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How Did Hih Insurance Collapse

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HIH insurance was a non-private listed Australian Company. Before its collapse in 2001, it was the second largest insurance group in Australia with branches in many other countries (HIH Insurance 2013).The company was founded in 1968 by Australian business man Ray Williams and a colleague of his named Michael Payne. It was a small company until the British listed C.E. Health took management in 1971(Clarke et al. 2003, p.26).In 1992, the C.E. Health group floated on Australian stock Exchange in 1992 with the code HIH (Westfield 2003, p.26).The company incurred debts of 55.3 billion dollars and HIH officially collapsed in 2001 (Clarke 2003, p 25).From the information, there is evidence to show that the management of HIH along with the non-executive …show more content…

Anderson had violated his power and was less than professional in his responsibilities as an auditor. Andersen had compromised his auditor independence and his power of integrity by succumbing to the pressure of the management at HIH. On the board of directors at HIH, a partner of Anderson's held a seat who got payment for consulting under an agreement with the company. Another partner of Anderson was removed from his position at HIH after contacts with non-executive directors without the presence of the chief financial officer who was an ex Andersen partner (2005, p.28). Furthermore, Andersen gained significant fees from non-audit, which gives rise to the question of ethical dilemma especially when for the financial year 1999-2000; Andersen got paid $1.6m by HIH while the audit services during that time totalled $1.7m. The Royal Commission hearings also suggested that there was a threat to the independence of the assurance team of auditors because of the close personal relationship that had developed between Andersen and HIH. It was further suggested that Andersen may also have breached the Familiarity threat (2005, p.251). The breach of Familiarity threat occurs when an auditor becomes too partial when it comes to his client's interests (Hayes et al 2005,

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HIH Insurance was a company in Australia which collapsed in March 2001. The fall of HIH Insurance is considered as the biggest corporate collapse in Australian history. HIH Insurance's failure was the result of a string of major events leading up to the collapse. These events were generally caused by the extremely poor decision making and leadership by many of HIH Insurance's founders and board of directors who displayed no ethical standards as they engaged in illegal activity, which resulted in them facing consequences through charges in court towards the end of HIH Insurance's collapse. This poor leadership was the root of many of the major problems within HIH Insurance which eventually caused the fall of the Insurance giant.

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