Canadian firms keep Andersen at work
In contrast to 'knee-jerk' U.S. defections, clients here are staying loyal to auditor
By ELIZABETH CHURCH
Saturday, March 30, 2002 - Print Edition, Page B4
globeandmail.ca
Embattled accounting firm Arthur Andersen LLP had a rare
piece of good news this week when one of its largest Canadian
clients, Petro-Canada, said it would continue to use its auditing services after weeks of stating it was
"reviewing" that relationship.
The good news carries a $3-million price tag. That's roughly the amount the accounting firm billed
Petrocan last year for consulting services -- work the oil company said it will no longer offer to the audit
firm.
That work, including a contract for internal audit services, has been put out for bids, Petrocan spokesman
Chris Dawson said.
Andersen will keep the less lucrative audit and audit-related work, which last year brought in just over
$2-million to the firm.
Observers say the loss in fees is a small price to pay for keeping a key client and potentially avoiding the
kind of widescale defections that Andersen is experiencing among its U.S. client base.
The vote of confidence also comes at a crucial time for Andersen Worldwide SC's Canadian unit as
Andersen works on an agreement to merge its businesses outside the United States with KPMG
International.
At least for now, Andersen has managed to bring its full slate of major clients -- seven among Canada's
largest 100 firms -- to those merger talks.
"No one has hit the panic button," says Royston Greenwood, a professor at the University of Alberta's
Centre for Professional Services Firm Management. "The Canadian business community has been a little
bit more subtle in its response. Americans are known for knee-jerk reactions."
Earlier this month, National Bank of Canada dumped Andersen as its auditor, but said the move was part
of a long-planned change to use two permanent auditors rather than a rotation of three.
Prof. Greenwood said part of the reason Canadian firms are sticking by Andersen when U.S. firms are not
is that they have not felt the same pressure from investors to take their business elsewhere.
Once one major U.S. company fired Andersen, Prof. Greenwood said, others felt inclined to follow suit. To
date, 90 publicly traded U.S. companies have thrown in the towel with Andersen, although this week
hotel operator Marriott International Inc. said it will stay with the troubled accounting firm.
No similar wave of defections has developed in Canada, Prof. Greenwood said, because companies and
their directors have not felt the same need to distance themselves from the accounting firm.
"Clients traditionally don't change auditors or consultants easily," he said. Without some external factor
forcing them to drop Andersen, he said companies will tend to hang in, especially if they are being
reassured by the accounting firm that they will continue to serve them following a merger with KPMG.
Dan Simunic, chairman of the accounting division at the University of British Columbia's Faculty of
Commerce, agrees.
He said what has surprised him is not that Canadian clients have stuck with Andersen, but how many
have left the firm in the United States.
"This is not the first time that an accounting firm has been in trouble," he said. But in the past, he said,
"clients seem to ride through it."
Andersen's partners in Canada have been working to keep clients onside since the Enron story broke and
their U.S. counterparts became involved in mounting legal and financial troubles because of their
auditing work for the energy giant.
"Quite frankly, what we are focused on right now is keeping all of our clients and all of our people," the
head of Andersen in Canada, Russel Robertson, said earlier this month. "I am spending the majority of
my time reassuring people and clients that we are in business."
This week, talks between the Canadian partners at KPMG and Andersen became the focus of Mr.
Robertson's attention, the firm said.
Roy Fraser, a spokesman for Andersen in Canada, said the firm's clients "continue to be concerned and
they continue to ask hard questions." But he said the continuing merger talks "bring a lot of calm to that
situation."
He said a conclusion to that deal would "solve a lot of issues for them."
Prof. Simunic said the prospect of that merger is likely another key reason Andersen's Canadian clients
are staying around.
"People feel the Canadian firm will survive. What its name will be, who knows?"
That's not the case in the United States, he said, where the situation is more dire.
Faced with an indictment on criminal charges of obstruction of justice for destroying documents related
to Enron audits, there is a chance the firm may sell its various parts through a Chapter 11 bankruptcy
filing.
"The prospect of failure is driving this," Prof. Simunic said. "Otherwise, I don't see why clients would run."
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