Auditor or Consultant? Time to Choose

The Enron implosion seems to have proven that it’s not smart to use the same company as your auditor that you use for consulting work.

But what if you’re already in that position—if your auditor is already your information technology consultant? Do you just boot it out?

Some companies—such as Apple, Borland Software, Freddie Mac and Walt Disney Co.—have announced they will no longer use their auditor as their technology consultant. Shareholders of at least 30 other companies, including Johnson & Johnson, Motorola and PG&E, have proposed that similar measures be taken to separate the services, according to Institutional Shareholder Services (ISS), an analyst of proxy voting and corporate governance issues.

“Some clients are saying that if (nonauditing) services provided by a consultant reach a certain dollar figure,” the auditor should no longer be used, says Patrick McGurn, a vice president at ISS. But in each case, McGurn says, “the devil is in the details.”

The “Big 5” firms get far more revenue from consulting than from auditing. A recent proxy statement, for example, shows Disney spent $8.7 million for PricewaterhouseCoopers’ auditing services in 2001, but nearly $32 million for PwC’s consulting services.

Tom Rodenhauser, a principal at market-research firm Consulting Information Services, says that since the early 1990s, there has been skepticism about the benefits of a single firm offering both consulting and auditing services. That skepticism, of course, has deepened in the wake of the scandal surrounding Enron.

In response, firms that do both consulting and auditing—Deloitte & Touche, Ernst & Young and PwC—have announced plans in recent months to separate the functions. Arthur Andersen did so two years ago when it split from Accenture.

“Consulting firms are trying to do buffets—they’ll do it all for you,” says Rodenhauser. “But clients are going à la carte. They need to be judicious about internalizing more of their systems implementation work.”