Elizabeth Krentzman is a lawyer, not a CPA. She’s worked 11 out of the last 14 years at Deloitte, always on the consulting side of the house. But now auditors are reporting to her.
That’s because this month she got
Nine years after the passage of the Sarbanes-Oxley Act, such conflicts are once again all too common. After the law curtailed their ability to cross-sell advisory services to audit clients, the other three of the Big Four global firms sold their consulting arms. Today, audit revenues are flat; Sarb-Ox’s stiffer accounting requirements fattened fees, but since then the economic downturn has kept fees from growing. So the Big Four are all
Deloitte, the largest public accounting firm in the world, has a head start in this race, since it alone kept its side businesses after Sarb-Ox. Its rivals Ernst & Young, PricewaterhouseCoopers, and KPMG have had to reinvent the wheel, rebuilding their advisory arms using strategic acquisitions and “catalyst” hires. Deloitte is also anxious to regain its footing in financial services. It lost some big audit clients during the crisis -- Bear Stearns, Washington Mutual, and Merrill Lynch -- and kept a few that
Hence Deloitte’s recent pitch to mutual funds: “Opportunities and challenges addressed from every angle — accounting, assurance and advisory, risk, tax, strategy, financial, technology and human capital. Global, integrated solutions.”
Mutual funds could certainly use some advice: The Securities and Exchange Commission is taking a hard look at their use of derivatives. And Deloitte is careful to note that it doesn’t offer advisory services to audit clients. The firm audits five of the top 20 U.S. mutual fund complexes and provides advisory services to the other 15.
The problem is that global accounting firms haven’t been drawing lines between audit services and everything else all that strictly. Jim Doty, Chairman of the Public Company Accounting Oversight Board, said in June that the regulator’s reviews of partner evaluation and compensation process found “examples of seemingly
Deloitte, in particular, is not very good at keeping its partners in line. In August of 2010, the SEC settled charges of insider trading against Thomas Flanagan, a Deloitte Vice Chairman, and his son. Flanagan traded in the shares of at least twelve Deloitte audit clients, seven of which he was acting as a client service partner. Those audit clients, which included Walgreens, Berkshire Hathaway, Sears Holdings and Best Buy, were
In spite of being accused of performing
With her background, Krentzman knows exactly what to expect should regulators start asking questions. Most recently, she was the general counsel for the mutual fund industry’s trade association, the
Deloitte has a good chance of avoiding sanctions for mixing audit and consulting when serving mutual funds, because it’s chosen someone like Krentzman to do it.
Francine McKenna writes the blog re: The Auditors, about the Big Four accounting firms. She worked in consulting, professional services, accounting and financial management for more than 25 years.
Editor's note: Accountable is a new column about corporate governance, risk management and the professional services firms and their impact on financial institutions.