VideoThe prospects for a settlement between Andersen and the Justice Department have suddenly turned bleak.
After nearly a week of media rumors that the two parties were about to agree to a deal, the indicted auditor and the government said Thursday they were unable to work out an agreement.
As a result, Andersen's trial for alleged obstruction of justice begins May 6—a speedy start at the auditor's request. "We are no longer in talks with [the Justice Department] and nothing is planned for the immediate future," Andersen lawyer Rusty Hardin told wire services.
An Andersen spokesman left open the possibility that a deal could be struck before the trial starts, however: "We certainly are willing to continue having discussions on this matter," Patrick Dorton told reporters.
Indeed, a DOJ official did not say that Andersen had specifically turned down a deal. "Andersen has told the department they were not in a position to make a decision on a deal," said the spokesperson.
Next Member of the Big Five: Grant Thornton?
As CFO.com reported last month ("Who Goes up if Andersen Goes Down?"), the recent decline of Arthur Andersen has presented a yawning opportunity for a second-tier accounting firm to jump into the ranks of the Big Five.
It appears Grant Thornton LLP is seizing that opportunity. The Chicago-based firm is reportedly offering to hire hundreds of Andersen's partners and staff who audit midsize businesses. If a deal is reached, Grant Thornton would essentially wind up with Andersen's audit and tax practice for middle-market companies. That practice serves companies with sales of up to $1 billion
According to reports, fewer than a quarter of Andersen's 1,600 U.S. partners would move if an agreement were struck. "This is an opportunity for us," said Grant Thornton CEO Ed Nussbaum in a wire service account, "and it's a window of opportunity for the Andersen partners."
More like a mixed bag. Some of Andersen's partners would get to keep their jobs—a very good thing given the current economic climate. But Andersen's middle-market partners earn $500,000 to $600,000 a year. According to Bloomberg's, their counterparts at Grant Thornton make about half that. Ouch.
KPMG's Latest Wins
On Thursday, the Big Five accounting firm snared two more large former Andersen clients—Boise Cascade Corp. and recruitment specialist Heidrick & Struggles International Inc.
Andersen has been Boise's auditor since 1956.
Management at the forest-products company said it removed its resolution seeking shareholder approval of Andersen from the annual shareholder meeting agenda earlier this week, citing growing uncertainty about the future of the firm.
Several other companies announced yesterday that they too were dumping Andersen. The dumpers include VA Software Corp., which hired PricewaterhouseCoopers; Southern Energy Homes Inc. and Remington Oil and Gas Co. (both of which jumped to Ernst & Young); and Apogee Enterprises Inc., which switched to Deloitte & Touche.
(To see how the Big Five firms stack up in revenue and lines of practice, (click here.)
New KPMG Chief
Meanwhile, KPMG said Thursday it promoted Eugene D. O'Kelly to chairman and CEO, succeeding Stephen Butler, who earlier in the year announced plans to retire.
O'Kelly, 50, is scheduled to take over during the summer. In addition, Jeffrey M. Stein was named deputy chairman.
"We have initiated a smooth, seamless transition, as part of an orderly process set in place by governance changes six years ago, to ensure that our partners can remain focused on client service," said Butler.
O'Kelly is vice chairman of KPMG's financial-services practice, the company's largest line of business, and a member of the management committee. He also represents the U.S. practice on KPMG's international financial-services steering committee, and serves as senior partner for KPMG's relationships with Citigroup and Mellon Financial Corp. He has been with KPMG since 1972 and became a partner in 1982.
Stein, 48, is national managing partner, vice chairman of tax for KPMG LLP, and a member of KPMG's management committee. He also serves on the firm's global tax and legal advisory board. Stein joined KPMG in 1982 and became partner in 1987.
More Fun with FAS 142
Another company is paying a big, belated price for the feeding frenzy of the late 1990s.
SBC Communications, the second-largest local phone company in the United States, reported it took a first-quarter noncash charge of $1.8 billion for impairment. The write-off stems from the company's 2000 acquisition of the online software company Sterling Commerce.
Dana Corp., meanwhile, said it reduced goodwill by $289 million—resulting in an aftertax charge of $220 million during the first quarter—due to FAS 142.
Machine toolmaker Ingersoll-Rand, however, announced in its first-quarter report that "the full implementation of FAS 142 is still under analysis."
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