Arthur Andersen board unveils reforms, but it may be too late

NEW YORK -- An independent oversight board on Monday ordered Arthur Andersen LLP to split its auditing and consulting services amid reports that the beleaguered company might be in talks to sell its operations to another Big Five accounting firm.

The three-member board, led by former Federal Reserve chairman Paul Volcker, ordered the split to eliminate any potential conflict of interest between the company's accounting and consulting arms.

The board also imposed several internal measures to ensure more discipline among Andersen's auditors.

The changes are also aimed at stemming a potentially crippling series of client defections at the accounting giant, which in January acknowledged massive shredding by its employees of documents related to bankrupt energy giant Enron Corp.

In the past two weeks, a series of blue chip companies have dumped the firm. On Monday FedEx Corp. abandoned Andersen, joining Delta Air Lines, Freddie Mac, Merck & Co. and SunTrust Banks.

Volcker acknowledged Monday's reforms may not come in time to save Andersen if the defections continue.

Volcker said the board -- charged with overhauling Andersen's business practices -- was to finalize its first set of reforms in weeks, but acted quickly after reports that Andersen could face a federal indictment for its Enron audits and that it was in talks to sell all or part of its operations to rival Deloitte & Touche Tohmatsu.

Last week, negotiations began between New York-based Deloitte and Chicago-based Andersen, said a source familiar with the talks, speaking on condition of anonymity. The talks were first reported Monday in The New York Times and The Wall Street Journal.

Deloitte spokesman Matthew Batters wouldn't comment specifically on the talks but said, "we are involved in scenario planning exercises to address the current and future issues facing the profession."

Andersen spokesman Patrick Dorton said the firm "is considering many options to enable us to continue to successfully serve our clients and promote the career opportunities of our people."

Even if Andersen's best option is to merge some of its assets with another accounting firm, it could be hard to insulate a potential merger partner from legal liabilities Andersen faces over Enron, some experts say.

"The issue for an acquirer is 'I want those assets but I don't want the liability,"' said Steven Kaplan, a University of Chicago finance professor specializing in mergers and acquisitions.

Itzhak Sharav, an accounting professor at Columbia University's business school, said Andersen's other main value -- the intellectual capital of its 4,700 partners and 85,000 employees -- is also at risk as more workers contemplate their future elsewhere.

"They are losing talent and they have to do something," Sharav said. "By now, with all the bad publicity and the defections they have suffered, they are really a sinking ship."

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AP Business Writers Al Clendenning and Marcy Gordon contributed to this report.

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On the Net:

http://www.andersen.com

http://www.deloitte.com