IBM is standing by its plan to keep PricewaterhouseCoopers (PwC) as
its auditor after announcing last week that it will purchase PwC
Consulting, a subsidiary of the auditing firm.
The plan had reportedly drawn criticism from analysts and
institutional investors who questioned the ability of PwC to
maintain its independent status.
The
Wall Street Journal reported on Friday that
institutional investors are airing concerns that PwC will no longer
be able to audit IBM's books independently.
New York Comptroller H. Carl McCall, who administers the New York
State Common Retirement Fund, said the decision to keep PwC as
IBM's auditor raises questions as to the future validity of its
audits. The New York State Common Retirement Fund owns 5.6 million
shares of IBM, according to the newspaper.
The deal to purchase PwC Consulting involves $2.7bn (£1.73bn) in
cash payable to PwC, with the remainder in convertible bonds and
stock. The stock portion of the deal will go to PwC Consulting
employees, said Steven Silber, a spokesman for PwC.
IBM has released a statement addressing the criticism, saying that
although it was "sensitive" to concerns about its relationship with
PwC, it believes the company "understands our company, our
business, and our industry. Going forward, we believe (PwC) will
continue to provide the best advice."
PwC went through "a painstaking process" to ensure auditor
independence during the purchase negotiations, according to Silber.
The audit team left IBM's offices during all negotiations, which
did not begin until all audit work for IBM's second-quarter results
was completed and the results were announced, he said.
To preserve the independence of PricewaterhouseCoopers in future
audits of IBM, PwC Consulting is to become part of a separate IBM
business unit within IBM Global Services.
PwC Consulting's financial results will be handled by an auditing
firm other than PwC during the first three years of its life as
part of IBM Global Services, said Sehra Eusufzai, a spokeswoman for
PwC Consulting.
"Once people understand the facts about the negotiations and the
process going forward, they'll take comfort in the fact that
investor confidence was being protected," Silber said.
"It's a valid question people should be asking, but I don't think
there is anything [improper] here," said Fred Amoroso, who recently
became president and chief executive officer of research firm Meta
Group and who has previously worked for both PwC and IBM Global
Services.
PwC has been looking to divest PwC Consulting for some time, he
said. The US Securities and Exchange Commission has mandated
auditing firms to exit the consulting business after investigations
into the relationship between audit firm Arthur Andersen and
bankrupt energy trader Enron.
"The consulting practice had already gone through the initial
stages of separation [from the auditing side], and there would be
no retained ownership of the consulting unit going forward" by PwC,
Amoroso said.