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| | PwC and KPMG to follow
suit in a somewhat
rushed and haphazard
way, and Deloitte in the
happy position of the
man who was in the pub
toilet when the fight
broke out.
With Andersen taking
the heat for the whole
auditor independence
issue, and the
consultancy industry
broken apart, regulators
(notably the Securities
& Exchange Commission in
the States) backed off
and the issue seemed
dead.
But I’m not sure if
it’s as simple as that.
The Big Four’s proud
boast that they palmed
off the IT bods and can
now re-emerge as
professional advisers is
just the sort of thing
that is likely to pique
a regulator's interest.
The whole auditor
independence thing was
never originally about
IT – questions had been
raised about the growing
involvement of audit
firms in consultancy
ever since the ‘70s. On
the whole, the
subsequent
investigations gave the
industry a clean bill of
health, but as the
proportion of non-audit
work taken on by the
accountancy firms rose,
the worry would always
return that the
accountants would fiddle
the books to keep the
consultancy fees
flowing. Of course a
cynic might respond that | |
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| | the idea of meaningful
communication, let alone
co-operation between
partners in a
professional services
firm is a fantasy that
exists only in the mind
of regulators and
business development
officers.
In any case, the
issue that got the SEC
going again was when it
delivered an expensive
slap on the wrist to PwC
over accounting for
consulting fees paid to
itself. Whether the
subsequent posturing
would have led to
anything without Enron
is another matter, but
you could argue that the
whole débâcle came as a
godsend to the
accountancy industry.
For years their
consultancy sides had
been engaged in an
attempt to keep up with
the runaway success of
Andersen Consulting and
the scale of firms like
IBM and EDS. Having
exhausted the
possibilities of
consolidation they were
left with consulting
arms that were
simultaneously
unmanageably large and
too small. With
Andersen taking all the
bullets on the auditor
side, they were not only
able to slip out of the
consultancy firing line
but also take on masses
of compliance work as
Sarbanes-Oxley and the
blizzard of regulation
that followed it came | |
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| | in.
But hang on a minute:
of all the Big Four
firms, Andersen was the
most atypical – its
consultancy arm was
growing fast, but it
simply hadn’t had the
time or the inclination
to develop those huge IT
and outsourcing
capabilities. In fact,
as an established
accounting firm with a
fast growing and hungry
consulting arm, it
resembled nothing more
than today’s re-emerging
“Big Four minus one”.
That’s not to say
that the major
accounting firms are
even now busy shredding
your energy company’s
books. But what didn’t
happen – although firms
like Ernst & Young
seemed to be gearing up
for it at the time — was
the emergence of a pared
down, “auditors’R’us”
kind of profession which
just did the books for a
good price. As a result
the auditor independence
issue is by no means
dead.
Sarbanes Oxley is
pretty much the gold
standard in this
respect, and it’s worth
having a look at some of
its provisions and how
they might affect the
future practice of
consultancy.
Compensating audit
partners for procuring
non-audit engagements is
out for example, which
will put firms in the
interesting position of | |
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| | persuading partners to
share client access out
of the goodness of their
hearts. Work on
financial systems design
and implementation –
which was pretty much
the birthplace of the
modern consulting
industry – is out too,
as is any IT work that
might relate to
financial statements.
That’s going to be
tough. Any kind of
interim management or
even decision-making or
supervisory activity is
also forbidden, as are
most types of HR work.
I’m not saying that
the Big Four firms are
incapable of structuring
their assignments to
avoid these pitfalls.
But, in the free-flowing
course of a modern
consultancy assignment,
it’s often going to be
hard not to overstep the
mark. I know I’ve said
this before, but you
never see IT or
consultancy firms
rushing to buy
accountants, and there’s
probably a reason for
that.
I don’t blame the
accountancy firms for
re-entering the
consultancy world –
they’ve contributed much
in the past, and
doubtless still have a
great deal to offer. I
just hope that they’re
prepared for what could
at some stage be a rough
ride.
| |
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| | By Mick James
As the first of the
firms to offload its
consultancy arm, Ernst &
Young is also the first
to emerge from its
non-compete agreement.
However, the firm – and
I suspect this will be a
common theme – is very
keen to distance itself
from the industry it is
rejoining. Here’s
outgoing E&Y chairman
Nick Land, from his
valedictory interview
with beancounters’ bible
Accountancy Age,
apparently “indignant”
over the accusation that
his firm would be
re-entering the
consultancy business:
“We will not be
re-entering that
business,” (I like to
think of the remark
being delivered in Lady
Bracknell tones). “We
are advising on the
decision-making
process.”
Ernst & Young made
one of the jammier exits
from the consultancy
industry, leaving Cap
Gemini to pick up the
pieces of a tricky
post-merger integration.
It also did it before
the whole Andersen-Enron
thing broke out, leaving | |
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