Deloitte abandons plans to spin off consulting unit

Accounting firm Deloitte Touche Tohmatsu has decided against separating itself from its IT consulting unit, Deloitte Consulting, 14 months after it announced it would do so to avoid possible conflicts of interest. Deloitte Touche blamed a "tight credit market and the uncertain state of the economy" for its decision.

Deloitte Touche would thus stand alone as the only one among the world's four largest accounting firms to retain its IT consulting practice.

KPMG spun off KPMG Consulting (now BearingPoint Inc.) via an initial public offering in 2001. Before its demise, Andersen Worldwide SC sold off its IT consulting unit in pieces to several buyers in 2002. Ernst & Young sold its IT consultancy to Cap Gemini in 2000. And PricewaterhouseCoopers sold PwC Consulting to IBM Corp. last year.

A big motivation accounting firms have had to separate themselves from their consulting units is the concern that conflicts of interest may arise from selling lucrative consulting services to clients they also audit, thus compromising their auditors' independence.

This has been an issue for years, but it got renewed attention when Enron Corp. went bankrupt in late 2001 and questions about the role its auditor, Andersen Worldwide's Arthur Andersen, played in the debacle through questionable accounting practices. Arthur Andersen also sold consulting services to Enron.

As a result, the U.S. Securities and Exchange Commission (SEC) tightened its rules regarding the types of consulting services that accounting firms can sell to clients they also audit, and Congress passed the Sarbanes-Oxley Act, which addressed the issue of auditor independence, in 2002.

In a statement last Friday, Deloitte Touche said that Deloitte Consulting will "continue to provide a broad set of professional services, principally focused on nonaudit clients" and that Deloitte Touche and Deloitte Consulting would "continue to fully comply with the form and substance of the Sarbanes-Oxley Act of 2002 and the SEC's independence rules in the United States and with all regulatory and legislative requirements in other countries."

In February 2002, Deloitte Touche announced it had decided to separate itself from Deloitte Consulting, and several months later, in June, it provided more details, saying Deloitte Consulting would become an independent, privately held company, a majority of which would be owned by Deloitte Consulting's partners, while Deloitte Touche retain a minority stake. That new company even had a name: Braxton.

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