Andersen's reputation suffers from Enron role

Saturday, January 19, 2002

CHICAGO -- Less than a year ago, the boards of large U.S. corporations were singing the praises of Arthur Andersen LLP as they carried out the annual rite of renewing multimillion-dollar auditing commitments.

Andersen, wrote the directors of International Paper Co. in a typical proxy statement, performed well in prior years and carried "a reputation for integrity and competence in the fields of auditing and accounting."

Now, with that reputation in tatters almost overnight over the Enron scandal, much of Andersen's corporate clientele has fallen conspicuously silent and the rubber-stamping has come to a halt.

Dozens of companies are headed into yearly reviews that will put the accounting giant's services on the line and, in many cases, subject to approval by shareholders at annual meetings this spring.

"I don't envy a board chairman who has to stand up at an annual meeting and say 'We have decided to retain Arthur Andersen,"' said Peter Knutson, associate professor emeritus at the University of Pennsylvania's Wharton School of Business. "Because the question is going to come, 'Why do you want to hire a firm with that kind of baggage?"'

$8 billion in revenues

Angry shareholders are just the tip of a troubled business outlook for Andersen as it scrambles to preserve its more than $8 billion in annual revenues.

Whether or not its clients defect to other Big Five accounting firms, experts say the company faces a near-impossible task picking up new clients in the near future and will also have problems recruiting top graduates.

Lynn Turner, former chief accountant of the Securities and Exchange Commission, is among those who think the problems are likely to last for at least a couple of years if they don't first force Andersen to go under. An expected barrage of litigation related to Enron and other corporate cases also is certain to weigh on the company's prospects, he said.

"You will have some clients that will change, plus it's going to be very difficult for them to pick up new business," Turner said. "Shareholder lawsuits and difficulties gaining business are probably going to cause some problems in investing in their own business ... and quite frankly that will show up in the work that they do."

Andersen's chief executive, Joseph Berardino, has been meeting with clients all week to ensure their continued business.

Under scrutiny

Among dozens of Andersen clients contacted by The Associated Press, few were willing to discuss specific auditing plans and none spoke of plans to drop the company. But numerous Fortune 500 companies -- among them International Paper, Merck & Co., Valero Energy Corp., Cinergy Corp. and American Home Products -- noted that retention hinges on the results of an annual review and then approval by the board and, often, shareholders.

"We're watching it very carefully," said spokeswoman Mary Rose Brown of San Antonio, Texas-based Valero, a transporter of refined products with $32 billion in annual revenues. "For the sake of our credibility, we're going to have to watch theirs."

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