Page 26 - Auditors Article

Consequently, what incentives are there for executives to

choose historic costing over future estimates which will be
reflected in the share price of stock which now makes up such

a large proportion of their package and potentially their

pensions?

Furthermore, the kudos of having 'a Big Four' signature on an
audit report continues to be the major managerial attraction.

The lower tier, of medium sized auditors, finds it all but
impossible to compete with the Big Four auditors and have

little more than a token presence in the large company audit

market.

Management has the responsibility for financial statements
not auditors. However, management at Patisserie Holdings

appear not to have picked up any red flags that investigation

of the accounts should have readily thrown up.

A strong internal audit or quality and assurance function
within a company is essential for effective governance. The

internal auditors provide senior management, the Audit

Committee and the Board of Directors with assurance that
helps them fulfil their duties as board members (See Diagram

5). Luke Johnson did not have the support of such a function at

Patisserie Holdings.