

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Test Scores at Andrew P. Hill High School

U.S. News calculates these values for schools based on student performance on state-required tests and internationally available exams on college-level coursework (AP® and IB exams).

College Readiness Index

Subject Proficiency :

California administered the Smarter Balanced to high school students. These figures display how well the school as a whole performed in reading, mathematics, and science. For this school, assessment data from 2019 were compared statewide against other data from this year. Note the district and state graphs below may however incorporate a mix data from 2019 and 2021 in some states.

Mathematics

Overall Student Performance

This measures overall student performance on state-required tests.

Percentile Score on Smarter Balanced

Smarter Balanced Scores Relative to U.S. News Expectations

Somewhat Below Expectations

Underserved Student Performance

This measures the proficiency on state exams among typically underperforming subgroups.

Percentage of Underserved Students Who Are Proficient

Percentage of Non-Underserved Students Who Are Proficient

Gap Between School and State Among Underserved Students

College-Ready Student Performance

High school students take AP® exams and IB exams to earn college credit and demonstrate success at college-level coursework. U.S. News calculated a College Readiness Index based on AP/IB exam participation rates and percentages of students passing at least one AP/IB exam.

National Percentile on College-level Exams

Exam(s) Used for Index

Advanced Placement® (AP®) Student Performance

Many U.S. higher educational institutions grant credits or advanced placement based on student performance on AP® exams. This shows this school's student participation and performance on these exams if data were available.

Proportion of 12th Grade Class Who Took an Exam

Proportion of 12th Grade Class Who Scored 3+ on an Exam

Exam Takers in 12th Grade Class Who Scored 3+ on an Exam

Exam Pass Rate

International Baccalaureate (IB) Student Performance

Students can receive college credit for successful completion of IB certificate exams. This information displays how the school's students participated and performed on IB exams if data were available. (N/A means no students participated.)

Proportion of 12th Grade Class Who Scored 4+ on an Exam

Exam Takers in 12th Grade Class Who Scored 4+ on an Exam

School Data

School profile information is based on government data.

78% (well below state median)

Grades Served

Charter School

Magnet School

Eligible for Title I Funding

This information relates to high schools run by this school's state operating agency. Many districts contain only one high school.

Total Schools

Total Students

College Readiness (district average)

Proficient in Reading (district average)

Proficient in Mathematics (district average)

Proficient in Science (district average)

Subject Proficiency Comparison ( Reading vs. Mathematics )

All District Schools »

School Location

Andrew P. Hill High School

3200 Senter Rd.

San Jose, California 95111

# 1,111 in California High Schools

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Data are based on the 2021 - 2022 , 2020 - 2021 and 2019 - 2020 academic years.

AP® and Advanced Placement® are registered trademarks of the College Board. Used with permission.

International Baccalaureate (IB) data provided by International Baccalaureate of North America. Used with permission.

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IMAGES

Financial Reporting Assignment: Accounting Scandal Practiced By HIH Insurance
A Case Study on HIH Insurance Limited
A Case Study on HIH Insurance Limited
Accy305 assignment
Collapse of HIH Insurance by Colin Yong on Prezi
A Case Study on HIH Insurance Limited

