Financial consultant in need of some financial consulting

For the consulting industry, it’s a question for the ages: What’s worse, a financial advisory firm that cooks its books, or one that simply couldn’t spot in its financials the very errors that they purport to prevent?

That’s the quandary surrounding Huron Consulting these days, following a jarring announcement late last Friday. In it, the firm declared it would have to submit major revisions to its financial statements, dating back to 2006. From that time until Q1 of 2009, Huron’s bean counters neglected to account for “how payments received by the sellers of certain acquired businesses were subsequently redistributed among themselves and to other select Huron employees.” It’s a bit convoluted and not too juicy, but still not a great pickle to be in from a reputation standpoint; at least not when your firm’s street cred is built on full-service forensic accounting to keep clients out of this kind of trouble.

Whether the blunder was deliberate or an accident remains anyone’s guess for now, but that’s not stopping it from rattling a lot of cages. And how could it not, with the numbers involved: Huron estimates the corrections will impact its net income to the tune of $57 million, just under half of the $120 million in gains it made in the three years in question. So it should come as no surprise that the announcement included the resignation of Huron’s Chairman and CEO Gary Holdren, in addition to the firm’s CFO and chief accounting officer. None will be taking severance pay … a wise choice …

Holdren will be replaced by Huron co-founder James Roth, while Vice Chairman George Massaro will ascend to the chairmanship. The two will have plenty to answer for—and not just with the SEC, which is already looking into the matter. There is also the issue of Huron’s investors who, between the late Friday announcement and the close of the market on Monday, started making a break for the door. The firm’s share value dropped 70 percent, necessitating another press release that same day with an FAQ to clarify the details of the restatements and the appointments of Roth and Massaro.

For now, the situation appears to be less a scandal than a grand irony. Still, the damage may be beyond just the NASDAQ. Having themselves emerged from the ashes of the disgraced Anderson, Huron was touted as a comprehensive and responsible consultancy with the accounting chops to back it up. But this development has quickly prompted new comparisons to their controversial predecessor, and even some analogies to Pee Wee Hermanin terms of irreparable damage to the brand. If Huron’s looking to soldier on, it may take more than executive musical chairs to shake off the stigma.