RiskCenter.com: Andersen’s Overseas Partnerships Start Jumping Ship
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Good Bye Arthur Andersen, and Good Riddance!
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March 25: Andersen’s Overseas Partnerships Start Jumping Ship
Location: Hong Kong
Author: Singh Balwinder, RiskCenter Asia-Pacific Correspondent
Date: Monday, March 25, 2002
Andersen's overseas affiliates have begun jumping ship as the once-venerable accounting firm struggles to survive its role in Enron’s collapse.
The company's Hong Kong and Chinese affiliates have said they would merge with PricewaterhouseCoopers. Andersen's Russian partners have also announced a deal with Ernst & Young.
The defections came as Andersen Worldwide, the umbrella body for Andersen's global entities, continued talks with yet another Big Five accounting rival — KPMG — about combining international operations. Andersen, which has been seeking to sell the overseas affiliates after failing to unload its troubled US operations, voiced regret at the moves.
"Their decision will have no impact on the continuing effort to substantially complete transactions between Andersen Worldwide non-US member firms and KPMG," the company said in London. A KPMG spokesman said his firm was "very positive" about the way negotiations with Andersen are going but declined to say when a deal might be announced.
"The process continues," said Gavin Houlgate in London. "These things take time. Andersen affiliates have been discussing combinations with competitors since the American arm of the Andersen Worldwide group was indicted last week for alleged obstruction of justice for shredding documents related to longtime client Enron.
Under Andersen's structure, the affiliates outside the United States are not involved in the Enron scandal, although the damage to the brand name has been widely felt. Arthur Andersen LLP, as the US arm of Andersen is known, pleaded innocent Wednesday and a trial is scheduled for May 6.
But the increasing loss of clients, and now the splintering of its overseas operations, has many wondering how much of Andersen will be left by the time a trial verdict is reached.
Accounting industry expert Robert Bricker said the international defections won't help Andersen, but their losses aren't devastating because they have no direct impact on US audit revenues.
"So far the rate of client loss is pretty much a trickle," said Bricker, a professor at the Weatherhead School of Management at CaseWestern ReserveUniversity. "If they can make it through proxy season, which lasts about another six weeks, and then make it through the trial, then maybe they have a shot" to survive.
Like many observers, he still considers that a long shot. But if it does survive, he said, the reforms enacted by overseer Paul Volcker — particularly separating auditing from consulting — have the potential to make it a "model auditor" for clients looking to avoid conflict-of-interest problems.
Andersen has lost at least 58 public companies as clients since Jan. 1 and gained only two, according to Auditor-Trak, a service of Atlanta-based Strafford Publications Inc. Joining the exodus Thursday was San Diego-based Iomega Corp., which plans to switch to Ernst & Young. Andersen had 2,300 publicly-traded clients last year.
Andersen has held talks with rivals about selling part of its US operations, but negotiations have been hindered by concerns about Andersen's legal liabilities.
Chicago-based BDO Seidman, the sixth-largest US accounting firm, continues to talk with Andersen. BDO Seidman counsel Scott Univer said: "The status is unchanged. Hopefully we'll have more for you early next week."
Earlier this week, Andersen's Asia-Pacific affiliates had unanimously supported a global combination with KPMG, excluding Arthur Andersen LLP, saying they would pursue it even if similar talks with KPMG in Europe fell through.
But the Andersen accountants in Hong Kong and China decided it would be better to go off on their own with PricewaterhouseCoopers, which is slightly larger in Hong Kong, said Yvonne Chan, marketing manager of Andersen in that city. |
