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# Federal regulations require that corporations use separate

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Federal regulations require that corporations use separate [#permalink]

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16 Aug 2008, 07:10
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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.
[Reveal] Spoiler: OA
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Re: CR -- Accounting Firms [#permalink]

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16 Aug 2008, 08:57
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Really tough one as none of the answer looks good. Lets discuss it:

Conclusion: After splitting the companies should have more accounting options for their audit and non-audit services.

(A) The firms should maintain their multi-national contacts.
Irrelevant and this will by no mean provide more options.
(B) CEOs for the new companies should be chosen from inside each firm.
Irrelevant as it does not matter where the CEOs come from.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
This limits the options with the companies.
(D) The new firms should maintain their internal audit procedures.
Irrelevant
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.
This can be the answer IMO as by doing this each small accounting firm will have the capability of providing both audit and non audit service and hence will give more options to the companies.
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Re: CR -- Accounting Firms [#permalink]

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16 Aug 2008, 09:30
lets think it further, what do we mean by "success" of CEOs plan ... OR why did they suggest the plan anyway... why do we need more options for companies selecting an accounting firm...

one reason could be.. before federal regulation companies had only one accounting firm taking care of both audit and non audit work... now for several reasons (confidentialty may be) ..companies dont want to change the accounting firms but still they have to follow the federal regulation.... SO CEO suggested that divide the accounting firm into two .. keep the audit work with the old firm and give the non audit work to the new one ( same people, new name ) ....

So both the federal regulations and the other objective (not to change the accouting firm) are met.

C IMO...
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Re: CR -- Accounting Firms [#permalink]

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16 Aug 2008, 09:33
grepro wrote:
Really tough one as none of the answer looks good. Lets discuss it:

Conclusion: After splitting the companies should have more accounting options for their audit and non-audit services.

(A) The firms should maintain their multi-national contacts.
Irrelevant and this will by no mean provide more options.
(B) CEOs for the new companies should be chosen from inside each firm.
Irrelevant as it does not matter where the CEOs come from.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
This limits the options with the companies.
(D) The new firms should maintain their internal audit procedures.
Irrelevant
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.
This can be the answer IMO as by doing this each small accounting firm will have the capability of providing both audit and non audit service and hence will give more options to the companies.

I chose C for this one because it allows the new firms to immediately get business, helping them get off the ground.

I don't disagree with you choice for E.

I read E as "The Big Four audit firms will keep their audit and non-audit business and spin off other parts of their business." My reading of that option meant that option E contradicts the first premise in the stimulus.

This question is from a gmatclub verbal test. I will post OA and OE after a few other responses.
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Re: CR -- Accounting Firms [#permalink]

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16 Aug 2008, 13:32
IMO E.

Federal regulations require separate accounting firms for audit and non-audit services but this presents difficulties for big firms. If big firms divide into small part, they look like separate units though their processes will be same.
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Re: CR -- Accounting Firms [#permalink]

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16 Aug 2008, 14:46
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OA/OE is below

Anyone else think that the OA/OE is just plain wrong? The OE seems to say that E imples that the Big Four firms will break into separate auditing and non-auditing companies. I posted this to make sure I wasn't going crazy...

Situation: A group of CEOs has proposed that the Big Four accounting firms be broken into smaller firms so that corporations will have more options for audit and non-audit services.

Reasoning: Which added provision will help assure the success of the CEOs’ plan? The CEOs suggest breaking up the Big Four firms so that corporations can have more choices for their audit and non-audit services, which must, by federal regulation, not be performed by the same firm. Anything that further insures that audit and non-audit services will be kept separate in breaking up the firms will also assure that CEOs will get the added variety they are seeking.

1. This option does not directly impact the question of variety.
2. The origin of new CEOs does not deal with variety or with the separating of audit and non-audit services.
3. This provision specifies what decisions corporations may be allowed to make, but it does not insure variety.
4. This option does not directly impact the question of variety.
5. If each Big Four firm breaks into two – one performing audit services, and one performing non-audit services – then the field will have gained the variety sought by CEOs.

