PracticeAccounting FirmsDeloitte bucks separation trend

Deloitte bucks separation trend

In a remarkable about-turn last week, Deloitte & Touche decided it was not going to split its consultancy business from its audit arm. The announcement came from the firm's chief executive Jim Copeland in New York, who showed the firm was willing to defy the obvious trend among the Big Four to break things up.

Given the recent acute focus on auditors, corporate governance and transparency the move might seem a risky one given the industry’s obvious direction. Ernst & Young was the first to go, offloading its consultancy business to Cap Gemini, PricewaterhouseCoopers sold its consultancy to IBM and KPMG also finalised its separation.

Last June, Deloitte Consulting announced it was going to go private and soon after revealed it would become known as Braxton.

The question is whether the recent u-turn will be damaging to Deloitte.

Clearly, the firm feels it won’t, and even if it is, it can ride out any trouble. It helps that the announcement came during the war with Iraq when attention was focused elsewhere.

But Deloitte’s fellow Big Four firms seem a little unhappy.

Sam DiPiazza, chief executive of PricewaterhouseCoopers, has made his criticism public. In interviews, he expressed surprise at the decision, saying it sent the wrong message to the markets. Clearly, there’s a worry Deloitte will undermine efforts to rebuild the integrity of the profession.

Deloitte has responded by reminding business journalists that no action has ever been brought against the firm in relation to the company’s independence being affected by its various services.

Some, however, believe this is not the end of the story. Pensions and investment Research Consultants (PIRC) says it believes the position is untenable and that Deloitte may be compelled to review its position in the not too distant future.

Stuart Bell, research director at PIRC, says: ‘This move is a surprise given the concerns expressed in this area. It will have to review its policy fairly soon, I don’t think it’s tenable for auditors to provide consultancy services from under the same roof.’

PIRC clients are advised to think very carefully about the relationship between a company’s auditing and consultancy services, with Bell emphasising that the organisation is ‘very much in favour of auditors splitting from consultancies’.

But if the audit clients have a problem with Deloitte’s move, they aren’t letting on. A quick survey of its FTSE100 clients revealed no-one willing to make any real comment.

A spokesman for Hays says: ‘It’s their decision, it’s not something we would comment on.’

Meanwhile, Anglo-American made it plain that it was not its role to get publicly involved. A spokesman says: ‘We are happy with our service from Deloitte and we don’t want to jump into the debate about auditors and consultancies.’

Of course, clients will be aware that, until last year, Deloitte had very publicly resisted attempts to split consultancy from audit. Throughout successive attempts to force the cleavage by regulators in the US, Deloitte partners have steadfastly fought their corner. So perhaps clients were not too surprised that Deloitte backed away and return to its original position.

There is another possible driver for the decision – the economy. With income for IT consultancies on a downward spiral, it’s not the best time to be leading a new business.

Deloitte said as much in its press release, and blamed ‘economic uncertainty exacerbated by the war in Iraq’. There are problems in the world economy.

But the economy has saved Deloitte from doing something it never really wanted to do.

Related Articles

EY director joins Crowe Clark Whitehill as partner

Accounting Firms EY director joins Crowe Clark Whitehill as partner

1d Emma Smith, Managing Editor
RSM announces growth across every business line in 2017

Accounting Firms RSM announces growth across every business line in 2017

3d Lucy Skoulding, Reporter
WorkStyle: Helping accountants to support new contractors

Accounting Firms WorkStyle: Helping accountants to support new contractors

1w ClearSky Accounting | Sponsored
Grant Thornton grows profits while radically reshaping portfolio

Accounting Firms Grant Thornton grows profits while radically reshaping portfolio

1w Alia Shoaib, Reporter
How to protect LLP firms from a damaging team move

Accounting Firms How to protect LLP firms from a damaging team move

1w Clive Greenwood, Lewis Silkin
Grant Thornton reports gender pay gap at 26.6%

Accounting Firms Grant Thornton reports gender pay gap at 26.6%

3w Alia Shoaib, Reporter
5 ways to adapt your accounting services for millennial clients

Accounting Firms 5 ways to adapt your accounting services for millennial clients

4w Receipt Bank | Sponsored
Smith & Williamson reports double digit growth

Accounting Firms Smith & Williamson reports double digit growth

4w Alia Shoaib, Reporter