The proposed rule has no effect on the former category and a negative effect on the latter. The accountants, no matter how they sugar coat it with the public interest, see these rules as a threat to their economic well-being. The proposed rules will eliminate them from the high margin consulting business for the clients with whom they have the closest relationship. Plaintiffs' Bar The traditional plaintiffs' bar supports the current rules that allow accountants to reap large consulting fees from their audit clients because it provides the best indication of scienter that the plaintiffs' bar can find to support their securities fraud lawsuits. With the Courts raising the standards by which plaintiffs must plead scienter, the accounting industry's own greed, in obtaining large consulting fees from audit clients, provides this necessary element.
Institutional investors read and rely on the audited financial statements of issuers.
If this watch dog turns out to be nothing more than a Chihuahua with a tiny yap to which no one listens, the entire confidence in the financial reporting system is shaken. It is unlikely that an auditor will ever concede that the reason it took a certain accounting position was to protect its consulting business. Therefore, one can really only look to anecdotal evidence to see if there is a problem with auditors taking on consulting assignments. In one case, we came across an auditor who found problems with the company's accounting system. The auditor was lax for at least two years and did not hold the company accountable for these system failures.