As for the case of Andersen and HIH is concerned, hiring Andersen as the auditor and consultant was a violation on part of HIH. Nothing was for their respective companies. HIH wanted to hide true facts from the market and Andersen supported the same for a handsome fee, which both fulfilling their respective individual desires.
Ethically, if an external audit is mandatory because it is legally required, it is for the reason that the audit is done impartially. In another case, if there was no law requiring the auditor and consultant to be separate, there was no need of an external audit, even then the actions of the HIH employees was unethical by all means. Ethics is the supreme authority that is a deliberate decision of each individual. Even if rewards are no guaranteed, there is a significant guarantee of unblemished character. Had the individual HIH directors obliged personally to ethical behaviour to whatever extent possible, much of mental agony could have been saved. It could have helped the courts, attorneys and clients from thousands of hours of unnecessary involvement, and instead emboldening the intellectual display elsewhere.
d) Ramsay report made significant recommendations to the Australian government especially for auditors and their relationship with companies.
1. Its primary recommendation was that the Corporations Act must include that auditors remain independent.
2. The auditor is required to make an annual declaration to the company board that the auditor has maintained its independence as per the applicable rules of the act.
3. The auditor and the company must not have any employment relationships, and any retiree auditor is not to sit on the board of the company which it audited in the past (Parker, 2002). This was the case with HIH Insurance.
4. An auditor independence advisory board is to be established to suggest the independence issues and benefits.
5. An audit committee is to be established that would judge and critique non-audit work, disagreements between auditor and company, and client relationship.
These impacts would make the auditor-client association more professional, independent. It can be even free to choose its own ethical standard set by their respective boards. This could shrink the area where both entities could misuse each other’s position, thereby reducing the possibilities of irregularities.