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Costly u-turn for Deloitte Consulting

Accounting giant Deloitte is folding its consulting arm back into the main firm after spending US$20 million rebranding it as a standalone business.

The move bucks the trend among big accounting firms to split from their sister consulting firms amid worries about auditor independence after the Enron scandal destroyed auditor Andersen.

The New Zealand partnership's decision to re-merge the consulting arm, now called Deloitte Consulting, was formally approved on Tuesday and follows the firm's abandonment of original plans to sever all links and call it Braxton.

It is a significant departure from the industry norm, with other major accountancy firms long divorced from their consulting arms in an effort to dampen market concerns over independence of auditors.

That issue was highlighted after the collapse of energy giant Enron, found to be fudging its books, and its auditor, Andersen, to which it was also paying consulting fees.

Deloitte was the last of the big four accounting firms to file for divorce from its consulting arm.

New Zealand chief executive Nick Main said the partnership was pushed into the change.

Despite global spending of about US$20 million on the Braxton initiative, the firm decided the idea, which would have separated the two businesses' financial streams, was too complicated and probably not necessary.

Now it has gone a step further in bringing Deloitte Consulting, which became a separate business entity from Deloitte in 1996, back under the same umbrella.

The original split was to enable growth of Deloitte Consulting and the remarriage will mean, says Main, “a change of emphasis … so [Deloitte] can deal with client relationships better”.

In practical terms, it means the rearrangement of staff into complementary teams and the dumping of Deloitte Consulting as a brand.

Locally, there may be redundancies in the shakeout between Deloitte Consulting's 35-odd staff and Deloitte's approximately 700.

Main says merging is “a pretty good answer … although it may have been a tortuous route to get there”. He remains unconvinced by the argument that consultants and auditors need to be split, saying he knows “there were very few occasions where you could point to any failure of audit because of an independence issue … it was more like an appearance of independence that concerned people”.

Clients are also making their own decisions on which arm they employ. General Motors, for example, has ended its consulting relationship with the firm. Of the US$156 million it paid Deloitte last year, just US$25 million was for audit services.

In New Zealand, Main says few clients use both Deloitte's consulting and auditing services, and folding the two arms back together is unlikely to scare off business.

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