MCN Direct Newswire

Vol. 2 No. 5, 3 February 2003

This issue is sponsored by:

OpenAccounts, Lawson Software and AT&T

This issue news

1. Audit firms avoid consultancy ban
2. BearingPoint on the up
3. Alwyn Welch moves to CGEY's Nordic region
4. Government watchdog slams Fujitsu Services contract
5. Parity plans major deal with BT
6. Further information - feedback/forward to a colleague/unsubscribe

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1. AUDIT FIRMS AVOID CONSULTANCY BAN

The UK's audit firms have been given the green light by the Government to offer consultancy. Trade and Industry Secretary Patricia Hewitt has launched a reform package - aimed at strengthening protection against business malpractice in the post-Enron world - which falls short of banning accountancy firms from carrying out non-audit work such as consultancy, although a new regulator will examine whether further restrictions should be imposed.

The news was welcomed by auditors. PricewaterhouseCoopers UK senior partner Kieran Poynter said: "The Government's decision not to prohibit the provision of non-audit services is the right one."

The reforms are based on a report by the Co-ordinating Group on Audit and Accounting Issues (CGAA) and a DTI regulatory review.

The main elements of the CGAA report on consultancy and other non-audit services are that UK requirements should continue to be based on "principles rather than rules", but there need to be clearer safeguards to ensure that joint provision of audit and non-audit services do not undermine auditor independence.

Audit firms will face tougher controls on the supply of consultancy (and other non-audit) services to audit clients. Listed companies will also have to seek approval from the Audit Committee for the purchase of consultancy services, and disclose the value and nature of non-audit services bought from their auditor.

On the specific issue of IT and financial systems design and supply, the CGAA report says: "The standards-setter must review the circumstances in which it is permissible to provide [these] services, with a view to clarifying as appropriate when they may be supplied and when further safeguards may be necessary."

Mike Rake, international chairman of KPMG, said that giving greater powers to the Audit Committee to review non-audit services and providing greater disclosure was a sensible step.

"This, coupled with additional oversight from the new independent regulator, will prove far better in addressing concerns over auditor objectivity than prohibiting any particular categories of services accountancy firms can provide," Rake said.

2. BEARINGPOINT ON THE UP

BearingPoint - formerly KPMG Consulting - has reported substantial gains in its second-quarter profit and turnover as a result of recent acquisitions.

Net profit in the quarter to 31 December soared 148% to $16.4 million and turnover rose 44% to $628.9 million, on last year's comparable period.

BearingPoint chairman and CEO Rand Blazer said: "Our results show steady strength in our business and include the first full quarter's impact from our recent acquisitions and other transactions. Our goal is to continue to gain market share and enhance our profitability."

BearingPoint said that its enlargement through the purchase of KPMG Consulting AG - covering the former KPMG consulting practices in Germany, Austria and Switzerland - plus several Andersen business consulting units worldwide has also significantly diversified its revenue base. In the second quarter of fiscal 2003, North America contributed 66.5% of gross revenues compared to 92.2% a year earlier, with EMEA contributing 21.5%, compared to just 0.4% the year before.

BearingPoint's profit gain was in part because, unlike the previous year, it avoided any charge for job cuts. But the company is anticipating a charge of between $17 million and $23 million in the third quarter as a result of 450-550 job losses in North America and Asia-Pacific (MCN Direct 64).

BearingPoint noted that gross turnover in the second quarter on pre-acquisition business was flat.

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3. ALWYN WELCH MOVES TO CGEY'S NORDIC REGION

Just four months after rejoining Cap Gemini Ernst & Young, Alwyn Welch has been switched from his post as chief operating officer of the company's global telecom, media and networks (TMN) practice to lead operations in the Nordic region.

The move is viewed internally as a promotion, with the Nordic region including a number of CGEY's key telco clients as well as being ahead of other areas in the adoption of e-government services. The region has not been immune to redundancies and it is believed that it now needs someone to get it back on track if it is to fulfil its potential.

"This is a bigger job, a bigger challenge," said Welch. "TMN is roughly the same size, but I was not CEO there. The Nordic region has its own profit and loss account and about 3,500 people across Sweden, Denmark, Norway and Finland. While the market is the biggest challenge and the region is dispersed, the Nordic region is a microcosm of the global economy working in every industry that CGEY covers."

Welch, a former CGEY chief executive of the UK, Ireland and Asia-Pacific, left the company before Cap Gemini merged with Ernst & Young and rejoined from Logica last September (MCN Direct 49).

He will be replaced as chief operating officer of CGEY's TMN industry practice by Chris Carrington, most recently part of a US private investment firm and previously an 11-year EDS veteran who rose to become president of the company's $700 million, 4,000-person E-Solutions business in North America.

Sponsor

AT&T

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4. GOVERNMENT WATCHDOG SLAMS FUJITSU SERVICES CONTRACT

A private finance initiative project between Fujitsu Services (formerly ICL) and the Lord Chancellor's Department has been criticised by the government's watchdog, The National Audit Office (NAO).

The contract for a standard IT system for magistrates' courts escalated in cost yet still failed to deliver a solution.

The so-called Libra project was set up as a PFI contract in 1996 after two earlier projects failed to secure electronic links between magistrates' courts and other courts and enforcement agencies.

Fujitsu Services ended up as the sole formal bidder, quoting a price of $240 million over 11 years. But this rose to $302 million when the contract was signed in December 1998 and again on renegotiation in May 2000 to $524 million. A second renegotiation in October 2001 could not be concluded.

Describing the PFI contract as "possibly the shoddiest ever", chairman of the commons public accounts committee Edward Leigh said the Lord Chancellor's Department had made "some truly basic mistakes".

Sir John Bourn, head of the NAO, explained: "There are a number of lessons that other departments can learn from the Libra project. Departments should take it as a warning sign that their proposed PFI projects may not be workable if few bidders show initial interest and others withdraw as the procurement process continues. In a single tender situation, departments need to take special care to safeguard value for money."

A July 2002 variation on the contract will see Fujitsu Services delivering national IT infrastructure and office automation, with STC providing application software to support court work. A systems integrator will be appointed towards the end of this year to roll out and run the application, bringing the total cost of the project to $523 million over 8.5 years.

* Separately, Fujitsu Services has won a $1.1 billion contract with the Post Office to develop the IT infrastructure it already provides to allow the Post Office to operate an electronic banking service through its branch network.

5. PARITY PLANS MAJOR DEAL WITH BT

IT and business services group Parity is on the verge of signing a three-part agreement with BT that will see both parties "do what they do best" and link them in pursuit of joint market opportunities.

In the first instance, Parity is outsourcing its IT hardware and telecoms infrastructure to BT. Parity will spend $25 million with BT over the next five years and will transfer over 15 IT specialists.

Under a complementary but separate contract, Parity will take over the contracts of a number of technical consultants working through other agencies or directly for BT Ignite, BT's business services and solutions division. This is expected to generate revenues of $11.5 million for Parity in 2003.

The third element of the agreement - resulting from the initial talks on outsourcing - covers the pursuit of joint market opportunities. This is a new partnership for both Parity and BT and may, for example, link Parity's push into e-learning with BT's network infrastructure to offer customers a one-stop e-learning shop.

Parity managing director Rick Bacon said partnership opportunities are expected to deliver multi-million dollar revenues. He described the outsourcing and contractor arrangements as "business-like, a sensible thing to do".

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