Regulators Zero In on Auditors’ Consulting Services
March 8, 2014 Leave a comment
March 4, 2014, 6:23 AM ET
The Morning Ledger: Regulators Zero In on Auditors’ Consulting Services
By David Hall
Regulators are taking a closer look at the consulting services that some auditors provide for clients—and the big fees they generate. The U.S. government’s audit watchdog says it has started quizzing accounting firms on whether their fast-growing consulting practices could hurt the quality of their audits, writes CFOJ’s Emily Chasan in today’s Marketplace section. Overseas, the European Parliament is expected to vote in April on legislation that would cap nonaudit services provided by a company’s auditor at 70% of the audit fee.
At least 300 companies in the U.S. and Europe paid their auditors as much for add-on services as they did for audit work, according to public filings from the past two years. HSBC paid its auditor, KPMG, $208 million for “other services” between 2010 and 2012. That’s more than five times as much as the U.K. bank paid the firm for checking its books. The added work included “ad hoc accounting advice,” consulting on information-technology security, and subsidiary audits, according to a regulatory filing. “You are talking about a huge amount of fees” at some companies, says Yohann Terry, an analyst who has studied the matter for Exane BNP. Auditors “are all pushing to develop consulting fees because the margins are higher,” he says.
The main concerns for regulators are “scope creep” and conflicts of interest that could distract auditors from their core responsibilities, says Paul Beswick, the SEC’s chief accountant. “There are permissible services that are allowed, but over time if the nature of those services change, they can actually evolve into independence violations,” he says.
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