17 - 23 February 2000

No local effect expected from PwC split

by Anthony Manduca

PricewaterhouseCoopers, the world's largest accountancy firm, is planning to split into at least two separate businesses in a move driven in part by growing US regulatory scrutiny. In a sweeping change for the profession, the group plans to put its audit, tax and business advisory services into one business, which will keep the name PwC.

Its other activities, which mostly comprise management consultancy, business process outsourcing and human resource activities, "will

be developed into one or more

separate businesses", according to the Financial Times.

This split is not expected to have any effect on PricewaterhouseCoopers in Malta. John Bonello, the chairman of PwC in Malta, told The Malta Business Weekly: "I fully understand what is going on in PwC's bigger markets but this will not have an affect on the audit and business advisory services we provide our clients in Malta. We fully expect to continue to provide the same range of services to our clients in Malta that we have provided over the years in precisely the same manner and through the same organisation."

Mr Bonello added: "We do not believe that any of the services we provide will be of concern to our regulator, and nor do we expect to need to seek financial partners and alliances that are springing up in the large

markets and that are being perceived as being a threat to independence."

The move by PwC to split is a reversal of the way accountancy firms have been growing. The "Big Five" have steadily diversified, in particular by expanding consultancy activities.

However regulators, led by the US Securities and Exchange Commission, have voiced concern that audit independence could be jeopardised by the firms performing audit and consultancy work at the same clients.

Last month, a report commissioned by the SEC found more than 8,000 instances of PwC staff and partners holding shares in audit clients in contravention of regulations, although the SEC also praised PwC for the action they had taken to correct these infractions and to ensure that they do not happen again.

James Schiro, PwC's chief executive, was reported to have said in

the Financial Times: "Heightened demand for an even more fully independent audit profession, growing regulatory and legislative scrutiny, and movement toward global financial transparency demand that we vigorously focus on the basics that built the accounting profession."

PwC, formed by the 1998 merger of Price Waterhouse and Coopers & Lybrand, said the SEC had reviewed the announcement before its release. It hoped the SEC would be supportive and said there had been a number of discussions with the regulator in the past few months. PwC said one main purpose was to free its consultancy arm from regulatory constraint. No public offering is planned immediately, but it remains an option.

"These businesses will be able to seek the financial partners, alliances and joint ventures and access to capital markets on which their future success will depend - all of which are now largely prohibited by auditor independence requirements," Mr Schiro said.

PwC said it hoped to put the new structure in place in its "key markets" during the second half of this year. It has first to secure the support of the majority of its 10,000 partners in 150 countries.