Case Name :      Callmate Telips – Choice of Accounting Policy

Authors :           Muntazar B. Ahmed

Source :             Ivey Publishing

Case ID :            908N28

Discipline :        Accounting

Case Length :    15 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

Callmate Telips Telecom Limited (Callmate) was in the telecommunications business in which the regulatory controls were gradually being undone by the government of Pakistan as part of an economic deregulation program. Callmate was the pioneer in the pay phones and prepaid calling card industries in Pakistan and had significant opportunity to develop into a major business entity. The events in the case demonstrate that the company strategy, as well as aggressive share price management, could be dangerous if there were no checks on the directors. All the directors of Callmate were close family members and the audit committee consisted of three of the directors. The external audit firm that audited Callmate was A.F. Ferguson & Co. (Ferguson) and they were an affiliate of Price Waterhouse Coopers International. Ferguson was regarded among the top professional accounting firms in Pakistan. As Callmate was listed on the Karachi Stock Exchange, it was required to publish its financials quarterly after these had been reviewed by Ferguson. The company had received permission during early 1995 to enter into the long distance international market, which was earlier the monopoly of the state firm Pakistan Telecommunication Corporation Limited (PTCL). A disagreement arose between the auditors and the company on the accounting policy related to revenue recognition used in the financials of the half year ended December 2005. This dispute and the company trying to manage its share price led to a number of problems that became public knowledge as the company tried to malign the auditors. The case examines corporate governance by examining the role of the external auditor, the conduct of the board of directors and the regulator of public listed companies. There were a series of events that caused a profitable company to rapidly become a pariah on the stock exchange and be suspended from the exchange.