Audit And Insurance

Answer :


Insurance companies are those companies which provide compensation in lieu of any damage loss or injury has taken place in exchange of premium payments. So this report is related to the one of the insurance company of Australia that is HIH insurance company which was established in 1995 with the merger of CE Heath and Swiss based insurer and in 1988 name of company was changed to HIH Insurance company from HIH Winterthur. HIH insurance company was the second largest insurance company in Australia before the collapse and the main reason behind the collapse of insurance company was it was not able to provide proper future claims to their clients and the company was facing regularly losses and due to some fraudulent activities done by the directors of the company.

Question 1

a) Assessing the business risk of HIH insurance limited

As risk are inevitable part of business more risk will lead to more profit in the business. Risk means probability of occurring an event in future which may lead to great loss as in the case with HIH insurance company they face huge losses and lead to collapse. so it is very important to correctly evaluate the risk of business so that company can take decisions regarding that risks. Business risk can be evaluated through many strategies and by analyzing the past working of our business (Schmidt, Wood and Grabski, 2016).

In HIH insurance company risk are related to insurance of marine aviation, natural disaster and film financing insurance, company can evaluate these risk by doing internal and external analysis of company and by knowing about the internal external factors which are affecting business directly, and have to make proper strategies regarding the factors that affecting the business and try to minimize them (Meadley, Mrcog and Mrcog, 2016). In HIH insurance company ,the main reason behind the liquidation was inability to provide claims to their clients, if HIH has already assist this risk and had made proper strategies regarding the fund of claims or had made proper reserves for unforeseen losses or either it is prepared for this than the company will not face the huge losses like loss 0f $100 million from film losses from typhoon occur in Florida in year 1999 and damage claims in Sydney for hailstorm , and on facing losses on regularly bases company has gone to liquidation.

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b) Inherent risk factors that affect the financial report of HIH insurance company.

Inherent risk means risk arises due to any omission or error in financial reports of company, this are controllable risk and mainly arise in financial report only .This arise due to calculations complication and bigger estimation in financial reports. As due to liquidity crises in HIH insurance company , company decided to sell their assets in order to improve the position of balance sheet and to fund their insurance claims, and to repay the debt this will lead the company in more crises and make adverse conditions for company due to which company has to collapse and at the time of liquidation company has not sufficient cash to repay the debt of its clients and they had face losses (Green, 2016). So the decision taken by members of company regarding the selling of assets was wrong as this lead to company in adverse condition. And there is miss statement in the balance sheet was make in order to show the improved balance sheet and also due to the liquidity crises or inherent risk factor.

Question 2

Legal liability of HIH insurance company towards its clients and creditors

a) Factors that affect the partnership or cases in which partnership will be liable to its clients and creditors.

Liability of loss will be on everyone if a company is collapsing and in case of other companies, company is liable to pay in full and final settlement to its creditor but sometimes in extreme cases creditors have to pay to th

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