Andersen Makes Initial Move To Separate Audit From Consulting

Arthur Andersen LLP

Andersen said it is no longer accepting consulting projects to design and implement "financial information systems" for "publicly traded U.S. audit clients, according to information released by the company on Sunday, Feb. 3. Furthermore, the company said it would cease to provide "internal audit services to publicly traded U.S. audit clients." In both instances, Andersen said its firm would fulfill existing commitments or, if clients prefer, develop a plan for immediate transfer of those services.

Large accounting and auditing firms are under intense pressure to separate accounting/auditing work from the consulting business in the wake of the collapse of energy trader Enron Corp. The U.S. Securities and Exchange Commission, U.S. Congress and other federal agencies are now investigating alleged questionable accounting and financial reporting practices at Enron, which used Andersen for both its external and internal auditing, and some consulting services.

The move by Andersen came after the firm hired former Federal Reserve Board Chairman Paul A. Volcker to chair an Independent Oversight Board (IOB) to oversee changes in Andersen's audit practice. The actions were characterized as "the beginning of a broad re-examination of the firm" with the goal of assuring "confidence in the quality of [Andersen audits in all jurisdictions."

Andersen's statements follow an announcement by fellow big auditing and consulting powerhouse PricewaterhouseCoopers, which disclosed it would separate its management consulting unit from its accounting and auditing business by taking PwC Consulting public some time in the spring.

Other so-called Big Five auditing and consulting firms made the split long before the Enron debacle became front-page news. For instance, KPMG Consulting split from KPMG LLP in an initial public offering and now trade on Nasdaq. A year before that, Paris-based Cap Gemini bought the consulting arm of Ernst and Young.