Split Decision
Abduladif Hassan
Financial Management
(GM660)
Rick May – Instructor

It was the last thing accounting professor Vivien Beattie expected when she hopped into a taxi in Cardiff, Wales, and a few years ago. When the driver learned what she did, he launched into a tirade on the recent demise of Enron. Anyone could see, he said, the company was ripe for fraud given that it paid its auditor, Andersen, for audit services. This issue made it clear to Beattie that the audit industry would never be the same.

In late February, governance activists urged shareholders of Sage, a UK-based software company, to vote against the re-appointment of auditor PricewaterhouseCoopers after it received roughly equal fees for audit and non-audit services in 2007. Though the resolution passed at the AGM, a sizeable 12% of the votes were either cast against PwC's appointment or withheld.

Surveys by CFO Europe earlier this year, the companies are decreasing the share of fees paid to auditors for non-audit services. Nonetheless, companies in certain countries and industries consistently pay their auditors more for non-audit services, according to a new report from Company Reporting, a research firm.

However, Tony Bromell, head of accountancy markets and ethics of the Institute of Chartered Accountants in England and Wales, thinks that shareholders will increasingly see the audit/non-audit fee split as a "red herring." A disproportionately large fee for audit services can compromise auditors just as much as a modest overall fee with a significant non-audit share, Bromell says. "Independence is not an end in itself.

But if independence is key to audit quality, Beattie laments that it's "desperately difficult" to determine the factors that contribute to it. Currently at the University of Glasgow, she says that despite extensive research of her own and an exhaustive