Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Network Associates (NET) -- Ignore unavailable to you. Want to Upgrade?

To: Joanna Tsang who wrote (3973)	1/8/1999 6:00:00 PM
From: AlienTech	Respond to of 6021

SEC steps up scrutiny of accountants; warns firms of consulting conflicts By Elizabeth MacDonald THE WALL STREET JOURNAL The U.S. Securities and Exchange Commission, concerned about potential conflicts of interest, is stepping up its policing of merger-and-acquisition consulting work done by accounting firms for their corporate audit clients. SEC OFFICIALS are worried that accounting firms that provide deal-related consulting services, including setting up merger reserves and determining the size of any asset write-offs, end up auditing their own numbers, Lynn Turner, the SEC's chief accountant, said in an interview. SEC officials have told the Big Five accounting firms, which increasingly have pursued and won lucrative M&A consulting assignments, of their concerns and have asked the firms to avoid potential conflicts in this area. In a related development, the Independence Standards Board, a panel of Big Five accountants, regulators and others working to maintain auditor objectivity, is expected to approve a new rule Friday. The rule would force auditors to disclose to corporate audit committees any consulting services their firms provide to the companies. Auditors also would have to disclose to these committees any relationships they have with corporate clients, including naming any relatives who work at the companies. TARGET DATE OF JULY 15 The Big Five and certain state accounting boards have indicated support for the proposed rule, SEC officials said. If it is enacted Friday, the rule would take effect for fiscal years ending after July 15, 1999. The SEC also plans to recommend to the standards board that publicly traded companies disclose in financial filings the full range of consulting services their auditors provide. Companies haven't been required to make such disclosures since 1981. Also, the agency has asked a panel of industry officials at the American Institute of Certified Public Accountants to report on exactly how an auditor's objectivity isn't compromised by profitable consulting work. As previously reported, the SEC is making accounting-related issues a primary focus of its enforcement division this year, motivated partly by a series of high-profile accounting scandals at companies including Cendant Corp. and Sunbeam Corp. The accounting firms' consulting work for corporate audit clients is now part of that focus. The SEC can fine or censure accounting firms, or bar them from conducting audits, if it finds they have violated auditing rules. In the past, accounting firms rarely, if ever, did M&A consulting work for corporate clients. But as acquisitions and divestitures have proliferated in recent years, the accounting giants have aggressively sought such consulting work, reaping hundreds of millions of dollars in the process. For their part, many deal-making companies prefer to use the Big Five because the accountants already have a knowledge of their businesses and typically charge less for M&A services than investment bankers or specialized appraisal companies. CASE OF CENDANT A typical example of a Big Five firm's dual role would be the consulting work Ernst & Young LLP performed for a predecessor company to Cendant, of Parsippany, N.J., even as it audited that company's books in 1995, 1996 and 1997. Ernst's consulting advice for CUC International Inc., the company that a Cendant board committee concluded fraudulently booked $511 million in pretax income over a three-year period, involved CUC's $14 billion merger with HFS Inc. in December 1997 to form Cendant, as well as CUC's earlier acquisitions of software companies and at least one divestiture. Ernst spokesman Don Howarth denied that the firm's audits of CUC were in any way compromised by Ernst's consulting relationship. He said the firm's consulting work was minimal, tallying only $30,000 in fees for “pure management consulting work.” He described it as “standard work accounting firms do for their public clients going through mergers. Who's in a better position to do it than the auditor?” he asked. As for its role as auditor during the period of alleged wrongdoing at CUC, Ernst has maintained it was a victim of “a massive and collusive fraud perpetrated by CUC.” The SEC is still probing Cendant's accounting problems, and it hasn't accused Ernst of wrongdoing. Cendant also hasn't accused Ernst of wrongdoing. Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.