Inherent and Business Risk HIH Insurance Limited

Question: Discuss about the Inherent and Business Risk for HIH Insurance Limited. Answer: Evaluating business risk of HIH Insurance limited: HIH Insurance limited is mainly hindered with insolvency and structure risk from its operations. Moreover, the business risk of the company mainly increased after the inclusion of high risk insurance arenas in their business activities. Bratten et al. (2013) argued that companies with the help of accoutring loopholes are able to inflate their balance sheet and portray wrong valuation of their firm. Organisational structure: Moreover, the companys organisational structure is mainly at risk as it had included high-risk insurance arenas in their operations. This high-risk operations included by the HIH insurance is not approved by the overall Australian Prudential Regulatory Authority (APRA). Moreover, the company also changed the perspective of ordinary policies by reinsuring them and increasing its overall exposure in film and marine insurance. Coetzee and Lubbe (2014) stated that with the help of laid down rules and regulation authorities are able to reduce unethical process conducted by auditors to increase their personal wealth. Risk of Insolvency: In addition, the risk of insolvency could also be identified as the overall inherit risk, which mainly changed from previous fiscal year after the inclusion of higher risk insurance products. Furthermore, the limited information exposure provided to the auditors mainly did not help in identifying the insolvency capacity of the company. In addition, HIH insurance also inflated their balance sheet to make their debt ratio lower, which in turn portrayed the company as solvent to its investors. Griffiths (2012) cited that due to the laws imposed by AASB the unethical measures conducted by companies could be detected, which in turn might help increase investors trust. Stating the inherent risk factors of HIH Insurance Limited: In addition, the overall inherent risk that might affect the financial report of HIH Insurance is the change in its operations. However, the auditors were not able to comprehend the difference in inherent risk of HIH insurance and other insurance companies. Furthermore, the company included future income tax benefit and deferred acquisitions costs in their balance sheet to reduce the debt ratio. Guenin et al. (2014) argued that companies mainly depict wrong valuation to reduce their debt ratio and attract potential investors, which in turn help in increasing their share price. Moreover, detection risk mainly loses its friction if the company omits certain transaction in their balance sheet. In addition, the limited information provided to the auditors mainly reduces the efficiency of the audit procedure. Furthermore, the external auditors mainly relied on the internal audit report of HIH insurance, which resulted in increasing the misstatement detection risk. In addition, the control risk is mainly used in detecting misstatements in financial report. Moreover, the company mainly insured high-risk activities like marine aviation, film financing and natural disaster. Furthermore, the inclusion of these new insurance policies mainly increased the overall inherent risk, which in turn increased the overall misstatement in their financial report (Hribar et al. 2014). Moreover, the misstatements conducted by the official of HIH insurance to its auditors mainly increased the inherent risk of the company. Reference: Bratten, B., Gaynor, L.M., McDaniel, L., Montague, N.R. and Sierra, G.E., 2013. The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors.Auditing: A Journal of Practice Theory,32(sp1), pp.7-44. Coetzee, P. and Lubbe, D., 2014. Improving the Efficiency and Effectiveness of Riskà ¢Ã¢â€š ¬Ã‚ Based Internal Audit Engagements.International Journal of Auditing,18(2), pp.115-125. Griffiths, M.P., 2012.Risk-based auditing. Gower Publishing, Ltd. Gunin-Paracini, H., Malsch, B. and Paill, A.M., 2014. Fear and risk in the audit process.Accounting, Organizations and Society,39(4), pp.264-288. Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality.Review of Accounting Studies,19(1), pp.506-538.