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einstein801
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Federal regulations require that corporations use separate accounting 15 Nov 2024, 19:58
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KarishmaB this is the best response. but there's still a problem, it kinds of restates the premise (breaking up the big 4 firms...) - option C is the better one IMO, it ensures demand for the companies if they split up... ensuring a higher chance of success
KarishmaB
gamelord
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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.
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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