Audit firms to alter some practices

Our Corporate Bureau
02 February 2002

New York: Four of the five biggest accounting firms have said they will reject the industry practices that have prompted extensive criticism of Arthur Andersen, which audited financial statements of the Enron Corporation, The New York Times has reported.

PricewaterhouseCoopers and Andersen said they will no longer provide certain technology consulting services to clients whose books they audit and will stop providing internal and external audit functions at the same company. Ernst and Young and KPMG, which have shed their consulting businesses, said they will support the same measures, which are intended to avoid perceived conflicts of interest.

The remaining big firm is Deloitte and Touche, which has repeatedly stated its intention to keep consulting and audit services under one roof, a position that Andersen had supported until now. The scramble by most of the big firms to bolster their image shows just how worried accountants are about the prospect of new regulations or legislation. By acting now, the firms' executives hope to preempt such moves and preserve as much business as possible.

"They're under the gun," said Arthur Levitt, a former chairman of the Securities and Exchange Commission, adding that the proposals were constructive. "It suggests that the firms have gotten the message. Well have to see the details of what theyve agreed to and how its brought about." Enron's use of partnerships and other financing vehicles, and the role played by Arthur Andersen, remains sketchy. Legislators have complained that Enron, which has filed for bankruptcy protection, has refused to turn over important records.

Executives of the firms are trying to head off legislation or regulation that they regard as too tough, said Arthur W Bowman, editor of Bowman's Accounting Report. Even if the Big Five firms fail to deter the SEC from issuing new rules, he said: "This will mollify Congress, and Congress won't pass laws. If the SEC sets up a rule, the SEC can change a rule. If Congress passes a law, it's hard to change."

The three companies that still provide extensive consulting services PricewaterhouseCoopers, Deloitte and Andersen are not big in the global consulting market, accounting for less than 9 per cent of the $387 billion spent in 2000 on 'information technology professional services', which includes consulting and other services not related to auditing, according to Gartner Dataquest, a market research firm.