Allied Irish Banks drops PricewaterhouseCoopers

Daily Record, The (Baltimore), Apr 26, 2002 by Todd Karpovich

Although Allied Irish Banks, the parent of Baltimore-based Allfirst Financial Inc., has dropped PricewaterhouseCoopers LLP, its longtime external auditor, local experts said it shouldn't be too difficult for the bank to find a suitable replacement. But, they added, there will be a lot of due diligence done first. Allied's move came almost three months after the bank revealed a rogue trader at Allfirst hid $691.2 million worth of losses on its foreign currency desk. Phillip Korb, division director of accounting at the University of Baltimore and an assistant professor of accounting, said that most companies would likely turn to another Big 5 accounting firm for auditing.

He also said there are several second- tier accounting firms that could probably handle the work. However, Korb said the Arthur Andersen situation with Enron Corp. is changing the entire complexion of the accounting industry, underscored by Congress' decision this week to tighten oversight on accounting firms by requiring more stringent disclosures. Neither Pricewaterhouse Coopers nor Arthur Andersen has fared well with area corporations. Provident Bankshares Corp. dropped PricewaterhouseCoopers, while both eChapman Inc. and F&M Bancorp dismissed Arthur Andersen. Trevor McEvoy, a spokesman for Allied Irish Banks, said the company is not concerned about finding a viable replacement for PricewaterhouseCoopers because there is enough expertise available in the market. While he would not say if Allied would rely on another of the Big Five for auditing, he said the bank is going to look very carefully at each firm that submits offers to take over the process. "There are a number of them there with comparable experience," McEvoy said. "We are confident in finding a firm with great expertise." PricewaterhouseCoopers spokesman Steven G. Silber said the company had no further comment on Allied Irish's decision. However, he said, PricewaterhouseCoopers will remain aggressively competitive as an auditing firm, and continues to look at new opportunities as well as those that emerge when a rival is dismissed by a company. "If a company decides to drop one of the Big 5 companies as an auditor, they certainly know who the other four are," Silber said. "If the feel a second-tier firm can satisfy their needs, they might approach them as well. If a company puts out an audit for a competitive bid, we can submit papers that define our services and expertise. If it makes sense for us to be business partners, then we will move forward with the relationship." Alfred Michenzi, an associate professor of accounting at Loyola College, said there is the possibility that second-tier accounting firms such as Clifton Gunderson and Grant Thorton LLP might look at taking over larger accounts, but these companies will do a risk analysis before moving forward. Enron, he said, has not been able to find a new auditor after Arthur Andersen, probably because of the uncertainty that is still surrounding the corporation. "A company might look at the situation and find they do not have the expertise to take on that account," Michenzi said. "They also might want the business, but then they have to ask themselves if they also want the risk that comes with that business." While the Big 5 might become the Big 4 if Arthur Andersen does not survive the Enron fallout, the University of Baltimore's Korb said this would provide an opportunity for regional accounting firms to pick up business. He said there have been several mergers over the past year involving larger regional firms looking for bigger accounts. Regionally, RSM McGladrey Inc. in Minneapolis merged with Baltimore-based C. W. Amos Business Services in 2000; Hahn, Naden & Co. LLP in Timonium merged with Towson-based Stegman & Co. last year; and American Express Tax & Business Services has been aggressive in the Baltimore market after acquiring Walpert, Smullian & Blumenthal, of Towson, in 1997. "You are already seeing a lot of these regional accounting firms merging with one another to take on larger companies," Korb said. "This allows many of these companies to compete nationally. However, you are always going to have your smaller accounting firms that do your taxes or take care of small businesses."