(January 24) – “The Big Five accounting firm Arthur Andersen LLP is launching a new $500 million venture capital fund to invest in Web start-ups world-wide, as the go-go e-commerce world is proving to be a lure that is taking even accountants away from traditional work such as auditing,” writes Elizabeth MacDonald in today’s Wall Street Journal.
“Arthur Andersen’s move marks the first time that any of the Big Five have set up a venture-capital fund that will take equity stakes in Web start-ups in lieu of fees.
And the move by the 87-year-old firm comes at a precarious time in the accounting profession.
“The Securities and Exchange Commission is currently investigating conflicts of interests involving auditing-firm employees owning investments in publicly held audit clients, an investigation triggered by a recent report showing more than 8,000 such violations of the SEC’s auditor-independence rules by PricewaterhouseCoopers LLP employees.
“Nearly half of the firm’s partners, among other staffers, owned investments in audit clients, in violation of the rules. So far, the firm says it has forced divestitures of these investments and fired 10 people, including five partners, over the infractions.
“While other Big Five firms — Arthur Andersen LLP, Ernst & Young LLP, Deloitte & Touche LLP and KPMG LLP — adamantly state that their employees don’t own such investments and that the firms don’t take equity stakes in audit clients, some firms do invest in other companies.
“Like other consulting firms that have invested in consulting clients for decades, KPMG says it has invested in about 15 clients in the past three years. Ernst & Young says it has also invested in consulting clients. And Robert Glatz, a global managing partner at PricewaterhouseCoopers, says that the firm doesn’t ‘make equity investments in audit clients” but that it has “made several strategic equity investments in nonclient companies’ and ‘in selected cases’ has taken equity stakes in consulting clients.
Arthur Andersen’s top partner, Jim Wadia, says he plans to make sure the new fund, dubbed Arthur Andersen Ventures, rigorously abides by SEC rules. But market forces have put the firm in a position where it ‘cannot afford to stay in the traditional accounting box if we are to capture the growth in our businesses,’ adds firm spokesman Matt Gonring.
Arthur’s venture-capital fund also comes fast on the heels of Andersen Consulting’s recent launch of its own $1 billion venture-capital fund that invests in Web businesses. Arthur Andersen and Andersen Consulting are units of parent Andersen Worldwide. Mr. Wadia notes the two funds may pursue the same companies, but for different reasons. Andersen Consulting is ‘more into technology services, we’re more into advisory services, such as helping start-ups create their Web site,’ he says.
-IE Staff