IS REVIVING CONSULTING A DANGER AT BIG AUDITORS?
New York -- The increasing reliance of the Big Four firms on their consulting and advisory practices may threaten the independence of their audit practices, according to participants in a roundtable discussion held in November at New York University's Stern School of Business. The forum discussed the re-emergence of consulting practices at major audit firms. The panel featured accounting watchdogs, including former Federal Reserve Chairman Paul Volcker, who noted that in 1990, his investment banking firm was the mediator between the auditors and consultants at Arthur Andersen, which eventually resulted in a bitter divorce. "There is no doubt that putting these two functions in the same firm has an impact on the culture. You are, in effect, subsidizing the audit function," said Volcker.
NYU Professor Sy Jones, meanwhile, noted, "From 2007 on, the major firms started to develop some significant revenues based on consulting. How did they get so big in consulting again given the prohibition in 2002? It seemed odd to me how they could have come back that fast after five years, and then in the next five years leading up to the current time, they were doing extremely well in consulting. And when I dug deeper into the subject, it seemed that they were developing personnel and the capabilities to go out and do consulting work and really focusing a good deal of their time on it."
Journalist Francine McKenna, who blogs at re: The Auditors, said, "I am now watching the second coming of consulting for the Big Four auditors. Consulting never left Deloitte. It only grew bigger while the other three large firms went back to being semi-pure audit firms because they were worried about trouble with regulators. ... [But] the auditors' consulting businesses have recovered from the post-Sarbanes scare." She contended that the SEC and PCAOB have not even minimally enforced the Sarbanes-Oxley Section 201 auditor-prohibited services rules against the Big Four and have stopped enforcing compliance with existing rules against inappropriate financial interests and strategic alliances.