The European Union is calling for large CPA-type firms to break up their businesses if they offer consulting services in addition to audit services. The proposed law would separate these businesses and – hopefully – give them a little more independence when reviewing the books of public companies. In Deja Vu All Over Again, I wrote
I was, of course, alluding to the expansion of services offered to clients of accounting firms. If the same firm that offers consulting on advanced computer systems, or complex off the books transactions, or SPEs looks over those arrangements to determine if they are legal, appropriate, properly accounted for and reported to shareholders who is the audit firm servicing? In the instance of Arther Anderson, it was argued that the auditors were being asked to approve the validity of the moves made by the consulting arm – of Arther Anderson. The clients’ interests, that is the public, shareholders and employees of Enron, are at odds with the interests of the consulting arm. If the consulting arm signs off on a 20 step transaction that is designed to “move” losses of the books so a company can report increased quarterly profits, the audit arm should recognize the invalidity of such a move and not sign off. When you are talking about two parts of the same company it’s hard to keep that separate. It seems the EU agrees. Consulting and auditing will have to be performed by different companies if this law is enacted and enforced. I think that’s a good thing.