Andersen scandal to spur changes, local firms say

Because most audit work is done as a requirement either of government regulations or creditors, companies have come to view the service as a commodity any CPA firm can provide, local accountants say. As a result, prices have become unnaturally low and the work has developed into a way to introduce clients to more lucrative services, especially consulting. Potential new rules to restrict crossover between auditing and consulting could change that arrangement.

"You get an audit client and develop the relationship through that and look for other opportunities," says Philip Rebowe, president of Metairie-based Rebowe & Co. "If there are no other opportunities, the audit fees will go up. But that will also allow us to spend more time with it. We need to start charging more for audits. There's a lot more liability out there now."

Andersen is now under investigation by the Justice Department over its role in the collapse of Enron Corp. The energy trader's bankruptcy filing late last year cost investors dearly and has led to an outcry from Washington and Wall Street for greater scrutiny of the accounting firms that audit publicly traded companies. The Securities and Exchange Commission is now debating new rules that could change the way these accounting firms are regulated and what services they may provide.

In New Orleans, local accountants are concerned the desire to protect investors and revamp the auditing standards for public companies will end up changing the way they do business with even small and privately owned companies.

"Most small (accounting) firms don't do SEC work, but they're being lumped together anyway," says Lonnie Stockwell, managing partner of New Orleans-based Postlethwaite & Netterville. "The Andersen situation has created a backlash."

In testimony before Congress last week, Postlethwaite & Netterville partner Bill Balhoff cautioned that restrictions placed on the largest accounting firms to protect investors would become "the template" for rules and regulations affecting smaller firms and private companies.

Balhoff, who is also chairman of an International Association of CPAs committee representing smaller firms, told the senate committee on Banking, Housing and Urban Affairs that small companies often cannot afford to hire separate firms for accounting and consulting work. If they are prohibited from using the same company by new rules, they may make business decisions without the benefit of outside advice.

Phil Gunn, a partner at Ernst & Young's New Orleans office and president of the Louisiana Society of Certified Public Accountants, says his company is trying to keep clients abreast of regulatory proposals as they come up. He suggests they may want to lobby legislators themselves.

"It's not just going to effect the profession but also the (client) companies themselves," Gunn says.

For instance, one proposal aired so far would amend a rule that now requires accounting firms to assign a different partner to audit public company clients every seven years. The proposal calls for these companies to use whole new accounting firms every seven years instead.

Ernst & Young is a peer of Andersen in the Big 5, the term for the five dominant accounting firms that handle the lion's share of SEC auditing work. However, in 199.9, Ernst & Young sold off its global consulting business to the French company Cap Gemini Ernst & Young.

Some accountants say in an effort to build trust and credibility they have been trying to create thicker barriers between their consulting services and audit and tax work.

"Auditing has always been a different side of the house. The audit side of the house is sacred and we value its independence and its objectivity," says Legier, of Legier and Materne. The firm's consulting work, which makes up over one-third of its business, mostly involves providing expert witness testimony for clients, rather than the more typical consulting services that can range from human resources to tech support.

Louisiana revised some of its own rules for accountants through its Accountancy Act, which the Legislature approved in 2000. One measure allows for the first time professionals other than certified public accountants to own a portion of accounting firms. The change makes it easier for firms to recruit consulting professionals with the prospect of becoming a partner, although the majority owners must still be CPAs. Another change allows accountants to accept commission payments from clients other than their audit and tax clients, enabling them to expand consulting services to a wider market.

Michael Henderson, director of the state board of CPAs, which approved the rules, says measures in the Accountancy Act could change if the federal government sets more stringent regulations.