Deloitte asks US for catastrophe cover
Financial Times AP
The head of Deloitte has appealed to US lawmakers to give auditors some protection against catastrophic negligence claims.
Bill Parrett, global chief executive of Deloitte, says such protection is needed to ensure the big four accounting firms are not reduced to three or less.
The UK government signalled earlier this month that it plans to limit the liability of auditors, and President George W. Bush has put tort reform on the agenda for his administration's second term.
Mr Parrett says: "The cost of litigation has been skyrocketing over the past couple of years ... The lawmakers need to have a better understanding of our business and the significant risk inherent in the audit process. Deloitte has long maintained a position, going back to the mid-1990s, that the profession should not consolidate below four or five [big] firms, and we still maintain that position."
The big five firms were reduced to four in 2002 when Andersen collapsed in the Enron scandal.
In the post-Andersen era, Deloitte has emerged second in the big four's pecking order. PwC reported revenues of $17.6bn for its 2004 financial year, compared with $16.4bn at Deloitte and $14.5bn at Ernst & Young. KPMG has not yet issued its 2004 figures but reported revenues of $12.2bn for 2003.
Revenues have been boosted in 2004 by new US laws and rules that require auditors to give verdicts on the effectiveness of internal financial controls at companies.
Some companies have complained that accounting firms are over-charging for their work, but Mr Parrett says: "Deloitte is not over-charging or taking advantage of any of our clients . . . We are not gouging anybody."
Deloitte Touche Tohmatsu, the firm's parent organisation, is currently conducting a review known as DTT 2010 that will set a strategic direction for its member partnerships for the remainder of the decade.
Mr Parrett says he does not want the review to set a target of displacing PwC as the biggest firm, although he outlines aggressive expansion plans in Asia.
He suggests that Deloitte, after hiring many former Andersen partners and staff, is big enough, and should instead focus on "being world class in everything we do".
The threat of litigation is one of the biggest issues looming over the DTT 2010 review. Enrico Bondi, Parmalat's administrator, is suing Deloitte's US and Italian businesses, together with DTT, for $10bn in the US courts over alleged failures in the firm's audit work at the company.
Mr Parrett says that Mr Bondi's US legal claim should be dismissed, partly because Deloitte's US business had a "de minimis" role in the Parmalat audit and DTT itself provides no services to clients.
All the big accounting firms refuse to accept that liability for alleged audit failures should reach beyond the member partnership that signed off on a company's accounts.
Deloitte's Italian business certified the accuracy of Parmalat's accounts.
The stance does not sit comfortably with how the big accounting firms portray themselves as unified businesses by operating under a single brand name.
Mr Parrett expresses tentative interest in the idea of Deloitte transforming itself from a network of member partnerships to a single global partnership.
But he says the move would have to be preceded by action by lawmakers to give auditors protection from catastrophic negligence claims. Many countries do not have such protection.
Mr Parrett also highlights the need to reform national rules that seek to ensure auditors cannot be influenced by people outside their home countries.
In the meantime, Mr Parrett is adamant that he can ensure consistency of work across Deloitte's global network, even though the member partnerships have enjoyed strong local autonomy.
"Whenever I have needed to have one of our member firms deal with an issue, they have dealt with the issue," he says. "Sometimes a little bit slower than I would like but the issues get dealt with."