Top accountants are being forced to open their own books – as well as checking those of others – in exchange for better protection against being sued.
The move follows the collapse of auditing giant Arthur Andersen after it was implicated in destroying evidence in the Enron scandal.
Some big accountancy firms are now trying to save their partners from huge claims for damages by dashing to change their legal status to limited liability partnerships (LLPs).
But there is a high price to pay. By changing status they confront a tough challenge – producing a proper set of accounts for their own businesses. For some, the timing of this new openness is distinctly awkward.
The latest firm to change is PricewaterhouseCoopers (PwC), which charts cricket's batting averages and became an LLP this month. The firm, one of the Big Four, must now prepare to issue a full set of financial results – the first time it has had to do so.
Traditionally, accountants have operated as partnerships and all partners equally liable for any claims against the business. Everything they owned – houses, cars, the shirts on their backs – was at stake. But if a business becomes an LLP, it is the firm, not individual partners, that faces open-ended liability.
Ernst & Young and KPMG adopted LLP status soon after the law allowed it in 2001. The move was timely. Ernst & Young last week began a High Court battle against a £2.6bn claim from Equitable Life. The crippled insurer alleges that the accountant was negligent in its auditing.
Ernst & Young partners now hope their fortunes are safe. But not all accountants have been so quick to change – PwC has taken almost two years.
The other giant, Deloitte & Touche, has a committee deciding when and if to make the change. Any move is complicated by the fact that Deloitte &
Touche is absorbing Arthur Andersen's British business. Other big players such as Grant Thornton and BDO plan to become LLPs. The widespread suspicion is that the delay is because they find it difficult to account for their own money.
A spokesman for KPMG said: 'Firms that have not moved to LLP status are probably struggling to come up with accounts. They are accountants, but they are sweating about how to do it.'
Nick Land at Ernst & Young agreed. 'The requirements of LLP mean publishing accounts and having them audited, including a balance sheet, which will show up liabilities,' he said. 'I have no sympathy with big firms that want to hide behind a shroud of secrecy.'
The key liability that could prove an embarrassment is pensions. Ernst & Young reported operating profits of £158m last year, but revealed a £152m deficit in its pension fund.
Its final salary scheme is now closed to new entrants. KPMG reported an operating profit of £299m in 2001 and a deficit of £11.7m in its pension fund. As for the rest, including PwC and Deloitte & Touche, the state of their finances, and their pension funds, remains a mystery – at least for the time being.