PwC, the network of member accounting firms, agreed to acquireBooz & Co. to expand its advisory business. Terms weren'tdisclosed.

The deal would give PwC about 3,000 added employees in 57locations worldwide, creating a firm whose services includeauditing as well as advice on risk management, deals, humanresources, ethics, and information technology. Booz partners arescheduled to vote on the transaction in December, according to astatement today from the two firms.

Companies have been under pressure by regulators to employseparate auditors and consultants after the 2001 collapse of EnronCorp. The deal between PwC, overseen by Chairman Dennis Nally, andBooz, run by Chief Executive Officer Cesare Mainardi, puts theissue of independence “front and center,” said former Securitiesand Exchange Commission (SEC) Chairman Arthur Levitt, who pushedfor rules to curb accounting firms from providing both auditing andconsulting services to a client.

“We are slipping back,” said Levitt, who is a member of theboard of Bloomberg LP, the parent of Bloomberg News. “As theaccounting profession becomes more committed to consulting, theiraudit activities have got to be questioned.”

The accounting industry defeated the curbs proposed by Levitt,who won one concession: Auditors of public companies had to outlinethe potential conflict of interest by disclosing how much theyearned from auditing their client and how much they were paid forconsulting. Subsequently, the Sarbanes-Oxley Act in 2002 adoptedmuch of Levitt's original proposal.

Some accounting firms “see their future in consulting ratherthan auditing, and that's unfortunate for America's markets,” saidLevitt, who is now a senior adviser to private-equity firm CarlyleGroup LP.

Booz was created after Carlyle bought Booz Allen Hamilton Inc.'sgovernment-consulting unit in 2008. Carlyle completed an initialpublic offering of that business, Booz Allen Hamilton HoldingCorp., in 2010.

PwC and Booz will identify overlapping clients, review theservices provided by each firm, and eliminate conflicts before thetransaction is completed, said a person with direct knowledge ofthe matter, who requested anonymity because the information wasn'tpublic. The deal will help PwC diversify its revenue to reinvest inits businesses, the person said.

Vote Pending

PwC will acquire Booz through a subsidiary in which theindividual member firms have an equity investment, the personsaid.

PwC employs more than 184,000 people in 157 countries and hadabout $32 billion in revenue in fiscal 2013, according to itswebsite. Its U.S. operations are based in New York. The closelyheld firm's competitors include KPMG LLP, Ernst & Young LLP,and Deloitte LLP.

Until the results of the Booz vote in December, “it will bebusiness as usual, with both organizations staying fully focused onserving their stakeholders,” the firms said in the statement.

Kathryn Oliver, a PwC spokeswoman, declined to comment beyondthe statement, as did Margaret Kashmir, a spokeswoman for NewYork-based Booz.

Enron used Arthur Andersen LLP as its auditor for 16 years. Theaccounting firm earned more from consulting than it did fromauditing Enron's books, which regulators say may have led it toignore accounting violations.

New Code

Deloitte agreed to pay $10 million to New York state'sDepartment of Financial Services and halt consulting services forstate-regulated financial institutions for one year after officialsfound “misconduct, violations of law, and lack of autonomy” inDeloitte's consulting work for London-based Standard Chartered Plc,the state said in a June statement. The lender hired Deloitte in2004 to review its anti-money laundering controls, according to theregulator.

The state regulator didn't find evidence that Deloitte concealedor was aware of any alleged violations of the law by StandardChartered, Deloitte said in an e-mailed statement.

New York will require all consulting firms and the financialinstitutions that hire them to follow new conduct codes, includingdisclosing any past work that could create conflicts of interest,the regulator said.

The European Commission published plans in 2011 for the top fourauditing companies to spin off consulting divisions and for banksand listed companies to rotate the auditors they use. The EuropeanUnion proposals followed the 2008 collapse of Lehman BrothersHoldings Inc., which the commission said raised questions about thequality of audits.

“Mergers like this do raise a serious question: Are the auditorsgoing to serve management, or are they going to serve the bestinterests of the investing public?” Lynn Turner, the former chiefaccountant at the SEC, said in an interview.

If the combined firm agrees not to do consulting for companiesit audits, “then you eliminate the conflict,” Turner said, addingthat he doubts that will occur. “Do you honestly think Boozpartners would turn around and vote for this deal if they gave upall of their clients that PwC audits?”

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