...asic v adler hih insurance HIH Insurance was founded in 1968 by Ray Williams and Michael Payne, which was known as "M W Payne Underwriting Agency Pty Ltd". However, their company was acquired in 1971 by a British company called CE Heath PLC and appointed Ray Williams to be the board of CE Heath PLC in 1980. In 1989, the business operations of CE Heath PLC were transferred to CE Heath International Holdings Ltd. And the company floated on the Australian Stock Exchange in 1992. After 3 years, CE health international holdings became a subsidiary of Winterthur Swiss and was changed the name to HIH Winterthur. In 1999, HIH Winterthur acquired a large number of companies both in Australia and globally. The chief executive of FAI Insurance, Rodney Adler became a director of HIH and HIH changed its name to HIH Insurance Ltd. The reckless management by Rodney Adler, finally HIH collapsed in 2001 with debts of about $5.3billion; ASIC placed investigation into this case due to an intentional failure disclosure of financial statement by hih insurance company. The former HIH director Mr. Adler breached his duties under the sections 180, 181, 182 and 183 of Corporations Act. The criminal charges included the disclosure of misleading statement, conflict of interests and breach of director duty in good faith of the company. Mr. Adler was sentenced on 14 April 2005 to four and a half years jail, with a non-parole period of two and a half years. HIH insurance is currently in run–off...
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...using this information to base decisions upon which to buy or sell shares. The main defendant, Adler, was found guilty of breaching ss 180, 181, 182 and 183 of the Corporations Act. The court held that Alder benefited both himself and his family in the transactions. http://www.scribd.com/doc/18531717/CO5121-Assignment Facts Adler was a non-executive director of HIH Insurance Ltd (HIH). William was a director and the CEO of HIH. Fodera was a director and the finance controller of Hih. HIHC was a wholly owned subsidisry of hih. Adler requested and williams and fodera arranged for HIHC ot advance $10 million to Pacific Eagle Equity Pty Ltd (PEE), a company controlled by Adler. The $10 million payment was arranged so that no other director of HIH would be aware of the advance. During the next two weeks PEE used some of these funds to purchse HIH shares to the value of approximately $4 million. Through these share purchases Adler sought to support HIH’s share price for the benefit of his substantial personal shareholdings in the company. Williams was aware of the intended use of the $10 million to acquire HIH shares. Soon after a unit...
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...[pic] A Division of The McGraw-Hill Companies Copyright © 2002 McGraw-Hill Australia Pty Limited Additional owners of copyright are named in on-page credits. Apart from any fair dealing for the purposes of study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be made to the publisher, marked for the attention of the Publishing Manager, at the address below. Copying for educational purposes Under the copying provisions of the Copyright Act, copies of parts of this material may be made by an educational institution. An agreement exists between the Copyright Agency Limited (CAL) and the relevant educational authority (Department of Education, university, TAFE, etc.) to pay a licence fee for such copying. It is not necessary to keep records of copying except where the relevant educational authority has undertaken to do so by arrangement with the Copyright Agency Limited. For further information on the CAL licence agreements with educational institutions, contact the Copyright Agency Limited, Level 19, 157 Liverpool Street, Sydney NSW 2000. Where no such agreement exists, the copyright owner is entitled to claim payment in...
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...Question 1 1. The principle or rule known as the maintenance of share capital is based on the need to protect shareholders and creditors. Share capital is the contribution made by shareholders by subscribing shares of the company. A company’s creditors can only look to the share capital for the payment in the event of a winding up. To protect creditors, a general rule known as the rule in Trevor v Whitworth was developed to prohibit a company from reducing its share capital because a reduction in capital would prejudice the rights of creditors. Moreover, the reduction would in effect diminish the pool of funds available to the company to pay its creditors. The rule in Trevor v Whitworth has been incorporated into Ch 2J of the Corporations Act 2001.Certain provisions of the Corporations Law 2001 seek to enforce the rule Trevor v Whitworth. There are a few Sections of the Corporations Act 2001 that enforce the maintenance of capital principle (or the rule of Trevor v Whitworth). Section 254T of the Corporations Act 2001 stated that a dividend may only be paid from profits. The Section 254T of the Corporations Act 2001 states that a company must not pay a dividend unless: the company’s assets exceed its liabilities before the dividend is declared and the excess is sufficient for the payment of the dividend, and; the payment of the dividend is fair and reasonable to the company’s shareholders as a whole and; the payment of the dividend does not materially prejudice the company’s...
