Accounting profession seeks to restore trust following Enron scandal
NEW YORK (AP) — Hoping to restore public confidence in their profession, accountants are moving to endorse limits on the types of services they can offer clients, in order to dispel any appearance of conflict of interest.
The American Institute of Certified Public Accountants, a professional group, said Friday it would support any proposal that would put new limits on certain kinds of consulting services accounting firms can offer companies whose financial statements they audit.
Likewise KPMG, a major accounting firm, said Thursday it would drop its opposition to limits proposed two years ago which would have prevented auditing firms from providing information technology consulting or internal audit services to their audit clients.
Other firms are also moving to shore up their public perception in the wake of the Enron scandal, which tainted the firm's auditor Arthur Andersen LLP. Andersen acknowledged destroying documents that were sought by investigators looking into questionable accounting practices that led to the collapse of the energy trading giant.
The largest accounting firm, PricewaterhouseCoopers, announced this week that it was spinning off its consulting business into a separate entity. The plans had been in the works for many months, officials said, but were accelerated because of concerns that the public perception of the accounting profession was hurting because of the Enron scandal.
Linda Dunbar, a spokeswoman for the AICPA, said that even though the group would support future limits on the range of services auditors can offer audit clients, 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.
KPMG chairman Stephen G. Butler called the controversy of service limits a "red herring" in a statement released Thursday. But he said the firm would now support the limits in order to move on to substantive reform of financial accounting practices.
There are also signs that companies are taking steps to eliminate the impression that they are too close to their auditors. Critics contend that the fees companies pay for non-auditing consulting services to their auditors could taint the objectivity of the auditor's opinion when reviewing a company's financial statements.
The Walt Disney Co. said Thursday that it would not use its outside auditing firm for new consulting projects and will review those currently under way. In 2001, Disney paid PricewaterhouseCoopers $8.6 million for its auditing and $32 million for other services, according to its proxy statement.
Patrick Dorton, a spokesman for Andersen, said the firm would make an announcement soon that would "substantially change the way Andersen does business." He said the firm would also support limits on auditors' range of services.
Industry analysts agreed that more than limits on the scope of services would be needed in order to restore trust in the accounting profession. Art Bowman, editor of Bowman's Accounting Report, an industry newsletter, said there needed to be less pressure on companies on short-term results. "Corporate America has got to get away from chasing the quarterly reports," he said.
Spokesmen for PricewaterhouseCoopers and Ernst & Young both said their firms supported the service limits 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," Peter Horowitz, a spokesman for PricewaterhouseCoopers, said. "We supported those positions two years ago."
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 firms they audit, subject to certain rules.
But most accounting firms have already 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.