Deloitte forced to split consulting and audit arms

Deloittes & Touche yesterday became the last of the Big Five accountancy firms to bow to pressure and agree to split off its consulting business in the wake of the Enron scandal.

It also emerged that the firm had become among the first beneficiaries of what is expected to be a flood of partners fleeing Andersen, Enron's crisis-hit auditor. Deloitte has poached three Andersen partners in the UK, Stuart Henderson, Paul Schofield and David Holstead, who all worked in its Cambridge office. John Connolly, senior partner and chief executive of Deloitte, said he still did not accept the need to separate the consulting business but market perceptions made it necessary.

Andersen worked as both auditor and consultant to Enron, which hid massive debts off its balance sheet. It has been suggested that when a firm provides lucrative consulting services to a client, its audit work may be less vigorous. "In the US in particular we have seen companies subject to criticism if they have appointed consultants from the same firm as their auditors. Seeing that, we had to move towards a split although our preference has always been to keep the firm combined," Mr Connolly said.

PricewaterhouseCoopers announced last week that it will spin off its consulting arm, while Ernst & Young has already sold its consulting business to Cap Gemini. KPMG has listed its US consultancy and its other consulting businesses are expected to follow. At Andersen, there was an acrimonious demerger of its consulting arm, now called Accenture, but it subsequently built up another consulting business – this will now also have to go.

Deloitte, the number two firm worldwide, is said to be the only Big Five firm where its accountancy and consulting businesses actually got along well together. Rob Anderson, head of Edengene, a management consultancy, said: "There has been long-standing mistrust between the accountants and the consultants who wear the sharp suits and earn much more.

"The accountants see the work of consultants as disruptive to the steady audit business they do for a client. The consultants resent the pin-striped dull auditors who tend to hold the top positions at firm."

Mr Anderson said the consultants were usually keen to split their business off, as they could cash in through a flotation or sale. The Enron affair has made that separation compulsory. "I think the split is absolutely right. I struggle to think of any projects where [they] can work together. They can cross-market each other but working together is not in the interests of clients," he said.

Deloitte has 6,531 employees on the accountancy side of the business and around 1,000 in the consulting arm. The firm has yet to decide how and when it will split the business.