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COMMENTS

A Case Study on HIH Insurance Limited
This Case study on HIH Insurance Limited carefully analyses the various factors which led to the downfall of the company. The different forms of ethical misconducts and frauds conceived by the directors of the firm and the external auditors had been given special focus. ... Total Assignment help is an online assignment help service available in ...
(PDF) Corporate Governance Failures
2 HIH History HIH Insurance Limited was started in 1968 by Ray Williams and Michael Payne (Mirshekary et al., 2005). After partial listing on the Australian Stock Exchange (ASX) in 1992, CE Health International Holdings resulted before the company then merged with Swiss insurer, Winterthur Insurance, to form HIH Winterthur in 1995.
PDF Lessons learned from the failure of HIH Insurance Limited
The March 15, 2001, insolvency of HIH Insurance Limited (HIH) occurred unexpectedly and had profound and far-reaching effects on the Australian economy. The magnitude of loss shook public confidence in the integrity of the insurance industry and regulators' ability to protect policyholders from harm. HIH was the largest corporate insolvency in
Accy305 assignment
Accy305 assignment -- HIH Insurance introduction hih insurance limited was publicly listed company in australia. hih was originally found in 1968 ray williams. Skip to document. University; High School; Books; Discovery. ... Accy305 assignment -- HIH Insurance. Course. Financial Reporting (ACC 1200) 59 Documents. Students shared 59 documents in ...
HIH Insurance
HIH Insurance was Australia's second-largest insurance company before it was placed into provisional liquidation on 15 March 2001. The demise of HIH is considered to be the largest corporate collapse in Australia's history, with liquidators estimating that HIH's losses totalled up to AUD $5.3 billion. Investigations into the cause of the collapse have led to conviction and imprisonment of a ...
HIH Insurance Case Study: Lessons Unveiled
The main theme of the case study on HIH Insurance limited mainly helps in the evaluation of the different types of misstatements and fraud conducted by the directors. The report further shows the effective application of the different types of the risk assessment of insurance company. The study also shows the effective details about the details ...
A CASE STUDY FOR THE HIH INSURANCE
Problem Solving - A Case Study for the HIH Insurance Please make sure to follow the attached assignment requirement and marking criteria on Page1, 2, 4 & 5 (especially page 4 &5) of the attached requirement file Ref. linkage: PDF & Zip Files as Attached ===== Assessment task Currently, you have been appointed to be the Chair of the board of directors for a private company (JR services Pty Ltd ...
Lessons from HIH Insurance : the final verdict
Two years ago as Royal Commissioner of the HIH Corporate Investigation, Owen J handed down the Final Report — The Collapse of HIH Insurance, which examined with forensic detail Australia's largest corporate collapse of $5.3b. The report ran to over 500 pages, involved three volumes in 24 chapters and had 61 policy recommendations and ...
2. The rise and fall of HIH Insurance Group
The rise and fall of HIH Insurance Group. Date. 19 June 2015. ï»¿. The origins of HIH Insurance Limited can be traced back to 1968 with the establishment of M W Payne Liability Agencies, a workers' compensation underwriter. Subsequently acquired by a United Kingdom (UK) insurer, the company was restructured and later renamed CE Heath ...
Duelling indemnities: HIH continues to have impact
HIH Insurance Ltd was notorious for its claims management approach to third party claims litigation with a fierce reputation for not being afraid to test the boundaries of legal principle.
Strategic And Operational Risks
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Risk Assessment essay for HIH Insurance Co.
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Financial Reporting Assignment: Accounting Scandal Practiced By HIH
Write a financial reporting assignment discussing about the accounting scandal and financial reporting of an organisation (of your choice) in detail. Answer. Executive Summary The report on financial reporting assignment aims to provide meaningful insight into the accounting scandal practiced by the HIH insurance.
Impact of HIH Collapse
Impact of HIH Collapse. The March 2001 collapse of HIH Insurance sent shockwaves through the Australian business community. The country's second-largest employer, HIH was at the tail-end of a major acquisition spree that had seen the company purchase major insurance operations in New Zealand, Argentina, Switzerland and the US since 1997. Most ...
HA3032: Holmes Institute- HIH Insurance- Auditing Case Study Assignment
Auditing Case Study Assignment. Case Study. Company History. In 1968, Ray Williams and Michael Payne formed CE Health International. As a result of a merger in 1995 between CE Heath and the Swiss based insurer Winterthur Insurance Company, the company HIH Winterthur was established.
The Business Risk for HIH Insurance Limited
The paper "The Business Risk for HIH Insurance Limited " is a great example of a finance and accounting assignment. The business risk for HIH Insurance Limited was very high. This is on the premise that HIH Insurance Limited failed in a very short period of time. The policies and strategies which HIH Insurance Limited adopted were inappropriate…
HIH Insurance Company Risk
HIH Insurance Company Risk - Assignment Example. Add to wishlist Delete from wishlist. Cite this document Summary. The paper "HIH Insurance Company Risk" is a great example of a finance and accounting assignment. Insurance companies are not in the exemption from refunding claimants for incurred expenses and/ or losses. In the real-life of ...
HIH Insurance: Risk
The HIH Insurance annual report level is also influenced or affected by this factor. Inherent Risk factors affecting HIH at financial report level Insufficient responses to the high pressure and management rising inadequately in the international insurance market were the primary cause of the danger of the company that is the HIH insurance.
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Andrew P. Hill High School
Overview of Andrew P. Hill High School. Andrew P. Hill High School is ranked 1,111st within California. Students have the opportunity to take Advanced Placement® coursework and exams. The AP ...

A Case Study on HIH Insurance Limited

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Corporate Governance Failures - A Case Study of HIH Insurance Group, Australia

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Andrew P. Hill High School

quick stats

Overview of Andrew P. Hill High School

Andrew P. Hill High School 2023-2024 Rankings

All Rankings

AO Advice: How Your High School is Evaluated in the College Admissions Process

Ranking Factors

Students/Teachers at Andrew P. Hill High School

Test Scores at Andrew P. Hill High School

Overall Student Performance

Underserved Student Performance

College-Ready Student Performance

Advanced Placement® (AP®) Student Performance

International Baccalaureate (IB) Student Performance

School Data

Nearby Schools

Best Colleges in California

Stanford University

California Institute of Technology

University of California, Berkeley

University of California, Los Angeles

Looking for your perfect college?

Best High Schools in California

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