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...Health International Holdings (HIH). The HIH collapse warranted a Royal Commission investigation and also recorded the biggest corporate collapse in Australia's history. Corporate failures of similar magnitude such as Enron and Parmalat have occurred elsewhere and sparked large scale investigation and media scrutiny. In all of these corporate failures, the level or absence of disclosure has had a lot to do with the unexpectedness of the collapse. This paper analyses the HIH collapse within a Foucaldian framework to demonstrate the need for accountants and auditors to work together so as to avoid criticism of the profession arising from unexpected corporate failures in the future. INTRODUCTION The purpose of this paper is to analyse the collapse of HIH and the role of its auditor, Andersen, within a Foucauldian framework encompassing archeology and genealogy of power and knowledge. The mythical Jedi force is used as a metaphor for power attained by the accounting profession through its claim to superior knowledge and skill to be applied in the public interest. Accordingly, the force includes professional ethics. The dark side is used as a metaphor for the collapse of HIH because accounting standards and practices, the accounting profession's power base, were used to conceal impending collapse resulting in the escalation of losses to policy holders, creditors and the general public. Regulatory responses to the Royal Commission into the collapse of HIH are viewed for purposes of...
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...are exceptions to this however such as accounting practices and medical practices) | Profit Sharing | Reinvested in the company or paid out to shareholders as dividends based on their share. | Owner retains profits | Profits and Losses are shared between partners depending on their share | Advantages | 1) Limited liability for shareholders and owners 2) Company can carry forward losses indefinitely to offset against future profits 3) Company structure is commercially well understood and accepted | 1) Easy and inexpensive to set up 2) Owner retains complete control 3) Easy to change legal structure | 1) Cost effective with partners specialising is different aspects 2) Relatively easy to establish 3) More capital is available | Disadvantages | 1) Limited or no control of company affairs 2) Complex reporting requirements 3) Difficult to initially set up | 1) Difficult to take time off 2) Unlimited liability 3) Little opportunity for tax planning | 1) One partner can act of behalf of everyone 2) Limited life- Death or withdrawal of partner 3) Limited capacity to expand | Ease of Raising capitol | Easy to raise capitol | Limited capacity to raise capitol | Easy to raise capitol as there are more partners | Taxation | Income Tax- 30% flat rate on taxable income | The business does not lodge a tax return, owner pays personal marginal tax rates | Personal Tax Rate | Transferability and succession | Easy to sell or pass on ownership...
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...perception that market failures and other economic factors affect the way businesses operate. The global financial crisis (GFC) of 2007-2009 resulted due to risky lending and increased loan defaults especially in the housing sector. A significant number of questions rose about the stability and policies that regulated the market. Among the many attributes of the market, major factors that contributed to the downfall relates to macroeconomic trends, market failures and regulatory failures. While several years have passed since the occurrence of the crisis, the United States of America is still recovering from events that saw the collapse of Bear Stearns, a mortgage under-writer in US 2007, Lehman Brothers (2008) and the near collapse of AIG Insurance. It is believed that the GFC of 2007 was the worst financial crisis of recent times. The US market plunged right into the recessionary periods and large multi-national companies struggled to keep up with the market conditions. Also known as, the burst of the financial bubble, governments realized the lack of regulations to control the market. These regulations related to accounting policies, auditing policies and more stringent rules as responses to major corporate collapses and upheavals in the financial sector. The introduction of Sarbanes-Oxley Act (SOX) of 2002 and Corporate Law Economic Reform Program (CLERP) 9 resulted from the shortfalls of the existing regulations prior to 2001. The objective of this paper is to define auditors...
