December 29, 2000, 2:53 PM — The Securities and Exchange Commission and the accounting industry have come up with new rules to address potential conflicts of interests at firms that audit the books of companies with which they also have IT consulting relationships.
The toughest restrictions on these auditing/consulting firms won't kick in for 18 months, but IT managers who use consultants from accounting firms should get ready for more paperwork and management requirements.
On the surface, the rules drive a wedge between the IT consultants and the auditors to ensure that accounting firms can keep their IT consulting contracts while preserving the impartiality of audits. The main reason is the big bucks consulting brings in: IT consulting and business strategy consulting were worth $39.4 billion last year, according to Ted Kempf, a senior analyst at Dataquest. Of that, $7.24 billion was generated by the Big Five firms.
There are several ways in which accounting firms can keep their IT consulting businesses. Most would require IT management at client firms to do the following:
Acknowledge their responsibility for internal controls to their auditors, in effect indemnifying the consultants.
Make the important IT project decisions and identify someone who has the authority to make all management decisions on a project.
Evaluate a project's adequacy and results.
Verify that management doesn't rely on the consulting firm's accounting work as the primary basis for determining the adequacy of the company's financial reporting system.
This additional reporting burden might cause some clients to sever ties with their IT consultants, says Mike Driessen, executive vice president at Experio Solutions Corp., a Dallas consulting firm.
In anticipation of this potential problem, the Big Five have been separating their IT consulting arms. In February, for instance, Ernst & Young sold its IT consulting business to Cap Gemini for $11 billion. PricewaterhouseCoopers tried unsuccessfully to sell its consulting operations to Hewlett-Packard for a reported $18 billion.
As a result, IT executives will see new and more aggressive efforts by consultants - both big and small - to win business.
Driessen, a 15-year veteran consultant, says that 10 or 15 years ago, IT consulting was dominated by the big accounting firms. "Today, there are lots of IT consulting firms you can do business with besides the Big Five," he says.
IT managers could also face consultants who are now shareholders in the client companies with rights and expectations.
IT consultants who work for firms that also audit their clients' books have been barred from owning stock in their client companies and from owning shares in mutual funds that own stock in client companies. The new rules and new IT consultancies make this issue moot.