Marketplace Starts Reacting to Deloitte’s Consulting Decision
Deloitte’s decision last week not to separate its consulting arm is beginning to show its affects in the marketplace.
Because of perceived independence issues, General Motors Corporation has announced that it will pull all of its consulting work from Deloitte, a move that amounts to a loss to the accounting firm of about $80 million worth of work.
Last week, Clorox and Auto Nation – who are both audit and consulting clients of Deloitte - announced that they would begin shopping for a new auditor.
Despite all of the recent scrutiny on the perceptions of independence and the moves by all of the other big accounting firms to split the audit from the consulting business, last week, to many people’s surprise, Deloitte Touche Tohmatsu scrapped its plans to separate its audit and consulting business.
"We are in the process of absorbing change; and change is a challenge," James Quigley, who becomes Deloitte's U.S. chief executive in June, told the Wall Street Journal. "I suspect a handful of clients will terminate either the audit relationship or terminate planned consulting projects."
Deloitte is also dealing with a growing focus on its role in alleged accounting irregularities at Dutch food company Ahold.
Recognizing the challenges ahead of it, Deloitte’s Board is expected to meet this week to discuss the best alternatives for moving the Big Four firm forward.
Art Berkowitz , 11 April 2003 @ 20:12 PM A different view of Deloitte's decision When I first read about Deloitte's decision not to separate their consulting arm from the rest of their firm and the criticism of PwC's chief executive, I thought what a courageous move on Deloitte's part. However, it was in the middle of tax season and I just didn't make the time to formulate my comments.
After reading the reaction from several misguided clients, I knew this was too important an issue to let lie.
First, I feel qualified to comment on this issue as I have been speaking on the topic of ethics in accounting long before it became in vogue. I have written a book that was published by CCH on the ethical implications of Enron and the corporate scandals that is being used by accounting professionals and academic institutions across the country. I have been critical of the profession when they have failed to live up to their responsibilities.
Second, the media coverage on Deloitte's decision focused on the wrong issue. Deloitte clearly stated that it would not perform consulting services for audit clients. This is the central issue. The public should have no problem with Deloitte or any other firm performing consulting services for a nonaudit client. There is no conflict of interest. But I can understand why PwC might have a problem with this.
In fact, I am much more concerned about the hazy relationships that may be taking place between the former consulting arms of Big Four accounting firms than I am when the relationship is out in the open. Let's not forget that it was PwC that committed wholesale violations of the independence rules just a few short years ago and embarrassed our profession by its arrogance and actions.
There has never been a requirement for accounting firms to spin off their consulting arms. Remember how quickly Andersen restarted a consulting practice after Accenture was separated. What we and the public deserve is a clear policy that firms that perform audit services are not also performing services that will create conflicts of interest ON THAT CLIENT. Deloitte has clearly stated its intentions. It should be held accountable to that standard.
But Deloitte should not be condemned for providing valuable consulting services to companies who need those services. Instead, we need to be wary of firms that may still have an "underground relationship" with entities that provide services for their audit clients.
Art Berkowitz , 11 April 2003 @ 20:12 PM
