PricewaterhouseCoopers has lost computer giant Hewlett-Packard as an audit client to Ernst & Young, but it is likely to be compensated by the multi-billion dollar sale of its consultancy wing to HP.
In a corporate press release issued on Friday, HP announced it had engaged E&Y for the financial year ending 31 October 2000. The statement explained, "The decision was made because of concerns by both HP and PwC regarding the timing of the completion of HP's audit for the fiscal year in light of the potential loss of PwC's independence because, as previously announced, HP is in discussions with PricewaterhouseCoopers over a possible acquisition of its global management and information technology consulting practice."
PwC ceased audit work on HP's accounts on September 12th, two days after reports emerged that the two firms were in negotiation. The US Securities and Exchange Commission's continuing crusade on auditor independence, which is the main reason PwC decided to split with its consultancy wing and consider a sale, meant that the firm's position as HP's auditor was untenable.
HP added that the terms of the transaction have not been agreed and that "significant issues remain to be resolved".
Clues to some of the outstanding issues were listed in a summary of the risks associated with the "forward-looking statments" contained in the financial press release. The risks included: "the possibility that HP and PricewaterhouseCoopers may not consummate the acquisition; the challenge of integrating the PricewaterhouseCoopers and HP consulting businesses; the possibility that the combined businesses may fail to achieve desired synergies and that, after the acquisition, HP as a whole and the consulting business on its own may fail to achieve revenue and profit expectations; the difficulty for HP of transitioning to new independent public accountants for the fiscal year ending Oct. 31, 2000, including the possibility that the engagement of new independent public accountants may divert the attention of management and finance personnel from the operation of HP's business".