Volcker gives up the fight:
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Volcker: 'New Andersen' Over
Fri May 17, 6:03 PM ET
By Kevin Drawbaugh
WASHINGTON (Reuters) - Former Federal Reserve (news - web sites) Board Chairman Paul Volcker wrote off his effort to rescue embattled accounting firm Andersen on Friday and blasted the other major auditors for resisting reform.
Volcker, who earlier this month described his work at Andersen as being in a "state of suspension," now says the possibility of creating a new Andersen "no longer exists."
With Andersen crippled by its work for now-bankrupt Enron Corp. , Volcker said the now "big four" accounting firms and the industry trade association "have reverted to past instinct, joining hands to resist meaningful reform efforts."
In a letter to Senate Banking Committee chairman Paul Sarbanes, Volcker said he supports the Maryland Democrat's proposals for establishing a new accounting overseer and taking other steps to help prevent future disasters like Enron, once the world's largest energy trader.
Volcker criticized a Republican financial reform bill already passed by the House of Representatives, calling it in parts "tentative and vague, suggesting the ambiguity and hesitancy that has undermined previous and unsuccessful oversight bodies in the accounting area."
While the debacle surrounding Enron and its auditor Andersen has shaken markets, Volcker said it also presents a chance to push through real change. "The opportunity must not be missed," he said.
"The sheer number and magnitude of breakdowns that have increasingly become the daily fare of the business press pose a clear and present danger to the effectiveness and efficiency of capital markets," Volcker said in the letter to Sarbanes.
Andersen, the nation's fifth largest accounting firm, has been selling off portions of its business to competitors. The remaining big four, KPMG LLP [KPMG.UL], Deloitte & Touche [DLTE.UL], PricewaterhouseCoopers and Ernst & Young LLP, had no immediate comment in response to Volcker's criticism.
VOLCKER PESSIMISTIC
In early May, Volcker all but abandoned a bid to rescue Andersen, saying the embattled accounting firm had failed to meet several key conditions for his help.
Andersen is on trial in Houston for a criminal obstruction of justice charge because it destroyed audit records of Houston-based Enron. Andersen has lost hundreds of clients recently and seen many non-U.S. affiliates jump ship.
Volcker was hired by Chicago-based Andersen earlier this year to lead a rebuilding effort. He set up an independent oversight board that proposed Andersen restructure as a much smaller operation specializing in corporate auditing.
"The immediate objective of the group joining me in these views was to oversee reforms of the Arthur Andersen auditing firm," he said in the letter to Sarbanes.
"The hope was to encourage a 'new Andersen' as an exemplar of a firm dedicated to disciplined auditing as its first priority, with strong internal controls and free, to the extent practical, from conflicts that might impair its principal responsibility to the investing public.
"For well-known reasons, that possibility no longer exists. What remains of critical importance is that the reform effort not be thwarted by the failure of a particular firm," he said in support of Sarbanes' legislative agenda.
Sarbanes has scheduled a session of the Senate Banking Committee to draft a bill for Tuesday.
CONGRESS CHOOSES SIDES
Battle lines formed in Congress this week over two rival proposals to prevent future Enrons, with investor activists backing Sarbanes, and Wall Street putting its money on a bill from Ohio Republican Rep. Michael Oxley.
Both lawmakers call for a new boss for accountants, crackdowns on auditors and insider stock sales, and a near doubling of the Securities and Exchange Commission (news - web sites) budget.
But Sarbanes, whose proposal is still in draft form, goes further by seeking new rules for stock analysts and stricter limits on auditor-client relationships.
Oxley's more modest bill -- the Corporate and Auditing Accountability, Responsibility and Transparency Act, or CARTA -- passed the House on April 24 with huge bipartisan support.
Volcker wrote that prior efforts to change accounting "have foundered in the face of a lack of cooperation -- in fact strong opposition -- from the accounting profession." |
