VideoThings are starting to get worrisome for Andersen.
Although the embattled auditor is working hard to distance itself from former client Enron, the number of corporates dumping Andersen as auditor is growing daily. Yesterday's addition to the list: SunTrust Banks Inc., which said its board decided to drop Andersen as its internal auditor after employing the firm for almost 60 years. To add salt to the wound, SunTrust said it would hire PricewaterhouseCoopers, Andersen's arch rival.
In what appeared to be an obvious attempt at spin control, management at the Atlanta-based bank reportedly said the decision to switch auditors had nothing to do with the controversy swirling around Andersen's audits of Enron. "We undergo a review of outside service providers on a routine and regular basis in order to save money and or improve service capabilities," SunTrust spokesman Gary Peacock told Reuters. "We picked the best combination of price and service capabilities. We bid out regularly long-distance services, printing contracts, envelopes. The list goes and on and on."
And of course, it's not like SunTrust had a long relationship with Andersen. The bank had only employed the firm as its auditor for the past sixty years.
SunTrust is just another big-name company to fire Andersen in favor of another Big Five auditor. Several days ago, The Hard Rock Hotel and Casino in Las Vegas dumped Andersen as its accountant as a result of the controversy surrounding its audit of Enron. "The Hard Rock Hotel and Casino is a highly principled and ethical organization," CFO Jim Bowen said in a statement. "Our board of directors and management group were uncomfortable with retaining Arthur Andersen as our company's auditors."
Meanwhile, NewsCorp said Tuesday it would no longer use Andersen for both its auditing and consulting work. "Going forward, the audit committee and [chairman] Rupert [Murdoch] have decided not to engage Arthur Andersen to perform any consulting," NewsCorp CFO David DeVoe told reporters Tuesday. "The board remains supportive of the work Arthur Andersen performed and will, of course, closely monitor the outcome of any various proceedings Arthur Andersen is involved with."
NewsCorp is the second major media company to decide not to use the same firm as its auditor and accountant. Late last month, management at Walt Disney Co. made a similar decision when it said it would no longer use its auditor, PricewaterhouseCoopers, for any new consulting work. Disney management also said it would evaluate whether to retain PwC for consulting work the accounting firm is currently doing ( see article.)
Andersen brass has conceded the firm has lost business because of the Enron scandal, and that its longtime clients were asking tough questions. To help repair its tattered image, the accountancy recently hired former Fed chairman Paul Volcker to head an oversight panel that will review the firm's policies and procedures. Andersen management has also announced that the company is severing ties with three energy companies affiliated with Enron--natural gas pipeline operator Northern Border Partners; regional electric utility Portland General Electric, and EOTT Energy Partners, a crude oil marketing and transportation affiliate.
Levitt: Told You So
On Tuesday, former SEC chairman Arthur Levitt, who unsuccessfully attempted to toughen auditor independence rules during his tenure, urged regulators to seriously take another look at the issue. "I would now urge at a minimum that we go back and reconsider some of the limits," said Levitt, according to published accounts.
Levitt was one of five former SEC chairmen who testified Tuesday at a Senate Banking Committee hearing on accounting and protection of investors. "Regrettably, growing doubt is replacing investor confidence regarding the accuracy of financial information," said Richard Shelby of Alabama. "The trend of restatements and audit failures has put the independence and objectivity of outside auditors in question."
Added Sen. Tim Johnson of South Dakota: "Mr. Levitt was ahead of his time."
Congress, on the other hand, lagged far behind.
The Path to Self-Destruction
While lawmakers, pundits, and journalists debate whether Enron managers will wind up in jail one day, it appears that an executive at another company may be headed for some serious prison time.
On Tuesday, former Critical Path Inc. president David Thatcher pleaded guilty to securities fraud, saying he helped book nonexistent revenue on the company's income statements. Thatcher, who participated in the criminal conspiracy with several other top Critical Path executives, said he inflated revenues to help the company meet financial targets.
In a plea agreement, Thatcher admitted the false reporting took place during the third and fourth quarters of 2000, according to the accounts, citing court records. Thatcher said the fraud involved improperly booking revenues from transactions that were either smaller than represented or did not exist at all. "I, along with others in senior management, participated in an effort to mislead auditors and others about the facts," he reportedly said in court papers.
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