Behind Closed Doors: What Company Audit Is Really About

Cover......Page 1
Contents......Page 8
List of Figures......Page 16
List of Tables......Page 17
Preface......Page 18
Acknowledgements......Page 19
List of Abbreviations......Page 20
Foreword......Page 21
PART I: THE BACKGROUND......Page 24
1.2 Fundamental issues faced by the accountancy profession......Page 26
1.3 The regulatory framework in the UK......Page 29
1.4 Research approach......Page 30
1.5 Outline of book......Page 31
2.2 The regulatory dilemma: creative compliance......Page 33
2.3 The auditor–client company relationship......Page 34
2.4 Paucity of research into the primary relationship......Page 35
2.5 The demand for audit......Page 36
2.7 Audit quality attributes......Page 37
2.8 Buyer types......Page 39
2.9 The role of commitment......Page 40
2.10 Auditor independence......Page 41
2.11 Second partner review......Page 48
2.12 Corporate governance and audit committees......Page 49
2.13 Audit effectiveness......Page 54
3.2 Methods......Page 55
3.3 Results......Page 56
3.4 Summary......Page 63
PART II: THE CASE STUDIES......Page 64
4.2 Negotiation and conflict in a generic setting – theory......Page 66
4.3 Negotiation strategies in non-audit settings – empirical studies......Page 69
4.4 Negotiation in audit settings – empirical studies......Page 70
4.5 How the case companies were selected and approached......Page 71
4.7 Writing up each case (matched pair of interviews)......Page 73
4.8 Preliminary within-case analysis: attaching labels to the key categories......Page 74
4.10 Summary of cases......Page 76
5.1 Background to the case......Page 79
5.2 The key issues for Nick and Simon......Page 80
5.3 Interaction NS1: renegotiation of the financing arrangements and the year-end going concern problems......Page 81
5.4 Context NS(a): the changing role of the audit committee......Page 86
5.5 Interaction NS2: the need for accounting reform in the group......Page 88
5.6 Interaction NS3: negotiations over fees......Page 93
5.8 The specific interactions and their outcomes......Page 97
5.9 Conclusion......Page 102
6.1 Background to the case......Page 105
6.2 The key issues for Thomas and James......Page 106
6.3 InteractionTJ1: stock obsolescence provisions......Page 107
6.4 InteractionTJ2: the treatment of product development costs under FRS 3......Page 111
6.5 Interaction TJ3: accounting treatment of restructuring costs under FRS 3......Page 115
6.6 Interaction TJ4: events surrounding the sale of the group......Page 123
6.7 Analysis of general contextual factors......Page 125
6.8 The specific interactions and their outcomes......Page 126
6.9 Conclusion......Page 136
7.1 Background to the case......Page 138
7.3 Context MP(a): the group’s relationship with its auditors......Page 139
7.4 Context MP(b): the role of the audit committee......Page 142
7.5 Interaction MP1: accounting treatment and disclosures relating to an acquisition......Page 144
7.6 Interaction MP2: control and accounting problems in the group’s treasury function......Page 155
7.7 Analysis of general contextual factors......Page 163
7.8 The specific interactions and their outcomes......Page 165
7.9 Conclusion......Page 173
8.1 Background to the case......Page 174
8.3 Interactions CRA1, CRA2 and CRA3: Accounting for two acquisitions......Page 175
8.4 Interaction CRA4: accounting for long-term leases on fixed plant......Page 182
8.5 Interaction CRA5: restructuring provisions......Page 186
8.6 Context CRA(a): the working relationship between the group and its auditors......Page 189
8.7 Context CRA(b): the procedure for clearing the year-end accounts and the role of the audit committee......Page 191
8.8 Analysis of general contextual factors......Page 195
8.9 The specific interactions and their outcomes......Page 197
8.10 Conclusion......Page 205
9.1 Background to the case......Page 207
9.2 The key issues for Robert and Charles......Page 208
9.3 Interaction RC1: accounting for businesses which were to be sold on after the Coreco acquisition......Page 209
9.4 Interaction RC2: agreeing the accounting treatment and the level of provisions for stock and defective products......Page 212
9.5 Interaction RC3: accounting for post-acquisition reorganisation costs......Page 216
9.6 Interaction RC4: disclosure of reorganisation costs......Page 217
9.7 Context RC(a): the composition of the audit committee and its involvement in accounting and auditing issues......Page 218
9.8 Context RC(b): the working relationships between the parties and the impact on fee negotiation......Page 221
9.9 Analysis of general contextual factors......Page 226
9.10 The specific interactions and their outcomes......Page 227
9.11 Conclusion......Page 233
10.1 Background to the case......Page 235
10.3 Context DA(a): the background to the bid......Page 236
10.4 Interactions DA1 and DA2: accounting for assets on disposal and acquisition of businesses......Page 239
10.5 Interaction DA3: disclosure of acquisitions, disposals and bid costs under FRS 3......Page 244
10.6 Interaction DA4: last-minute adjustments to the accounts......Page 247
10.7 Interaction DA5: the chairman’s attitude to goodwill......Page 250
10.8 Interaction DA6: compliance with the Cadbury Code and other non-mandatory disclosures......Page 253
10.9 Context DA(b): the role of the audit committee......Page 256
10.10 Context DA(c): the nature of the company’s relationship with its auditors......Page 257
10.11 Context DA(d): non-audit services and fees......Page 260
10.12 Analysis of general contextual factors......Page 262
10.13 Specific interactions......Page 263
10.14 Conclusion......Page 270
PART III: THE ANALYSIS AND CONCLUSIONS......Page 274
11.2 The analytical process......Page 276
12.2 Introducing the principal categories......Page 279
12.3 A detailed examination of each principal category......Page 281
12.4 Grounded theory of interaction outcomes......Page 290
12.5 AEP (seller) types......Page 298
12.6 Comparison with extant theory......Page 301
13.2 Summary of findings......Page 302
13.3 The policy implications of our findings......Page 307
13.4 Proposals and issues for regulators and audit firms to consider......Page 309
13.5 Implications for future research......Page 313
Bibliography......Page 317
Index......Page 325