Answer to Question #218209 in Economics for Nehaal

Question

Evaluate the pronouncements of the Australian professional accounting bodies (e.g. APES110, etc) and regulations (e.g. CLERP 9) that were implemented following the corporate collapses in the early 2000s, then search the literature and develop arguments (supported by appropriate literature), whether the auditor’s role and duties to safeguard the integrity of financial reports have improved through the extensive range of guidelines, standards and regulations. Should the auditors be made liable for accounting misstatements and to what extent should they be made liable? (Consider the business risks and threats to the auditors if they were made liable for accounting misstatements that might prevent them from providing the assurance that is needed).

 

 

   

Answer 1

The recent collapses in Australia of companies such as HIH Insurance, Harris Scarfe and One.Tel clearly demonstrate similarities to many of the factors surrounding the corporate collapses in the ‘60s, ‘70s and ‘80s.

Poor management, inadequate controls, competition, acquisitions, financing, poor corporate culture and similar issues have continued to be common factors in corporate collapses.

On each occasion, regulation has been increased and accounting standards improved, and yet there has not been any observable slowing of the manner in which corporate groups feature in corporate crises. In fact, the use of complex corporate structures continues to be a recurrent feature in corporate failures, and the unravelling of the financial impact of the failure of corporate group structures remains bewilderingly complex. For example, in the case of HIH Insurance, the liquidator announced that it would be two years before the first general dividend payment and up to 10 years before the final payment.