Question

8. You are a government controller. A division manager being audited objects to the transfer price he is being charged by the audit group for the audit services. The manager observes, "If I have to pay for these services, I should be allowed to buy them from an outside supplier who is prepared to offer them to me at a lower price." You have been asked to mediate this dispute. What would you do?

a. The key is that when the outside supplier is used, the company can free up its inside audit team and utilize them for higher profit-based activities. As such, in order to improve the overall profitability of the company, the outside supplier should be used.

b. As controller, you are not in a position to mediate this dispute. The issue should be passed along to the chief financial officer.

c. The key is that the services must be comparable. Not only must cost comparisons be made, but also quality and service comparisons must be made. If the outside supplier meets, or exceeds, the potential of the insider supplier and there are no security issues, then the outsider supplier should be used.

d. The key is that when the inside supplier is used, the company, in the end, will save money versus utilizing an outside supplier. As such, in order to improve the overall profitability of the company, the inside supplier should be used.

Answer 1

As a government controller we need to ensure that the best decision is taken and the dispute is resolved. We need to consider both the suppliers because not only prices but the quality of services are also very important. We need to compare both of them and if there is truth in the appeal made by the manager , we can give a chance to the outsider if it accommodates lower costs and higher efficiency . Hence the answer is c.