KARACHI, Feb 6: If the report of International Herald Tribune is correct that four of the five world’s biggest accountancy firms have agreed that they would no longer provide consulting services to client whose books they audit, it should doubtless go to lift the respect of the profession, so terribly tarnished by the Enron affair.

The collapse of energy giant Enron — the biggest bankruptcy in US history — has brought to bear incredible pressure on the accountancy profession, the world over. Arthur Andersen’s reputation as an honest accountant has been tarred, for the firm failed to blow whistle on Enron’s creative accounting.

One of the reasons why Andersen is accused of having turned a blind eye on Enron’s accounting affairs, was for the phenomenal fee of $27 million that the firm received for ‘consulting’ and other services. This was in addition to the $25 million it secured last year, for audit of the company’s books.

Efforts have started to rein in the accounting industry. Chairman of US Securities and Exchange Commission (SEC) Harvey Pitt has been making up a strong case that consulting be separated from auditing. But no one could have expected that where his predecessor Arthur Levitt had miserably failed after a long legal battle in 2000, Pitt would succeed so easily this time. The decision by four of the big five (Pricewaterhouse Coopers; Ernst & Young; KPMG and Arthur Andersen) to reject the industry practice of taking up both the audit and consulting job of the same clients, therefore, comes as surprise. Deloitte & Touche is repeating its intention to keep consulting and audit services under one roof, a position that Andersen had supported until now.

Worried big firms have apparently rushed in to pre-empt regulations or legislations that would bar them to keep both accounting and consulting work of the same client. It may also be to show that the profession had the capacity to remain ‘self regulated’. But the decision could also have to do with the reported intention of such large companies as the Anglo-Dutch consumer giant, Unilever, to henceforth tender the auditing and consulting to two separate firms.

What ever the reason, it doubtless goes to make the work of the Pakistani corporate regulator the more easier. The chairman of Securities and Exchange Commission of Pakistan, Khalid A. Mirza had late last month announced that ‘self-regulation’ by the auditing profession was not enough and that it also was ‘inappropriate’ for auditing firms to accept ‘consultancy’ jobs (from the same client): “Even if there isn’t any conflict of interest, the mere perception of it is enough to undermine investor confidence”, Mirza had told an assembly of the members of the two premier accountancy bodies in Pakistan — Institute of Chartered Accountants of Pakistan and Institute of Cost and Management Accountants of Pakistan (ICMAP).

If multinationals such as Unilever decides to distance itself from the current woes of the profession and not to hire the same auditors for audit of its books and the consulting job, their subsidiaries elsewhere in the world including Pakistan, are likely to follow suit. And if four of the big five have conceded not to mix auditing with consulting, would the big Pakistani accounting firms — which are affiliated with one or the other of those super five — agree to do the same?

While the amazing story of power and greed and billions of dollars of soiled money at Enron continues to unfold, it is still too early to say whether the accountants here, would follow the US lead. Much of the fee that auditors in Pakistan earn other than from the auditing of books, relate to services in respect of taxation. Conflict of interest could well be perceived where an auditor does the consulting work for an audit client. But it may be put to intense argument, if the same applies to the auditor accepting taxation assignments in addition to working as an outside auditor.