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Tuesday, 27th February 2024
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Consulting outgrowing the accountancy firm Back  
The drivers behind the current consulting breakaway from accountancy practices are manifold, writes Greg Sparks.
As a consultant with many years’ experience of analysing organisations and their need to change, it is easy to understand the reasons for the recent mutations of traditional accountancy partnerships into firms offering a wider range of services. It is easier still, with industry knowledge, to realise why many of these partnerships are now questioning the structure of their own organisations.

Major profit source

In the past number of years, consultancy, although it has received much bad press, has begun to outgrow the structure in which it was created. Many firms in the recent past have become more recognisable as consulting firms, as opposed to accountancy practices, from which they were born. As a result of this, the profits of the consulting arms of these organisations, have begun to surpass that of the parent. Ordinarily, this would seem to bode well, but in some instances, this has been the very reason that causes discord.

In the case of Arthur Andersen’s former consulting firm, Andersen Consulting, business was helped along in its infancy by the easily recognisable and world-renowned name. As the business began to blossom and profits began to soar, the need for the parent company subsided. Andersen Consulting had also begun to concentrate most of its efforts in the technology sector. The consulting arm of the firm began to feel the effect of yearly payments into the partnership. The financial drain coupled with the change in business tack encouraged them to go it alone. This sparked a bitter row between the two entities which has ultimately resulted in two separate companies being formed. Simply put, the differences of opinion and disagreements over money brought about the turmoil that eventually broke this marriage.

Competing for employees

Yet, this explanation is case specific, and is not the reason for the direction that many of the worlds foremost professional services firms are now taking. The effects that the technology sector is continuing to have on the world’s business environment have begun to pose new problems for partnerships worldwide. Many of these firms have had a record of attracting the elite of the workforce in their specific areas. Being a partnership limits the ability to attract talent, as stock options cannot be offered to employees below partner. This has caused problems of its own, as firms cannot compete for quality employees against equity options in internet startups.

Another element is the fact that in the United States, the Securities and Exchange Commission (SEC) have taken a firm stance on partnership employees holding shares in audited clients. A report commissioned by the SEC found more than eight thousand instances of PwC staff and partners holding shares in audited clients. It is partly as a result of this, that the SEC is making companies conform to strict rules on auditor independence. The US regulatory concern is that audit independence is being jeopardised by the firms engaging in consultancy and accountancy work for the same client. Recently, in many cases, the client would encourage the advisors to take equity stakes in lieu of cash payments in return for work done. This is especially true and, it must be said, an attractive proposition in the technology sector.

In light of these developments, the larger firms are taking time out to assess how they should proceed. Many are currently discussing their options, with some considering an amicable split by keeping the firm together and changing the structure from a partnership to several companies, which will afford a degree of autonomy. Others see that their services are multidisciplinary and cannot realistically be split. Certain firms are set to split their audit and consulting practices as the two share little common ground given the IT focus of the consultancy business. The areas that do overlap, such as tax advice, will stay with their natural partner.

FGS’s move

In an Irish context, Farrell Grant Sparks has made the move to setting up a stand-alone company for the consulting arm. The reasons however, are neither monetary nor regulatory, but as strategy for marketing and service delivery to our clients. There tends to be a perception in the market place that as accountants, we cannot provide creative advice and services to all sectors, including those that are not directly related to business. We have found that by selling ourselves as consultants, our services can be marketed and delivered more effectively. Although business advice is one service offered, it is not our sole function. We would like to be more easily identifiable as a consulting company that can offer a broad spectrum of services to a wider audience. We have kept the name of the firm and now operate as Farrell Grant Sparks Consulting Limited in order that we can still draw on resources from the other more traditional services offered by the firm. The new structure for the company and the firm also gives us greater operational flexibility in entering into strategic alliances and other business collaborations. The constantly changing nature of business will call for professional firms to move with the times. In this case; consultant, heal thyself!

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