Question 1 — Strategic Business Risk and Inherent Risk Assessments
a) Strategic business risk is defined as the risks that business objectives would be attained due to external and internal factor, pressure and forces and is the risk associated with the company’s survival and profitability (Bell et al, 1997). To assess HIH’s strategic business risk properly, the auditor must understand at two levels, (1) the industry in which HIH was operating and (2) how HIH fitted within the industry. SWOT analysis is one of the methods of assessing client’s strategic business risk. It analyses the entity’s competitive situation by assessing its strengths, weaknesses, environmental opportunities and threats. Strengths HIH had the support of the public and its personnel and this could be an asset to management because they would have space for maximising potential of the company. HIH also creatively use re-insurance to free up funds otherwise stuck prudential margins and allow more funds for expanding investments. Weaknesses HIH’s main weakness is its lack of corporate governance, especially the lack of process and risk management within the company. A lack of process meant that there were no limits to authority and rules were not followed. An example would be the way remuneration policies were adopted and how senior executives approached the chair for discussion. Risk management was also the Achilles’ heel in HIH because they showed little analytical procedures when considering their investments eg. CareAmerica, Allianz, FAI. Opportunities HIH had the capability to expand its operations and diversify into related products and it also had several acquisitions that were horizontal integration resulting in greater market share. This power to expand and the sheer size of HIH provided it with the opportunity to be ahead of its competitors. However, this was impeded by its inability to make sound investment decisions. Threats to HIH HIH though powerful was not an...