Accounting profession seeks to restore trust following Enron scandal
Saturday, February 2nd 2002, 12:00 am
By: News On 6
NEW YORK (AP) _ Stung by a collapse in public confidence following the Enron scandal, the accounting profession is taking steps to eliminate the appearance of conflicts of interest in the kinds of services they offer their audit clients.
The American Institute of Certified Public Accountants, a professional group, said Friday for the first time that it would support any future proposal to impose certain limits on services accounting firms may provide to the companies they audit.
The statement came a day after KPMG, one of the five major accounting firms, reversed its opposition to limits proposed two years ago that would have prevented auditing firms from providing information technology consulting or internal audit services to the companies whose financial statements they audit.
The actions followed an announcement from the leading accounting firm, PricewaterhouseCoopers, that it would spin off its consulting business into a separate entity.
The plans, which had been in the works for months, were accelerated because of concerns that the public perception of the accounting profession was hurting because of the Enron scandal.
Enron's auditor, Arthur Andersen LLP, acknowledged destroying documents and e-mails that were sought by federal and congressional investigators looking into questionable accounting practices that led to the swift collapse last fall of the energy trading giant.
The non-audit consulting fees are often much more lucrative to the accounting firms than fees for auditing companies' books. For example, in 2001, The Walt Disney Co. paid PricewaterhouseCoopers $8.6 million for its auditing and $32 million for other services, according to its proxy statement.
Critics contend the high fees could taint an auditor's objectivity when reviewing its client's books.
On Thursday, Disney said it will not use its outside auditing firm for new consulting projects and will review those currently under way.
Linda Dunbar, a spokeswoman for the AICPA, said that even though the group would support future limits on the bans, such restrictions were not the solution to the profession's problems and ``would not prevent the next Enron.''
``Given where we are on public concerns on conflict of interest, it seems that some restrictions are necessary so that we can move on to more substantive issues,'' Dunbar said.
Likewise, KPMG Chairman Stephen G. Butler called the controversy of service limits a ``red herring,'' but he said Thursday the firm would now support the limits in order to move on to substantive reform of financial accounting practices.
Spokesmen for PricewaterhouseCoopers and Ernst & Young, two of the other Big Five firms, said they supported the limits on information and internal auditing consulting when they were first proposed two years ago under Arthur Levitt, the former chairman of the Securities and Exchange Commission, and that their position hadn't changed.
``When this was being debated two years ago we supported it then, and we support it now,'' Larry Parnell, a spokesman for Ernst & Young, said.
``This is not a new position for us,'' said Peter Horowitz, a spokesman for PricewaterhouseCoopers. ``We supported those positions two years ago.''
A spokesman for Andersen didn't return a phone call seeking comment. The New York Times quoted an Andersen official as saying that his firm would make an announcement soon that would ``substantially change the way Andersen does business.''
Deloitte & Touche released a statement Thursday calling the issue over the scope of services that accounting firms can offer ``principally one of perception. But it is a huge perception problem.''
Nonetheless, the firm said ``it is premature to accept or reject any proposal, whether we agree with it or not, because the effectiveness of a complete set of reforms is what ultimately needs to be assessed.''
Auditing firms can still provide certain non-auditing services to the companies they audit, subject to certain rules.
But most accounting firms already have separated from their consulting divisions, including Andersen, whose consulting arm split off into a unit called Accenture. KPMG has spun off its consulting business, and in early 2000, Ernst & Young sold its consulting business to Cap Gemini SA, a French computer and management services company.
Once PricewaterhouseCoopers' stock offering is complete, Deloitte will remain the only major accounting firm that is still united with its consulting arm.