25 February 2000
In future, audit will be grouped with tax advice, and the business consultancy side will be structured as a separate organisation – possibly floated on the stock market.
Firms that split audit from consultancy may be able to do more local government and NHS audit work without losing valuable consultancy contracts.
But they are warned not to focus on e-commerce to the exclusion of public sector management problems. 'I am sure there is a huge market for e-commerce, and local government is very interested because of its targets for the electronic delivery of services,' said Brian Westcott, a consultant for the Society of Information Technology Management. 'But the danger is thinking that it is the only thing that they need consultants for.'
David Davis MP, chairman of the House of Commons Public Accounts Committee, welcomed PwC's split as a matter of principle. 'I am an old-fashioned believer in sticking to your knitting and getting things right,' he said. 'Audit is a specialist function. There have been some serious audit failures over the past couple of decades, but mostly they have not been due to conflicts of interest but to technical weaknesses and straight audit incompetence.'
PwC's move follows strong criticism of its conflicts of interest from the US regulator, the Securities and Exchange Commission. An independent review of PwC had found widespread compliance laxity, with many partners and staff guilty of undisclosed investments in client companies.
PwC is also motivated by the need for large investment in its consultancy arm, as it focuses on e-commerce – it recently announced joint ventures with Microsoft and Sun Microsystems.
Ernst & Young is selling its consultancy business to top Internet adviser CAP-Gemini. Cisco Systems – now the world's second most valuable business after Microsoft – is buying a large stake in KPMG's consultancy arm.
Deloitte & Touche and Arthur Andersen intend to retain links between their internal consultancy and audit arms. But Arthur Andersen's divorce from its erstwhile offshoot, Andersen Consulting, is likely to be confirmed in the near future.