CASE A: The audit of Megatron PLC is under consideration by the executive directors. The group has been audited by one of the international audit firms, Tickitt & Run, for the last fourteen years. Tickitt & Run also carry out certain internal audit functions, have advised Megatron on several major acquisitions and also provide computer consultancy services and finance consultancy. The senior partner of Tickitt & Run is a regular guest at several Megatron corporate events and Tickitt & Run were joint sponsors with Megatron of a tennis tournament in Antigua where they entertained the board of Megatron at an end of tournament party, at which several major tennis stars were present. After the corruption scandal that caused the downfall of previous CEO Sir 'Billy' Bustler and Chairman Lord Footler, the new CEO, a Scottish chartered accountant called McTavish, is reviewing all professional relationships with a view to enhancing the corporate governance in the group. He is concerned that the relationship with Tickitt & Run is too close and is of the view that a new firm should be appointed. He is being opposed by his finance director who feels that Tickitt & Run are a trusted firm that they are familiar with Megatron's complex group structure and that changing to a new firm would send a bad message to the City. He feels that a new audit partner and a reduction in the amount of consultancy work Tickitt & Run receive would be sufficient. Questions: 1) Internal audit is a dynamic profession involved in helping organisations achieves their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organization. Assess the roles of internal auditors in the Megatron PLC. (10 pts) 2) External audit is an independent body which resides outside of the organization which it is auditing. They are focused on the financial accounts or risks associated with finance and are appointed by the company shareholders. Evaluate the various features of external audit report of Tickitt & Run. (10 pts) CASE B: Arthur Anderson, one of the world's top five accounting forms, prided itself on the quality and originality of its work. But it went dramatically out of the business following a number of audit failures, including Waste Management, Worldcom, and Enron. Memorably at client company Enron, Arthur Anderson was accused of shredding papers sought by an SEC investigation, and appeared before a grand jury on charges of obstructing justice. Clients quickly distanced themselves and many Anderson partners around the world smartly joined one of the remaining big four global audit firms. The confidence of the accounting profession, which traditionally had relied on professional self-regulation, was threatened when it realized that the market was really in control. Subsequent concerns have been expressed about the loss of competitiveness in the audit market with a potential oligopoly of just four firms, competing for the business of the major global corporations. In the United States the Sarbanes-Oxley Act introduced new controls on the audit profession. Questions: What is your opinion of the following solutions that have been suggested to the problem of auditors becoming too close to their client companies: 3) Prohibiting staff of an external auditor to join a client company (at least until the passage of a given period of time). (10 pts)