That's because partners of certified public accounting firms can't hold a direct or indirect interest in companies their firms audit. Securities and Exchange Commission regulations and the American Institute of Certified Public Accounts' code of ethics both say so.
If, for instance, a Coopers & Lybrand partner owns 100 shares of International Business Machines Corp., he may have to sell them in the coming months - because Price Waterhouse is IBM's auditor.
"It could be a major inconvenience," says a financial adviser who has Coopers & Lybrand partners as clients. Imagine the headache even a tax expert would get from having to account for capital gains from various types of investment held for varying amounts of time.
It's becoming an even greater pain as the Big Six shrinks to the Big Five and the same number of audits are conducted by fewer firms. The Coopers/Price deal is scheduled to close July 1. But while the accounting profession is evolving some traditions will not disappear. The main issue: independence. CPAs historically have shied away from any hint of conflict. It's that ideal that gives CPAs their sterling reputation.
Still, independence is an important attribute for the profession in general and Price Waterhouse in particular, says Price Waterhouse spokesman Marc Eiger.
"We take it very seriously," he says.
It's clear that partners and some employees of both firms will have to sell some shares, Mr. Eiger adds.
What isn't clear, however, is where the line should be drawn.
Herbert Finkston, director of the AICPA's professional ethics division, wonders, for instance, whether partners would have to divest themselves of mutual funds that invest in companies they audit. Coopers is the accountant for FMR Corp., parent of the largest fund firm,
Fidelity Investments.
How's a poor CPA to know?
"Do I know what the mutual fund invests in?" he asks. "I have no idea. Would I have to call them up every day or have them e-mail when they buy or sell shares? What I own is a share in the fund. Is that an indirect investment in a client?"
He says his division is confident that the combined list of audit clients will be widely disseminated in both firms, but it won't necessarily answer all questions.
"Is there going to be some concern?" Mr. Finkston asks. "Sure."
David Boxer, senior technical partner and director of quality control at the New York CPA firm M.R. Weiser & Co. LLP, agrees that Big Six mergers will put a crimp in partners' investment portfolios. After all, he says, as it is, Big Six firms audit 93% of all public companies. Consolidation further shrinks the pool of investments for CPA partners.
And it doesn't help that independence can be a relative term.
"It is a rather ethereal concept," Mr. Finkston says.
And the concept extends not only to partners, but also to any staff members who have worked on the audit. Managers of the office where the audit is conducted also may not invest in the stock, Mr. Boxer says. (Spouses of the partners and staff also are forbidden to invest in companies the firm audits.)
Because the independence issue is such a hot button, the size of the partner's investment in the audit client is beside the point.
"If Deloitte & Touche audits General Motors, if a partner in that firm has one share of stock in General Motors, the firm would be held not to be independent," Mr. Boxer says. "That would be a serious breach of professional standards."
Independence issues tend to multiply as firms merge, according to W. Scott Bayless, assistant chief accountant at the SEC.
Not even one share
And, paralleling the AICPA regulations, SEC Rule 2-01(b) states that auditors "cannot own even one share of stock."
Don't expect the rules to ease any time soon, Mr. Bayless warns. Former SEC chief accountants Walter Schuetze and Michael Sutton kept the auditor independence issue front and center. And, Mr. Bayless maintains, the SEC will continue to scrutinize auditors' involvement in cases where companies misstated their financial records.
At the AICPA, talk of changing the rules is always just below the surface, Mr. Finkston says. But any revision would require committee approvals and the stamp of the AICPA governing council. And they could still be superseded by the SEC.
