Accounting firms have consistently built large and profitable consulting businesses. Such economic success does not occur at random - it follows from low costs and economic efficiencies. The kind of efficiencies that drive this repeated, consistent success can be expected to provide lower costs to customers, profits to the consultants, and career opportunities that help audit firms attract high-quality employees. These economic advantages would be eliminated or substantially reduced by the SEC proposal. In addition, the SEC proposal could reduce the number of effective competitors providing audit and consulting services for a given public company.
Many public companies employ multiple consultants.
If firms are not allowed to purchase consulting services from their auditors, then a public firm in the market for a nationally recognized auditor might often find at least several of the five potential candidates unavailable. For example, if a major audit client currently uses three of the major five accounting firms as consultants, the proposed rule could effectively force the audit client to choose between the two remaining accounting firms for its auditor. The SEC proposal also would create an ambiguous and open-ended regulatory framework that is likely to impose a large and complex regulatory burden. The enormous resources spent by U.S. firms to minimize taxes provides a sobering example of the costs created by complex and ambiguous rules. In particular, regulation inevitably reduces the ability of businesses to adapt and change as their environment changes, since regulation rarely keeps pace with changes in technology and commerce.