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Description
The
fact that same companies provide both auditing and consulting
services has led to concerns over the resulting of conflicts
of interest. These conflicts of interest came under
severe criticism after the burst of the Internet bubble.
Regulators too are of the opinion that conflicts of
interests did exist and separated the functions of auditing
and management consultancy.
A
recent trend among large accounting / consulting firms
has been that of the separation of these two arms of
these firms into separate organisations. In
considering why this has happened it could be
considered that this is merely another manifestation
of corporate disaggregation into smaller more focused
units. For the `Big 5' however, there are more
important imperatives that make this separation not
merely and advantageous way of conducting business,
but absolutely imperative for several reasons.
Although
the `Big 5' accounting and consultancy firms were
initially established as firms of accountants in order
to carry out the duties of auditors in protecting the
interests of shareholders in limited liability
companies, the last quarter of the twentieth century
has seen a considerable change in the emphasis of the
work of these firms. Thus from the late 1970s these
firms increased their focus upon the provision of
consultancy services to such an extent that the
revenue generated by consulting far outstripped that
generated by their traditional auditing activities.
Moreover, consulting is considerably more profitable
that auditing and generates higher profitability from
the same revenue levels.