Andersen: Staff Destroyed Enron Documents
Thursday January 10 9:18 PM ET
By Deepa Babington
NEW YORK (Reuters) - Andersen said on Thursday its employees destroyed a number of documents related to its audit of energy trader Enron Corp. (NYSE:ENE - news), in a disclosure that experts said further clouded the outlook for the blue-chip accounting firm.
The No. 5 accounting firm, under fire in recent months for signing off on Enron's books, said a ``significant but undetermined'' number of electronic and paper documents and correspondence related to its handling of Enron's audit had been disposed of or deleted.
The disclosure could further deepen the accounting firm's woes, both on the legal and regulatory fronts, said experts. The company is already being sued over its handling of Enron's audit.
``It sounds pretty damning,'' said Arthur Bowman, editor of the widely read industry newsletter Bowman's Accounting Report. ''The ramifications could be huge. You can just imagine the litigation industry lining up to feast on Andersen's bones.''
Industry experts were stunned by Andersen's admission, as accountants rarely throw away any pieces of paper.
Most accounting firms keep their audit records for at least three to four years, said Bowman, who said it was the first time he had seen such a disclosure in the 22 years he has covered the industry.
The disclosure comes less than a month after Andersen Chief Executive Joseph Berardino told Congress that Enron had failed to provide its auditors crucial information that went to the heart of the energy trader's spectacular collapse. He also admitted that Andersen's audit team had made an error in how it accounted for one of Enron's several off balance sheet entities.
Enron, once a mighty energy trader, swiftly unraveled after it disclosed losses from partnerships kept off its balance sheet. In a few weeks, the company went from Wall Street darling to the largest bankruptcy filing in U.S. history.
Andersen, which was the No. 1 accounting firm before it split off its consulting arm, was immediately attacked by accounting experts and lawmakers for not explaining Enron's deals better. Critics also questioned whether the $27 million Andersen raked in from Enron for non-audit work in 2000 could have impaired its independence.
The revelations come just a week after rival Deloitte & Touche cited some shortcomings in its review of Andersen, including inadequate documentation of certain auditing procedures and insufficient communication with audit committees. Andersen was, however, given an overall clean bill of health in the peer review, which is part of the accounting profession's self-regulatory process.
The latest disclosure is also another blow to the firm's once envied reputation and credibility.
``Probably all the goodwill and reputation that Andersen had carefully built up all these years are being sacrificed at the altar of Enron,'' said Bob Willens, accounting analyst at Lehman Brothers. ``They were the gold standard those days. Now whenever you mention Andersen, you think of Enron.''
TIMING OF WHEN RECORDS WERE DESTROYED KEY
A key question surrounding Andersen's latest disclosure is when the Enron-related documents were destroyed, experts said.
Andersen said the documents were discarded before the Securities and Exchange Commission (news - web sites) had subpoenaed the accounting firm. After the subpoena was issued, the firm said it had issued instructions to preserve documents. It added that it didn't know whether that instruction had been violated.
Regulators, however, would adopt a tough stance against the firm if any documents were destroyed before the subpoena was issued, but after the SEC had begun looking into the case, said a legal source familiar with SEC procedures.
Andersen spokesman David Tabolt declined to comment on the issue.
In Washington, the SEC's enforcement chief, Stephen Cutler, said in a statement read by a spokesman that the destruction of documents was an ``extremely serious matter.''
``Putting aside the incredible amount of goodwill and reputation they have lost, I guess the big thing (Andersen) ought to be worried about is whether there'll be a suspension from the SEC, which I think is conceivable,'' said Lehman's Willens.
Apart from the SEC, Andersen also said it had notified the Justice Department (news - web sites), congressional committees and other agencies investigating Enron's collapse about the destroyed documents.
It said it had asked former U.S. Senator John Danforth to conduct an immediate and comprehensive review of the company's records management policy and to recommend improvements.
The accounting firm said its document policy -- which has now been suspended -- required in certain circumstances the destruction of certain types of documents.
Millions of documents related to Enron still exist, and the firm had successfully retrieved some of the deleted electronic files, it said.
``The shame of it all is that Andersen was one of the most respected firms for their standards and quality,'' said Bowman. ''To me, it shows how far Andersen has fallen down on the ladder of respect.'' |
