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# Federal regulations require that corporations use separate

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Re: Federal regulations require that corporations use separate [#permalink]

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05 Jan 2012, 11:03
Just Karishma's explanation
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Re: Federal regulations require that corporations use separate [#permalink]

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10 Jan 2012, 11:11
+1 E
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Re: Federal regulations require that corporations use separate [#permalink]

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01 Apr 2012, 10:37
i think its E because

If audit & non audit functions are separated then 2 copany represent same firm for different jobs hence no of options remains same
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Re: Federal regulations require that corporations use separate [#permalink]

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04 Apr 2012, 00:04
A reak tough one. Took 3 mins. Got it right
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Re: Federal regulations require that corporations use separate [#permalink]

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10 Oct 2012, 06:53
The wording "broken up" for the answer E is rather confusing.
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Re: Federal regulations require that corporations use separate [#permalink]

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10 Oct 2012, 09:49
Federal regulations require that corporations use separate accounting firms for audit and non-audit services. This presents difficulties for many multi-national companies because there are only four large international accounting firms based in the United States. An outspoken group of CEOs has suggested breaking up the “Big Four” firms into smaller operations, so that corporations will have more options for their accounting needs.

Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan to provide more variety in accounting services by breaking up the Big Four firms?

I totally agree with the experts here but my take is a little different for the same correct AC.

(A) The firms should maintain their multi-national contacts.
who cares, rather they are supposed to to get more business?the primary demand is to have separate accounting firms for audit and non-audit services,which is no where mentioned here-incorrect.
(B) CEOs for the new companies should be chosen from inside each firm.
CEOs can be chosen anyway, but where is the primary need which can fulfill the federal regulations?-incorrect.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
is this a mandatory law?even if this is done or maybe not, doesn't give much to the primary objective or maybe it gives but , its not the strongest answer to choose.
(D) The new firms should maintain their internal audit procedures.
they should, if they were good enough to be presented to the federal law.but where is the federal demand getting fulfilled?-incorrect
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.
Correct- what was the reason behind the breaking up of larger firms into smaller ones? so that they can serve audit and non audit services both through them.Hence they should not be broken up(this is the trickiest part) if broken they can be either serving auditing or non-auditing, which will not serve the purpose eventually.

Lets assume 4 major auditing firms A B C & D are doing both auditing and non auditing work.
Now the Federal law wants the Corporations to go for auditing in one and non-auditing for another company.
If the corporations chose A for auditing then it has to choose other than A for non-auditing and this will be a problem for all the companies because there are too many corporations.

Now to solve this CEOs want to breakup large Accounting firms into smaller one such as;
A- a,b,c,d,e,f for auditing and g,h,i,j k, for non-auditing
B-1,2,3,4,5 FOR auditing and 6,7,8,9,10 for non-auditing
similarly C &D will break into small firms.

Now, the corporations can have a lot more options to choose from,such as, A corporation can choose "a" for auditing and "9 " for non-auditing.OR within A itself , the corporation can choose a & 4 for auditing and non-auditing services respectively.

Hope this helps !
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Re: Federal regulations require that corporations use separate [#permalink]

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09 Oct 2013, 22:30
Quote:
Federal regulations require that corporations use separate accounting firms for audit and non-audit services. This presents difficulties for many multi-national companies because there are only four large international accounting firms based in the United States. An outspoken group of CEOs has suggested breaking up the “Big Four” firms into smaller operations, so that corporations will have more options for their accounting needs.

Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan to provide more variety in accounting services by breaking up the Big Four firms?

(A) The firms should maintain their multi-national contacts.
(B) CEOs for the new companies should be chosen from inside each firm.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
(D) The new firms should maintain their internal audit procedures.
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.

I can't agree with the OE & OA that E is the answer!
Premises: Corps are REQUIRED use SEPERATE accounting firms for Audit and Non-audit services.
There are only Big four -> limited choices -> Suggest: more firms to choose
Questions: assure SUCCESS of breaking up Big 4
Assumption: more choice to choose SEPERATE accounting firms
(E) "The Big Four firms should divide so that the audit and non-audit sections are NOT broken up" -> this's meaningless to comply with regulation that require Seperate accounting firms for 2 services -> E can't be the correct answer
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Re: Federal regulations require that corporations use separate [#permalink]

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10 Oct 2013, 00:04
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gamelord wrote:
Quote:
Federal regulations require that corporations use separate accounting firms for audit and non-audit services. This presents difficulties for many multi-national companies because there are only four large international accounting firms based in the United States. An outspoken group of CEOs has suggested breaking up the “Big Four” firms into smaller operations, so that corporations will have more options for their accounting needs.

Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan to provide more variety in accounting services by breaking up the Big Four firms?

(A) The firms should maintain their multi-national contacts.
(B) CEOs for the new companies should be chosen from inside each firm.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
(D) The new firms should maintain their internal audit procedures.
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.

I can't agree with the OE & OA that E is the answer!
Premises: Corps are REQUIRED use SEPERATE accounting firms for Audit and Non-audit services.
There are only Big four -> limited choices -> Suggest: more firms to choose
Questions: assure SUCCESS of breaking up Big 4
Assumption: more choice to choose SEPERATE accounting firms
(E) "The Big Four firms should divide so that the audit and non-audit sections are NOT broken up" -> this's meaningless to comply with regulation that require Seperate accounting firms for 2 services -> E can't be the correct answer

When the firm breaks up into two, the two parts are treated as 2 different firms (only then can there be any additional options). There is no point of breaking up if the two firms are still considered one.

The reason (E) is the answer is this:

(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.

This says that if one firm A, breaks up into two firms B and C (considered two different firms now), both B and C should have audit and non-audit sections. You should not split the audit and non audit sections. Now, if this happens, the corporations get even more variety.

Today corporations have 4 options for audit functions and 3 (after one firm is chosen) for non- audit functions.
Lets say if each of the 4 firms breaks into 2 firms, with audit going to one firm and non audit going to the other firm then options for audit services - 4, options for non audit services - 4 (very little increase in options)

But if each of the 4 firms breaks into 2 such that each firm has both audit n non audit functions, then options for audit functions - 8, options for non audit functions - 7 (after a firm is chosen for audit).
Hence (E) assures the success of the plan of creating variety.
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Re: Federal regulations require that corporations use separate [#permalink]

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09 Apr 2014, 02:51
Gosh!Took me four minutes to realize the situation!
If the audit and non-audit sections are not broken up,then only more variety can be provided.
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Re: Federal regulations require that corporations use separate [#permalink]

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06 May 2015, 03:51
Hello from the GMAT Club VerbalBot!

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Re: Federal regulations require that corporations use separate [#permalink]

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06 May 2015, 10:40
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Re: Federal regulations require that corporations use separate [#permalink]

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31 Oct 2015, 05:34
Like most people were, I was confused between options C and E, and even ended up picking C, but here's why I think E is indeed right:

[Note: We will need to assume that the number of smaller firms the Big 4 splits into, in each case will be same, to make a fair comparison]

(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
If there are 'n' smaller firms now, each corporation has an option of choosing from 'n-1' accounting firms. Number of choices = n-1

(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.
Each corporation has a choice of choosing any of the 'n' smaller firms. Number of choices = n

As n>n-1, E is the winner as it supports the CEOs' plan of having a greater variety of options.
Re: Federal regulations require that corporations use separate   [#permalink] 31 Oct 2015, 05:34

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# Federal regulations require that corporations use separate

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