NEWS ANALYSIS: Andersen's Future in Doubt as Enron Scandal Unravels ; Auditing Standards and Practices across the Board Have Been Called into Question Following the World's Biggest Bankruptcy
Cope, Nigel, The Independent (London, England)
THERE IS growing speculation that the accountancy firm Andersen may be forced into a merger with one of its rivals as a result of its disastrous involvement with Enron, the energy trading group that collapsed last month.
Accountancy experts say Andersen may have to consider a merger with one of the other Big Five firms - Ernst & Young, KPMG Peat Marwick, Deloitte & Touche and PricewaterhouseCoopers. However, others say these firms might baulk at the prospect of taking on the potential liabilities of Andersen, which could face possibly ruinous legal action following the collapse of Enron, where it was the group's auditor.
As well as an expected avalanche of writs, Andersen is already facing a congressional investigation in the US and a federal criminal enquiry. One senior accountant warned yesterday: "They [the rival firms] could be taking on something with a huge black hole inside it."
The final straw came last week when Andersen admitted that it had shredded vital Enron documents in the run-up to the group's $70bn (pounds 49bn) collapse. This came after criticism about the cosy relationship between the two firms. For example, several senior financial staff at Enron joined the company from Anderson including Jeffrey McMahon, the finance director, and Richard Causey, the chief accounting officer, who were both recruited from Andersen's Houston office. Joseph Berardino, Andersen's chief executive, has admitted to the US congress that it made an "error of judgement" in allowing Enron to use a partnership run by its former chief financial officer to move debt off its balance sheet.
Andersen, the new name for the former Arthur Andersen which separated from the Accenture management consultancy operation in 2000, would not comment further yesterday on whether it would seek a rescue deal. And Andersen's Big Five rivals closed ranks, apparently unwilling to throw mud at a rival.
Andersen's close relationship with Enron, which was chaired by Kenneth Lay, poses wider questions than whether it will be able to survive. Some accountants say the shredding of audit documents is not uncommon in accountancy firms. This is mainly done for security reasons and keeping confidential material out of the wrong hands.
In the UK, the regulations overseen by the Institute of Chartered Accountants for England and Wales demand that any material related to a statutory audit must be kept for six years. …