A Real-life Case Study of Audit Interactions—Resolving Messy, Complex Problems

Abstract

Real-life accounting and auditing problems are often complex and messy, requiring the synthesis of technical knowledge in addition to the application of generic skills. To help students acquire the necessary skills to deal with these problems effectively, educators have called for the use of case-based methods. Cases based on real situations (such as the one presented in this paper) are viewed as being of most educational value. This case is based on interviews with each of the three key parties involved with the final stage of the audit—the finance director, the audit engagement partner and the audit committee chair. The valuation of intangibles in business combinations (IFRS 3) is the issue which causes the audit interactions described. Although some suggestions are included, the case may be used very flexibly, depending on time constraints, the nature of the course and programme in which the case is embedded, and instructor preferences.

Keywords:

• Auditor-client interaction
• audit committee
• case studies

Acknowledgments

The authors should like to thank the Guest Editors of this themed issue of Accounting Education: an international journal for their encouragement to us to write this paper, and two anonymous referees for their thoughtful comments.

Notes

In 2001, two of the authors together with Richard Brandt published a research book (Beattie et al. 2001). This book explored, for the first time, how finance directors and audit partners of UK listed companies interacted with each other in agreeing the contents of the company's financial statements. The analysis was based on six matched interviews with company finance directors and their audit partners. The book's authors received the prestigious Deloitte/American Accounting Association Wildman Medal in 2007 (the first non-US research team to receive this award). The Wildman Medal is awarded for research that is judged to have made the most significant contribution to the advancement of the practice of accounting. In the years since the book was published, many auditing educators commented to us how useful the cases would be in the classroom (bringing audit to life for students can be a real challenge). Since Behind Closed Doors was published, the regulatory framework for financial reporting, auditing and governance has changed radically in the UK and in many other countries, as a result of problems identified from the Enron scandal, and more recently from the drive for global standards for financial reporting and auditing. A key change for financial reporting and audit quality is the enhanced engagement of the company's audit committee with the auditing and financial reporting process. This case study forms part of our continuing research into this area.

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