Audit Firm Selling Consulting Arm to Client Could Continue as Auditor

An auditing firm that sold its consulting business to a client company could continue to be the auditor for the company based on the firm’s assurance that it would not receive or retain any equity interest in the company. According to the SEC staff, in a letter signed by Chief Accountant Robert K. Herdman, the firm’s independence would not be impaired by the transaction, which was the sale by PricewaterhouseCoopers LLP of its global management consulting and technology services business to International Business Machines Corporation.

The auditing firm also asserted that it and IBM will maintain separate corporate governance, management and financial structures and interests and that there will be no revenue or profit sharing between PwC and IBM. Similarly, there will be no joint marketing, advertising or similar arrangements between PwC and IBM. Other conditions of the staff’s no-action stance were that IBM will obtain an independent opinion as to the fairness of the transaction and IBM will engage an independent auditor other than PwC to audit the initial transaction accounting and subsequent accounting, including all of the reporting units containing the consulting practice transferred to IBM, for the three fiscal years commencing with the fiscal year in which the transaction closes. PwC will be required to place reliance on the work of such independent auditor and will be required to reference in its corresponding audit report the portions of the audit conducted by that independent auditor.