It is truly the season for visits by Big Five (Oops, make that Big Four) audit firm CEOs. First it was PWC CEO and Managing Partner Samuel A. DiPiazza Jr, who came calling. Then it was the turn of Ernst & Young CEO Richard S. Bobrow—he was down for an international partner meet in Jaipur recently. Bobrow spoke to BT about the lure of India-he claims it has great growth potential-and the progress of his firm's efforts to integrate Andersen operations into its fold across the world (India included). Unlike some firms that wouldn't touch Andersen alum with a bargepole, E&Y picked some 27,000 of them. Excerpts:

Last year, 2002, was a year of scandals for the global audit community. How has this changed the business? And can we be sure that such things will not happen again?

There is nothing to suggest that. Somewhere, sometime in the future, it will happen again. A company will go under, there will be an investigation, and we will say, "How could this have happened?"

It's a very complex world out there with thousands of public companies with different management styles, business models, and business cycles. India is very fortunate that it has a economy that continues to grow. So is China. The rest of the world has more pronounced ups and downs.

Surely, the audit community must have learnt some lessons?

There have been some regulatory changes. We have also been focusing on our own efforts to make sure we put the right infrastructure and methods in place.

From a legal and regulatory standpoint, this has the effect of increasing the roles of audit committees and boards in the relationships of companies and their auditors. We see that as a big positive. It also has the effect of limiting or prohibiting some services we have historically provided customers. In some cases the boards and audit committees themselves aggressively define what services they want us to perform if we do the company's audit.

"We are strong in technology and financial services. Andersen is strong in hospitality, energy, and financial services. The combination has made us stronger''

How much is the audit community to be blamed for the mess?

A lot of people have to stand up and take responsibility (for what happened): managements, boards, audit committees, accounting firms, investment banks, even law firms. In hindsight, the entire bubble economy is something you wish you could have avoided.

But public perception is that auditors often collude with company managements...

That is the perception, but unfortunately, there is a gap between that and reality. The standards in audit are such that even we find it difficult to catch all frauds-we aren't expected to.

If we had to do that we would have to look at every single transaction and make sure it was reported accurately. At the end of the day, our opinion is simply based on financial statements. We ensure that these statements are fairly presented. We do take a lot of care over this, but it is not a 100 per cent review of every transaction the company has ever done. The public is entitled to its opinion, but it isn't fair.

You have taken in lots of Andersen professionals. How have you integrated them into your operations?

There were a lot of talented people that were, in a sense, victimised. So were their clients. The failure of the company isn't synonymous with the failure of the audit process. We feel we were lucky to have been able to attract 27,000 Andersen people from around the globe to join us-they have applauded our methodology of checks and balances. We have a group that is not part of the engagement team (which does a company's audit). This team has the responsibility of reviewing technical issues-they have the last word.

Have you got rid of the shredders yet?

We didn't have any in the first place.

So, you hired 27,000 more people at a time when most other audit firms were downsizing. Do you plan to hive-off your audit practice into a separate company?

No, we have no intention of separating the audit practice. We think that would not be in the best interest of our clients. They understand that the knowledge we gain from audits helps us add value in various areas. Very few people understand a company the way we do.

We started off as a simple audit practice 100 years ago. Then clients began to request other services from us. They valued our financial analysis, transaction sophistication, the ability to understand risk. They thought these things could add value to their business. So, if we have ended up a diversified, robust global business, it is purely due to the needs of our clients.

Separating audit wouldn't help anyone. It wouldn't help us because we have invested a lot to build this firm. For instance, the connection between audit and taxation and our ability to provide tax advice is clear. It wouldn't help clients because they have to reinvent the wheel by going to a new firm to do something their audit firm once did. We think the entire dialogue about separation is overblown. We cannot imagine any of the firms seriously considering it. In your industry you have people trying to sell advertising space to companies. And you have people writing about companies, sometimes the same companies. The same way, we have separate tax and audit people. My point is, professionals can maintain the line.

Over time, we have been successful in managing a large organisation. We had around 85,000 people before the integration began. Going from 85,000 to 1,10,000 was a challenge but not an overwhelming one. We had to integrate technologies, the financial systems, the people systems-the salaries. Now, 95 per cent is done. Our cultures were alike. We were both firms that were market focused, oriented towards the development of people. Andersen's business philosophy was global. E&Y has always been successful in winning new business by leveraging global teams. We are strong in technology and financial services. Andersen is strong in hospitality, energy, and financial services. The combination has made us stronger.

You speak about professionals being able to maintain the line. But clearly there was some overstepping of this in the Enron case. Andersen allegedly received large consulting fees from Enron.

That is the allegation. You must also be knowing that Enron paid $27 million as audit fees to Andersen. There has not been a fair analysis of the fees and the services the firm was rendering.

Your clients may have encouraged you to diversify, but what about companies today? Are they reluctant to have their audit firms render other services?

Most firms are not excluding us from other work-very few are-but all of them are seriously considering whether they want to use us as much as they did in the past. We have seen a change in companies, yes. In some cases, a large PricewaterhouseCoopers client may want us to do some work for them rather than pwc. This is happening, especially with firms that wish to diversify their professional service providers, but most companies don't do it unless they believe that the total quantum of advisory fees far exceeds the audit fee.

Do you see changes happening in the US GAAP? For instance, will we see some of the European standards of principle-based accounting being adopted?

The US has historically been proud of its systems, so convergence will take time. The leaders of FASB (Financial Accounting Standards Board) and heads of companies are looking for change. That means things will move faster. Today, the US may be far more willing to consider aspects of principle-based accounting.

Do you think the regulatory process has swung to the other extreme now? Is all this regulation stifling business?

We are actually pretty comfortable. We knew there had to be a reaction to the happenings of TE past two years. We support the principles of the Sarbanes-Oxley (act). And we do not believe the regulations have gone too far. There is still one act left to play out-public company accountability oversight boards. We used to conduct peer reviews of firms; now this board will do them, and we would like to wait and see how it is implemented.

Last word. What is it that is prompting all audit firm CEOs to hit the India trail? The PwC chief was here; you are here now; and the KPMG chief comes calling in June.

It's the weather.

No, actually, India is a very important practice for us. It is the one market that has seen uncommonly high growth in all businesses. We have seen spectacular growth here.