PriceWaterhouseCoopers (PwC), the world's biggest accounting firm, has sought to calm fears about inadequate auditor independence by disclosing how its income from non-audit work has been cut dramatically. But PwC's loss of non-audit income from audit clients following the spin-off of its consulting business has been offset by increases of 10 to 40 per cent in audit fees.
PwC highlighted the profound impact of the firm's decision to sell its consulting business to IBM last July. Before the sale, the UK business of PwC secured £3.30 of non-audit fees for every £1 of audit work from its audit clients.
Since the sale, the UK business has secured £1.40 worth of non-audit fees for every £1 of audit work. The changed ratios are thought to be similar across much of PwC's global network and are explained by the way much non-audit work consisted of high-value management consulting.
Profits at accounting firms were fuelled during the 1990s by the design and provision of information technology to audit clients. But the firms have been forced to sell off their consulting arms because of intense concerns about conflicts of interest that peaked in the Enron scandal.
PwC's consulting business provided the firm with about 30 per cent of its revenues in 2001.
Mr Rodger Hughes, UK managing partner at PwC, said: "It is important that people realise the impact of the sale of our consultancy practice on the firm's non-audit fees. Many of the large non-audit fees that people have pointed to as a potential independence issue were related to large IT consultancy projects." But the impact of the consulting business sale has been offset by firms' willingness to pay higher audit fees.
Concerns about auditor independence are rooted in how accounting firms' audit fees have often been dwarfed by their non- audit fees with the same clients.
Deloitte & Touche, auditor to Vodafone, last year earned £4 million (€6.1 million) in audit fees and a further £22 million in non-audit fees. Andersen, former auditor to Enron, faced accusations that its $25 million (€23 million) audit in 2001 was compromised by the $27 million it received for non-audit work. - (Financial Times Service)