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...Queensland University of Technology Faculty of Business School of Accountancy AYN411 Audit & Assurance – Semester 1, 2013 Final Exam Revision Questions Additional Resources AYN411 Audit & Assurance – Semester 1, 2013 Final Exam Revision Questions Additional Resources Final Exam Revision QUESTION 1 – Audit Planning a. The Auditing Standard ASA 300 ‘Planning an Audit of a Financial Report’ states that the auditor needs to plan the audit so it will be performed in an effective way, by establishing the overall audit strategy for the audit and developing the overall audit plan. Required: List four benefits to the auditor in properly planning an audit engagement. L3 (slide 28) Properly planning an audit engagement helps the auditor to: * Devote appropriate attention to important areas of the audit * Identify and resolve potential problems on a timely basis * Properly organise and manage the audit engagement efficiently * Select an engagement team with appropriate expertise * Facilitate supervision of the engagement team members (inc. review of work) * Co-ordinate work done by auditors and experts * Render the correct audit report b. The following is a list of four activities carried out by the auditor during the planning phase of the audit. Planning Procedure 1. Client acceptance/continuance decision 2. Obtain an understanding of the entity and it’s environment 3. Assess client business risk 4....
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...‘CLEAN AUDIT REPORTS’: MISSION IMPOSSIBLE? The beginning of the 21st century was marked by major corporate collapses that jeopardised the reputation of the big Accounting and Auditing firms, questioning the very foundations of financial reporting and corporate governance. In a very short period of time, millions of dollars were wiped off the financial statements of major corporations, and the world saw giants collapse as large amounts of money were proven to exist only in paper. Even though fraud was found to be the constant variable in each case, the causes of the main collapses were determined to be related to corporate governance in general, and corrective measures were taken to improve that. However not many people questioned the fact that most of the money that existed only in paper was in those financial statements as a result of accounting practices that were legitimate and professionally accepted, meaning that auditors were not able to see the realities of these companies as they happened to be hidden under financial statements that strictly complied with accounting standards. The aim of this essay is to discuss why auditors are not able to read a company’s true financial position and performance from the financial statements since all they are able to do is state whether or not those statements comply with the Accounting Standards. The purpose of financial reporting and accounting information will be discussed, as well as the reason why the profession believes standards...
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...Sources of Funding, Funding Raising & Disclosure Promoters and Pre-registration contracts • Who is a promoter? o Whaley Bridge Calico Printing v Green – court has recognised the term promoter as not a term of law but rather one of business. o Emma Silver Mining v Lewis & Son – see Twycross case – used in connection with companies involves the idea of exertion for the purpose of getting up and starting a company and also the idea of some duty towards the company. o Jubilee Cotton Mills v Lewis – professional people, such as lawyers, accountants and bankers, are often involved in carrying out professional services during the incorporation of the company. They are not regarded as promoters if they act purely in their professional capacity in the ordinary course of their profession. o Active promoters – Twycross v Grant Any person who is actively involved, either playing a minor or central role, in organising the formation of a company falls within the definition of promoter. Typical activities associated with promoters – Negotiation of preliminary agreements Preparation of company’s constitution Identifying prospective directors and shareholders Preparation of the company’s fundraising documents (e.g. an offer info statement or profile statement or prospectus) Raising capital, either before or after incorporation Payment of registration fees; and Registration f the company with ASIC. o Passive promoters – Tracey Mandalay Also extends to people...
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...3. Corporations practicing stakeholder management will be more sustainable. Discuss. Over the years, social and ethical concerns have brought attention to the community that caused much bitter conflict to the relationship between business and society. As people become better educated and more affluent, rising expectations naturally follow for major institutions and these developed a backdrop against which criticisms towards businesses have grown. Therefore, these created the need for them to assume greater societal responsibilities rather than mere ruthless pursuit of own profits. Many businesses today share the same viewpoint that making profit for profit’s sake no longer leads to sustainable performance, stakeholder management has become an increasingly important aspect of a business’ operation integrating traditional economic considerations with environmental and social concerns (Jones 2012). While doing well and doing good are no longer seen to be mutually exclusive, corporations practicing stakeholder management is highly debated to be sustainable to a large extent. With all the benefits that it brings, this approach however also has its fair share of limitations to be discussed later in this essay. Outlining the term ‘sustainability’ Sustainability is the capacity to endure. One of the best known general definitions about sustainable development was expressed as “meeting the needs of the present without compromising the ability of future generations to meet their...
