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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (1933)	3/20/2002 1:34:37 AM
From: stockman_scott	Read Replies (1) \| Respond to of 3602

Crumbling Andersen Threatens Competition By Greg Cresci Tuesday March 19, 6:31 pm Eastern Time NEW YORK (Reuters) - The crumbling of the Andersen empire threatens to reduce competition among accounting firms, raise costs for clients and hamper efforts at cleaning up the industry, experts warned on Tuesday. Reeling from its role in the Enron (Other OTC:ENRNQ.PK - news) scandal, Chicago-based Andersen is at the edge of an abyss, with clients defecting, lawsuits looming and partners across the globe rushing for the exits. Enron filed for the biggest bankruptcy ever in December after revealing huge losses from off-the-books partnerships. If Andersen disintegrates entirely, the Big Five group of accounting firms become the Big Four, giving the survivors a lot more market power at a time when Andersen clients would be looking for new auditors to take on their work. Perhaps more importantly, radical reforms proposed by an independent oversight board headed by former Federal Reserve Chairman Paul Volcker that were meant to pull Andersen back from the brink would vanish without a trace instead of becoming a blueprint for ethical accounting, experts say. ``There is already now an oligopoly, and (Andersen's absence) would accelerate that trend,'' said Itzhak Sharav, an accounting professor at Columbia University, who predicts that higher fees may result. ``If the firm doesn't survive, then Volcker's efforts are over because he is only working with Arthur Andersen, he has no other mandate,'' Sharav said. ``If Andersen goes under and ceases to exist as we know it, then he and his oversight board are out of the picture.'' The Big Five accounting firms, with combined annual revenue of $65 billion, sign off on the financial results investors depend on when buying and selling shares of publicly traded companies. Together, they represent 87 percent of the annual revenue brought in each year by the 100 largest accounting firms, according to Auditor Trak, a unit of Strafford Publications. So would Andersen's demise exacerbate an already top-heavy industry and lead to antitrust concerns? ``It certainly has that potential,'' said Robert Willens, an analyst at Lehman Brothers. ``It's a little early to say but it certainly is something to be mindful of and to monitor very closely.'' PRECARIOUS POSITION Underscoring its precarious position, Andersen faces an obstruction of justice charge brought by the Department of Justice, billion-dollar lawsuits from angry Enron investors and an exodus of prestigious clients. Meanwhile, its partners overseas have announced plans to merge with rivals and a bankruptcy filing is possible. This sudden decline of the 89-year-old firm, sparked by its role as auditor of Enron's books, clearly jeopardizes Volcker's reform proposals. Those proposals have been praised for addressing perceived conflicts of interest in the accounting profession, and are widely seen as the best way to combat situations in which fat consulting fees keep auditors from strenuously analyzing clients' books. Across the industry, revenue from consulting far outstrips revenue from auditing. Volcker's panel, established last month to overhaul Andersen's procedures, recommended deep changes that center on a forced split between accounting and consulting services. For their part, other Big Five firms have been cool to Volcker's ideas, which also include mandatory rotations of corporate auditors. ``I would like to see the kinds of reforms we suggested for Arthur Andersen become a benchmark for the profession generally,'' Volcker told BBC World Service Radio on Tuesday. ''There has been great resistance on the part of auditing firms to go in that direction.'' Andersen's competitors, which have actively distanced themselves from Andersen's plight, are loathe to implement changes that would deny them lucrative consulting services. They have already begun intensive lobbying to water down any industry-wide reform proposals coming out of Washington. Andersen itself in a letter sent by its lawyers to the Department of Justice last week said its collapse would damage prospects for change. While lambasting the government's plan to slap the firm with a felony charge for allegedly shredding Enron documents, the letter said Andersen's collapse ``would kill any possibility that the sweeping reforms proposed by Chairman Volcker will be implemented -- and with it, any chance that the accounting profession will undergo much-needed changes.''