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Federal regulations require that corporations use separate [#permalink]

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19 Nov 2008, 11:45
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?

* The firms should maintain their multi-national contacts.
* CEOs for the new companies should be chosen from inside each firm.
* Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
* The new firms should maintain their internal audit procedures.
* The Big Four firms should divide so that the audit and non-audit sections are not broken up.
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19 Nov 2008, 11:49
tied between A and C..

I think if A was not true, it will weaken the CEO argument..so going with A

and E says quite the opposite, since the stem said..they have to pick 1 firm for audit and another firm for other-accounting services...

so If E is true then how can these companies comply with federal law?
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19 Nov 2008, 12:01
prasun84 wrote:
can you explain how A or C impact the question of variety?

well, Ok so think of this if these companies didnt maintain multinational presence, then CEOs will be forced to go with a few handful of companies..same problem they had earlier..

variety, if these companies break-up each specializing in a specific area, then CEOs can pick and chose which ones they want, instead of getting the "package deal"..
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19 Nov 2008, 12:09
prasun84 wrote:
interesting point..but then B would serve the cause better...
fresinha12 wrote:
prasun84 wrote:
variety, if these companies break-up each specializing in a specific area, then CEOs can pick and chose which ones they want, instead of getting the "package deal"..

B is irrelevant..

I know the OA..but i disagree with it..infact according to the OA..its not possible since federal requires companies to pick 1 firm for auditing and another firm for other accounting services
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19 Nov 2008, 13:48
It is not saying that they are getting a "packaged" deal. It's contrary to that.

Federal regulations require that corporations use separate accounting firms for audit and non-audit services

The issue is that the big 4 is taking a huge presence, so company do not have many options to choose from.

For example, If I use Deloitte for audit, then I have to use PWC for non audit. After awhile, companies start running out of options.

The answers suck, but I'd go with C.

* Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.

If the firm needs to choose another firm for non audit needs and the big 4 is broken up, now I have more options, since there is now, lets say 15, operations to choose from.

fresinha12 wrote:
prasun84 wrote:
can you explain how A or C impact the question of variety?

well, Ok so think of this if these companies didnt maintain multinational presence, then CEOs will be forced to go with a few handful of companies..same problem they had earlier..

variety, if these companies break-up each specializing in a specific area, then CEOs can pick and chose which ones they want, instead of getting the "package deal"..
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19 Nov 2008, 16:25
Is there a typo in E? I read it like 10 times and its quite the opposite of what the CEO wants

if E were

The Big Four firms should divide so that the audit and non-audit sections are broken up

Then it helps CEO's case with more option

But taking it as it is, I had nothing close but C.
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06 Apr 2010, 11:48
P1 - Federal regulations requires companies to use separate accounting firms

P2 - There are only 4 large accounting firms to choose from for multi national companies

P3 - CEO's suggest to break the 4 large accounting firms so that companies have more options.

What will most help to achieve success in CEO's plan

to break up the 4 large accounting firms into number of smaller firms and the smaller firms should have both audit and non-audit services.

Apparently most corporations are using 1 out of the 4 accounting firms. The stem is saying that federal regulations require corporations to use different accounting firms.

The stem is very confusing because when we read the stem we get the idea that federal regaulations require corporations to use separate firms for audit and non-audit services which is not the case. I fell in the same trap and did not understand the question until I saw OA.
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07 Apr 2010, 20:20
bit confusing... googled it but dint get any thing much useful....
refer this link.... Feel Option E has a Typo
verbal-test-5-q17-88496.html#p667515
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Re: CR -- Accounting Firms [#permalink]

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06 Oct 2010, 04:50
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zoinnk wrote:
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.

