Capstone Case Study

Capstone Case Study

of pride.” AA adopted a new strategy that focused on generating new business and cutting costs. AA began
evaluating its partners on how much new business they brought to the firm. Superb auditors “who could not get a
lick of business” were secure in their jobs in the 1970’s, but not in the 1990’s. According to Measelle, partners
began to feel that “the number one thing was to make your numbers and to make money.”
To reduce costs, AA began requiring partners to retire at age 56 years, enforcing a policy that had long
been overlooked. The increased emphasis on revenue growth and expense reduction led to substantially higher
revenues and profits per partner. As the twentieth century drew to a close, the average AA partner made around
$600,000. However, the new policies also led to less experienced auditors and fewer partners overseeing audits.
A new breed of partner rose to the top in this new environment. One prominent example was Steve Samek,
who was in charge of the Boston Chicken audit. Top partners gave Samek high praise for “turning a $50,000 audit
fee at Boston Chicken into a $3 million full-service engagement.” Samek, however, allowed the chain to keep
details of losses at its struggling franchises off its own financial statements as it moved toward an initial public
offering. The overstated financial statements helped make the IPO a “rousing success.” Boston Chicken’s
subsequent collapse and bankruptcy led to legal actions against AA for helping to create a “facade of corporate
solvency.” In 2002, AA agreed to settle these suits by paying $10 million. Samek, however, had left the Boston
Chicken account in 1993 to move on to bigger and more important assignments.
Robert Allgyer was known within AA as the “the Rainmaker” due to his success at cross-selling services to
audit clients. One of his biggest “successes” was Waste Management, which paid $17.8 million in nonaudit fees to
AA between 1991 and 1997, compared to $7.5 million in audit fees....

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