Case study The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is concerned that the relationship with Tickitt & Run is too close and is of the view that a new firm should be appointed. He is being opposed by his finance director who feels that Tickitt & Run are a trusted firm that they are familiar with Megatron’s complex group structure and that changing to a new firm would send a bad message to the City. He feels that a new audit partner and a reduction in the amount of consultancy work Tickitt & Run receive would be sufficient. Discuss Does competition in the audit market for international clients improve the quality of audit or would it simply cause audit firms to cut costs and thereby reduce audit work in order to be competitive in bidding for work? How can regulators ensure auditors remain independent of their clients and approach their audits with a suitably skeptical attitude when the directors they may have to challenge approve payment of the audit fee?
Case study
The audit of Megatron plc is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present.
After the corruption scandal that caused the downfall of previous CEO Sir ‘Billy’ Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is concerned that the relationship with Tickitt & Run is too close and is of the view that a new firm should be appointed.
He is being opposed by his finance director who feels that Tickitt & Run are a trusted firm that they are familiar with Megatron’s complex group structure and that changing to a new firm would send a bad message to the City. He feels that a new audit partner and a reduction in the amount of consultancy work Tickitt & Run receive would be sufficient.
Discuss
- Does competition in the audit market for international clients improve the quality of audit or would it simply cause audit firms to cut costs and thereby reduce audit work in order to be competitive in bidding for work?
- How can regulators ensure auditors remain independent of their clients and approach their audits with a suitably skeptical attitude when the directors they may have to challenge approve payment of the audit fee?
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