Insurance Case

The difficulties associated with identifying a compromise of audit independence are inherent in the nature of the audit process. Most of the decisions of an auditor are made behind closed doors, either internally within the audit firm or in conjunction with management. In the case of HIH only selected matters were taken to the audit committee because Andersen and HIH management often resolved issues before the audit committee meetings. Users of the financial statements are not aware of the reasons for neither the auditor's decisions nor the extent to which the auditor has relied on management representations. Nor are users of the financial statements aware of any pressure which might have been exerted on the auditor by management, such as obtaining an opinion from another audit firm on a technical issue which supports management's view that a judgmental or controversial item accords with accounting standards. Such an initiative by management may leave the auditor feeling constrained to accept that opinion and put aside his or her own opinion on the issue as being merely a difference of professional judgment.

Auditors have an obligation to ensure that they are, and are seen to be, maintaining high standards of honesty and probity,acting in the interests of the shareholders of the company to whom they are reporting and exercising independence of mind to ensure that financial reports provide a true and fair view of the financial position and performance of the company.Because of the complex corporate structure of the HIH group, many of the senior

executives were in fact directors of subsidiary companies within the group. However, this

proved to be of limited significance in the identification of the legal duties to which they

were subject because the acts and omissions which were in question were not, in the main,

undertaken by them in their capacity as directors of subsidiary companies.

Failure of the auditing Function