Accounting head unveils 'remarkable' strategy

By Andrew Parker in New York
Published: December 13 2005 02:00 | Last updated: December 13 2005 02:00 (Egne fremhævninger)

William Parrett, global chief executive of Deloitte, is candid enough to admit that the big accounting firm has not yet achieved the level of excellence he wants.

Deloitte's strategy for the next 10 years carries the slogan "to be the standard of excellence". "We are not yet the standard of excellence," says Mr Parrett.

He wants Deloitte to stand for "a top-quality audit" and to become one of the world's "remarkable brands". He says the firm should be the choice of "the most sought-after client ... and the most sought-after talent".

However, the "standard of excellence" slogan risks making Deloitte a hostage to fortune if, like other top accounting firms, it continues to be accused of poor auditing. Deloitte's Italian business, for example, is under criminal investigation over its auditing at Parmalat, the dairy group that collapsed amid accounting fraud in 2003.

Mr Parrett, recognising the increasing expectations for auditors to spot accounting frauds quickly, says: "We are trying to do a better job in catching and reducing the number of frauds."

Deloitte's new strategy is based on a year-long review that concluded that it should remain a multidisciplinary organisation. The big four accounting firms - Deloitte, Ernst & Young, KPMG and PwC - all insist they must retain multidisciplinary capabilities in order to do good auditing.

However, Deloitte is unique among the big four in deciding to retain its consulting business, which supplies companies with computer systems for financial reporting and risk management. The other firms sold off their consulting practices because of concerns by regulators about conflicts of interest. But Deloitte, having toyed with following suit, pulled back.

Deloitte's strategy says its core businesses will be "audit, tax, consulting and financial advisory services". The consulting practice generated global revenues of $4.3bn in Deloitte's 2005 fiscal year, and Mr Parrett highlights how it is enjoying growth after two years of decline.

The strategy also confirms that Deloitte, like the other big accounting firms, will focus on expanding its presence in China and India.

Deloitte's member partnerships in Asia continueto be its fastest growing.

Their revenues increased by 16 per cent in 2005, compared with 9 per cent in Europe and the Middle East and 11 per cent in north and south America.

But perhaps the most interesting part of Deloitte's strategy is its statement about the firm's structure. It says its 80-member partnerships may be reduced over the coming decade through consolidation, although the firm's coverage of 150 countries will continue.

That consolidation might herald a far bigger event: the formation of a single global partnership. Although Deloitte's strategy does not refer to proposals to create one, Mr Parrett says he expects the big firms to transform themselves into single partnerships over the next decade. He believes regulators, who have concerns about inconsistent audit work by the firms across countries, will probably press for the changes.

Mr Parrett is the second leader of a big four firm to make the prediction about single global partnerships. Michael Rake, global chairman of KPMG, said last year the firms could make such changes over the next 10 years.

Mr Parrett sees no contradiction between the statement in Deloitte's strategy that the interests of itsmember businesses are best served by its existingfederation-style structure, and his prediction of a single global partnership within a decade.

He highlights how laws in many countries currently ban accounting firms from turning themselves into single partnerships.

Those laws seek to safeguard auditors' independence by requiring that accountants form autonomous businesses in their home countries.

The big firms therefore organise themselves as networks of member businesses, which means that their global leaders have limited authority. If the firms were single global partnerships, their leaders would have greater powers to ensure auditors did consistent and high-quality work.

Meanwhile, Deloitte's strategy does not involve trying to replace PwC as the world's biggest firm over the next decade. Deloitte's last strategy, produced in 1998, set a target of becoming the world's second biggest firm - which has been achieved.