Deloitte & Touche CEO James Copeland makes an eloquent pitch to save the accounting industry as we know it in Tuesday’s Wall Street Journal. Meanwhile, the current Business Week chronicles Ernst & Young’s complicity in guiding proposed SEC policy on auditor independence. Sensing the inevitable (according to BW), the firm used its own consulting division sale to Cap Gemini as the blueprint for proposed SEC language regarding the conflict issue… and created more than a bit of bad blood amongst the Big Five.

So what’s a guy to believe these days? Copeland argues that perceived conflicts between consulting and accounting are just that—perceptions. He writes: “There is simply no evidence that any audit failure… is the result of an accounting firm providing consulting services to an audit client.”

Therein lies the dilemma—and opportunity—for the SEC. Past history does not preclude future action. The mega-accounting/consulting firms we see today are relatively recent creations. And the Big Five’s tangled relationships with myriad clients are a departure for a business that used to pride itself on purity.

Are the oversight mechanisms Copeland speaks of sufficient to control potential conflicts? That depends. Oversight means someone has to take charge and mete out penalties. For the Big Five, neither the accountants nor the consultants want to cede control. The genteel partnerships that existed a decade ago are gone. These are two separate businesses, and no amount of “golly-gee” wishing will change that.

Even if the SEC doesn’t force the breakup, Big Five consulting operations will inevitably wither because consultants will bolt if they feel shackled to accountants. That’s not an indictment of either side’s shortcomings so much as a marketplace reality; in the future, “pure” consulting firms will have the fewest conflicts and provide the most opportunity for world-class work.
Inside Consulting is written by Tom Rodenhauser as a free weekly supplement to The Rodenhauser Report. The report informs senior advisors and business executives of consulting trends and best practices. Subscription cost is $295 per year for 10 issues. Copyright 2000, Consulting Information Services, LLC. Reproduction is prohibited. Quotation with attribution is encouraged.