Oracle has dismissed Arthur Andersen as its independent auditor
after 15 years.
The company decided to switch to Ernst & Young "given the
break-up that started to occur within Arthur Andersen's global
practice in the past few weeks", it said in a statement
yesterday.
Arthur Andersen provided both audit and non-audit services for
Oracle. The practice of having an accounting firm such as Arthur
Andersen sell non-audit consulting services - including IT
consulting - to clients that it also audits has come under fire in
recent months as a result of the Enron collapse.
Although legal, the selling of non-audit services to audit clients
compromises an auditor's independence and leads to conflicts of
interest, critics have charged. As in Oracle's case, Arthur
Andersen provided both audit and non-audit consulting services to
Enron, whose accounting practices are at the centre of its
bankruptcy scandal.
Arthur Andersen was paid $700,000 (£487,000) for audit services for
the year ended 31 May, 2001, according to a filing Oracle made with
the US Securities and Exchange Commission (SEC) in August. It also
paid Arthur Andersen $1.1m (£765,300) for the design and
implementation of financial IT systems and $5.3m (£3.7m) for other
consulting work, including tax preparation, tax advice and business
consulting.
Oracle said that Arthur Andersen "has done excellent, professional
work" for the past 15 years.
An Oracle spokeswoman declined to comment on whether the company
would continue giving non-audit consulting work to Arthur Andersen,
saying Oracle would not comment on this matter beyond what was said
in the statement.
In February, Arthur Andersen said it would stop designing and
implementing financial IT systems for clients it audits. More
recently, the company has pledged to separate its consulting
practices entirely from its core audit business, thus abiding by a
mandate from an independent oversight board it created this year to
reform its business.
IT and related business consulting services generated about $1.7bn
(£1.2bn) in revenue for Andersen Worldwide for the year ended 31
August 2001.
Oracle joins a long list of audit clients that have fired Arthur
Andersen firms in the US and abroad this year as a result of the
Enron scandal. Recent published reports put that figure at around
150 audit clients to date.
This year, PricewaterhouseCoopers announced it plans to separate
via an initial public offering its management consulting business,
PwC Consulting, which provides a broad range of IT consulting and
services. Deloitte Touche Tohmatsu made a similar announcement this
year regarding its IT consulting unit, although it has not given
details of how it will separate it.
Ernst & Young sold its IT consulting services unit to Cap
Gemini in 2000 and now provides a limited number of IT advisory
services. KPMG spun off its consulting business into an independent
company called KPMG Consulting early in 2001 but, like Ernst &
Young, still provides limited IT advisory services.
Both Ernst & Young and KMPG have said that the IT services they
provide are of an advisory nature - as opposed to a more hands-on
consulting approach - and, therefore, do not pose
conflict-of-interest concerns.