Town Hall Q&A.

• Position: Panel Discussion

At the AICPA Forum on The Future of the Accounting Profession in November 2002, one session was a Town Hall at which those attending had an opportunity to ask questions of a panel that included, among others, James Castellano, Immediate Past AICPA Board Chair, and managing partner of Rubin, Brown, Gornstein, & Co., LLP, St. Louis, and Leslie Murphy, managing partner--client services, Plante & Moran, LLP, Southfield, Michigan. The Practicing CPA asked them to address some of the questions asked at the forum. Here are their responses.

Responses from Leslie Murphy

Should we split up our firm into separate entities, one firm for A&A and one firm for consulting? If we decide to split the firm, how should the ownership be structured?

In the current environment, the concept of separating firms is a greatly debated issue. First, the SEC released the final rules on independence for public company audits in late January, 2003, and until those rules and related releases from the SEC are interpreted, breaking into separate entities may be premature.

In order to decide whether two firms make sense, firms need to define carefully what they mean by consulting and to review whether their consulting work is done for publicly traded audit clients. Now that the detailed SEC rules governing auditors of publicly traded clients have been issued, we have more clarity around which services are prohibited consulting services and which require prior approval from the audit committees. Unless the majority of the firms consulting work falls into the prohibited services category and is done for publicly traded audit clients, there is no real necessity to split the firm.

Most recently, the largest CPA firms have spun off or sold their large system implementation practices, but most have retained at least some of their consulting capability. Since these rules do not address firms that work with privately owned clients, the ownership of most of the firms in the country will not likely change as a result of the Sarbanes Oxley legislation. Further, it is now clear that informal business advisory services, such as working with a client on bank loan terms or advising on family succession planning, are not considered prohibited services. Splitting those functions and roles would be extremely difficult, especially for firms that also service small to mid-sized clients.

Separating auditing and consulting services into different firms also has long-term implications for...