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...:Topic 1:Introduction and Regulatory Framework- Regulation can relate to two things: Regulate what an organisation can or must do (eg trade, pay tax, employ staff, pay debts), Regulate how an organisation functions (eg how it comes into being, how it is managed and operated and how and when it ceases to be). Why are corporations used (good and bad)? To allow for investment, To allow capitalism to flourish, To permit the sharing of risk, To permit investors to shelter from risk, To permit investors to deny responsibility, To distribute responsibility, To misallocate resources, To allow efficient allocation of resources. Two theories: Contractualist theory, Stakeholder theory. Regulation tends to try to connect the two theories by acknowledging the importance of the corporation in encouraging economic growth and appropriate risk taking BUT also recognising that there should be some control over corporations given their importance to society (as a conduit or pipeline through which resources are channelled into goods and services). Where is this regulation?-Corporations Act 2001, Australian Securities and Investments Commission Act 2001, These are both federal or commonwealth (central government). Subordinate legislation also (regulations under these Acts plus ASX listing rules, statements and Guides, Accounting Standards). Finally, A lot of the important principles relating to corporations and their responsibilities have evolved via case law. The (Corporations) Act has been described...
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... The author can be contacted at steven.wong@iinet.net.au. 4980429v3 Forgiving a Director’s Breach of Duty: A review of recent decisions Introduction Amid fears of a global recession, directors may well be concerned that their conduct will be scrutinised should they be involved in a corporate collapse. Honest directors risk becoming embroiled in litigation and face “the associated reputational damage and the potential for ultimate financial ruin”2. A director must make commercial decisions. These decisions often involve some form of commercial risk and are sometimes made on the basis of limited information. It would be unjust to hold directors personally liable for a breach of duty, regardless of the situation. Section 1318 of the Corporations Act 2001 (Cth) (Corporations Act) provides some protection for company officers3 against the consequences of a breach of duty in limited circumstances4. The section confers a discretionary power on courts, which reads: If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach 2 John Story, Chairman of Suncorp and Tabway quoted in the article “Directors urge overhaul of corporate law” published in The Australian Financial Review on 10 May 2008 Section 1318 applies to an officer...
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...The Australian Financial System in the 2000s: Dodging the Bullet Kevin Davis* Abstract The global financial crisis (GFC) occupied only a quarter of the decade of the 2000s but, because of its severity and implications for future financial sector development, dominates the decade. The Australian financial system coped relatively well with the GFC, raising the question of whether there was something special about its structure and prior evolution which explains that experience. This paper reviews Australian financial sector performance and development over the decade, then provides a more detailed overview of the Australian GFC experience and its implications, and considers explanations for the Australian financial sector resilience. 1. Introduction The Australian (and global) financial system entered the first decade of the millennium preparing for a systems crisis, in the form of the Y2K computer scare, which on 1 January 2000 passed without event. But towards the end of the decade, the financial sector was faced with, arguably, its most serious systemic crisis ever, which the Australian financial system and economy weathered relatively well compared with advanced nations in the northern hemisphere.1 While the GFC occupied only one-quarter of the past decade (from mid 2007), it prompts the questions which this review must seek to answer. Was there something about the structure and evolution of the Australian financial system which explained its resilience in the face...
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...Chapter 1: Introduction to accounting Multiple Choice 1. Which of these is a decision relevant to the accounting function of an entity? a. Whether debts can be repaid b. Finding the most cost effective way to produce goods c. The investment prospects of the entity d. None of the above e. All of the above 2. Under the Framework describes the qualitative characteristic of relevance as: a. information that is of value to users in decision making. b. information that can be classified. c. information that can be recorded in accounting reports. d. information that can be reliably measured. e. information that is understandable 3. Which of these is not likely to be the responsibility of a bookkeeper? a. Preparation of a bank reconciliation b. Calculation and payment of wages c. Selection of an accounting package to be used by the firm d. Checking on a customer's credit rating e. All are likely to be the responsibility of a bookkeeper 4. The information about a customer that would be of most interest to a supplier is: a. profit. b. ability to pay off debts as they fall due. c. annual dividends. d. taxable income. e. compliance with accounting standards. 5. The information that would be of most interest to an organisation's production manager is: a. continuity of orders for the factory. b. ability to pay off debts as they fall due. c. annual dividends. d. taxable income. e. compliance with accounting standards. 1 6. The external user of accounting information is: a. Purchasing officer...
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