E.
Conclusion: Big four firms into smaller options so that corporations will have more options for their accounting needs.
Now lets look for a hole in this argument. The weakness in this argument is that the CEO thinks that when the BIG Four are broken up, there will be more number of accounting firms providin auditing and non-auditing needs equally. But how can we be sure that there will be equal number of audit and non-audit sections. To close this gap, we choose E because it eliminates the possibility of not having equal number of auditing and non-auditing firms.
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Re: CR -- Accounting Firms [#permalink]

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06 Oct 2010, 10:43
grepro wrote:
Really tough one as none of the answer looks good. Lets discuss it:

Conclusion: After splitting the companies should have more accounting options for their audit and non-audit services.

(A) The firms should maintain their multi-national contacts.
Irrelevant and this will by no mean provide more options.
(B) CEOs for the new companies should be chosen from inside each firm.
Irrelevant as it does not matter where the CEOs come from.
(C) Corporations must keep the same firm for their audit services, but should choose a new firm for non-audit needs.
This limits the options with the companies.
(D) The new firms should maintain their internal audit procedures.
Irrelevant
(E) The Big Four firms should divide so that the audit and non-audit sections are not broken up.
This can be the answer IMO as by doing this each small accounting firm will have the capability of providing both audit and non audit service and hence will give more options to the companies.

your explanation does not fit well with the option.What your explanation says has already been suggested by the group.The question stem asks for an assumption.
This is an assumption question.
If the audit section is broken down into 3 different sections A1,A2,A3.
How does it matter to the client if it hires A1,A2, or A3 to do the auditing
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Re: CR -- Accounting Firms [#permalink]

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30 Nov 2010, 21:30
Definitely a tough one. Still unsure on the answer too.

TehJay wrote:
This answer is clearly and absolutely wrong, based on its own explanation:

"If each Big Four firm breaks into two – one performing audit services, and one performing non-audit services – then the field will have gained the variety sought by CEOs."

But the answer states exactly the opposite - that the accounting firms WON'T be breaking up into separate audit and non-audit firms. The explanation explains why the answer is WRONG!
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Re: CR -- Accounting Firms [#permalink]

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01 Dec 2010, 10:16
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zoinnk wrote:
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.

Read the question stem: Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan?
A Plan/Strategy question. We need to support/strengthen/assure the success of the plan.
What is the plan? - To provide more variety in accounting services, break up the Big Four firms.
We are looking for more variety.
I think most of you are fine with A, B and D not being the answer.
C says that the corporation should keep the same firm for audit but choose a new firm for non-audit. It has no relevance to the plan. The plan is to create variety. How the corporations will choose to use that variety is absolutely up to them.

Now, why is E the answer?
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, 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
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: CR -- Accounting Firms [#permalink]

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10 Sep 2011, 01:32
VeritasPrepKarishma wrote:
zoinnk wrote:
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.

Read the question stem: Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan?
A Plan/Strategy question. We need to support/strengthen/assure the success of the plan.
What is the plan? - To provide more variety in accounting services, break up the Big Four firms.
We are looking for more variety.
I think most of you are fine with A, B and D not being the answer.
C says that the corporation should keep the same firm for audit but choose a new firm for non-audit. It has no relevance to the plan. The plan is to create variety. How the corporations will choose to use that variety is absolutely up to them.

Now, why is E the answer?
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, 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
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.

Thank you for your explanation. I was confused with the word "broken up" in choice E. Now it is clear for me.
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Re: CR -- Accounting Firms [#permalink]

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10 Sep 2011, 06:11
VeritasPrepKarishma wrote:
zoinnk wrote:
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.

Read the question stem: Which of the following stipulations would be most helpful in assuring the success of the CEOs’ plan?
A Plan/Strategy question. We need to support/strengthen/assure the success of the plan.
What is the plan? - To provide more variety in accounting services, break up the Big Four firms.
We are looking for more variety.
I think most of you are fine with A, B and D not being the answer.
C says that the corporation should keep the same firm for audit but choose a new firm for non-audit. It has no relevance to the plan. The plan is to create variety. How the corporations will choose to use that variety is absolutely up to them.

Now, why is E the answer?
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, 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
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.
Re: CR -- Accounting Firms   [#permalink] 10 Sep 2011, 06:11

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