Bogle McRum is a firm of Chartered Certified Accountants is currently engaged in finalising the audit of Bugle plc, a publicly listed company. The audit partner Hugo Sponge is reviewing the audit file for the year ended 31 October 201X. At the front of the file is a memo from the audit manager recommending the issue of a qualified audit opinion. Bugle plc’s major customer is known to be in financial difficulties yet no provision has been made against the material debt owed to Bugle. Bugle’s financial director is arguing that their customer has nearly completed development of a new product, sales of which will enable them to repay all their debts. He claims to have consulted another firm of accountants who have indicated that a provision might not be necessary.
Hugo is unhappy with the situation for the following reasons:
(a) He is reasonably certain that, if she issues a qualified opinion, the directors of Bugle will recommend appointment of the other firm as auditors.
(b) His firm supplies many other non-audit services to Bugle such as tax and consultancy which bring in twice as much revenue as the audit and are more profitable. It is highly unlikely the firm would continue to be asked to provide these services if the audit is lost. In total, fees paid by Bugle for the audit and these other services amount to 9% of the audit firm’s revenues.
(c) He has been the engagement partner for ten years and has no reason to doubt the integrity of the finance director with whom he has worked closely over that period of time. He is prepared to believe his assertion that the debt will be repaid. However, he also accepts that evidence in the audit file is equally persuasive that the customer is, currently, in financial difficulty.
He calls the finance director to advise him that he will have no option but to issue a qualified opinion if the financial statements do not contain a provision against the debt.

Question 

The scenario raises the issue of providing non-audit services to audit clients.
a. Outline the general rules of ethical conduct which might be relevant relating to the supply of non-audit services to public company audit clients.
b. Explain why the provision of non-audit services to audit clients might be seen as a problem and why it is sometimes suggested that auditors should not provide such services.