News reports say the U.S. Securities and Exchange Commission will soon force accounting firms to disengage from providing management consulting services. The predictable outcome to this long-playing saga will not dramatically change the industry. Fact is, accounting and consulting partners at the Big Five stopped the Friday night mixers years ago. These are two separate businesses that could have been separated long ago.

The SEC’s Johnny-come-lately response may only affect two of the Big Five anyway (Arthur Andersen and Deloitte & Touche). Ernst & Young Consulting is already sold, and KPMG Consulting will go public later this summer. PricewaterhouseCoopers is debating both scenarios and will likely decide its fate before the SEC acts (think sale). On the other hand, legislation could have a huge effect on the thousands of smaller CPA firms that dabble in consulting.

Some speculate that crafty accountants will simply cast loose their consultants only to turn around and hire this “new” firm to service existing clients. Now that’s a good one! A primary reason why Big Five consulting practices have eclipsed their audit brethren over the years is explicitly because the consultants found willing clients outside auditing circles. Once freed from the white-shoe traditions of accounting, we’re much more likely to see a fading dust storm as consultants gallop into the sunset searching for greener clients.

But don’t feel too sorry for the proverbial bean counters. It’s very likely that other consulting operations—including borderline management consulting—will sprout from the still-fertile fields plowed by audit and tax partners. In other words, unless the SEC institutes an outright ban on all consulting activity by accountants or any consultancy in which they have a vested interest, the issue of independence and conflicts will be far from resolved.

Heard on the street
Speaking of big-time consulting, one reader had this to say about last week’s column: “As the owner of a small consulting firm for 12 years, I disagree that consulting is a ‘leveraged business,’ except for the Big Five. Smaller firms often only consist of senior consultants, so… bait and switch issues do not exist. As to longevity, while the (CPA) firm will probably exist in five years, you may not see the same faces again, at least not those junior people that showed up the first time.”
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.