CHICAGO -- Arthur Andersen LLP escalated efforts Wednesday to contain the damage from its role in the Enron debacle, taking out a full-page ad in national newspapers to try to limit blame to its Houston office and promising an overhaul of its practices.
But as Andersen's lead auditor in the case met with congressional investigators in Washington, questions remained about whether involvement in the document-shredding scandal may have extended to executives at Chicago headquarters.
"It's one of two things," said Ramy Elitzur, professor of accounting and head of the MBA program at the University of Toronto. "They had a central review and they're trying to shift the blame, or they didn't have a central review and their procedure is lacking. Either way, it doesn't look good for them."
The series of startling recent disclosures involving Andersen's role already has badly wounded the accounting giant's stellar reputation, raising widespread speculation it may not survive the controversy as an independent company.
Experts say the key to the company's immediate fate may be what investigators discover in probing what top managers knew and when they knew it.
In a full-page advertisement published Wednesday in leading newspapers, Andersen CEO Joseph Berardino touted actions taken by the company the previous day -- Andersen's lead partner on the Enron account, David Duncan, was targeted for dismissal, three other partners who worked on the assignment were put on leave, new leadership was put in charge of the Houston office and four partners were stripped of their management responsibilities.
"In the near future, Andersen will announce comprehensive changes in our practices and policies that we believe will reaffirm confidence in the independence and quality of our work," the ad said.
Duncan's lawyers said he was following Andersen's document handling policies and did nothing wrong; they said he is cooperating with all investigations.
The efforts at damage control appeared designed to isolate the problems to the Houston office, which handled the audit of the collapsed energy-trading company and has about 1,400 of Andersen's 85,000 employees.
But Berardino has left open the possibility that headquarters executives might be implicated, saying Tuesday that "we're not quite sure yet" whether wrongdoing reached higher into the accounting firm than the auditors being disciplined.
Accounting scandals
Accounting industry experts differ on whether Andersen's Houston office would have told headquarters of key decisions in the Enron case as long ago as last August, when an Enron finance executive wrote CEO Kenneth Lay of a concern the company could "implode in a wave of accounting scandals." That was two months before Enron confessed its profits had been overstated and federal investigators became involved.
Particularly at issue are special partnerships formed by Enron that enabled it to add several hundred million dollars from off-the-books transactions to publicly stated earnings.
Industry-watcher Arthur Bowman said such partnerships are common among Fortune 500 companies and Andersen's main office might not have been aware of related audit actions taken by the Houston office until well after the fact.
"They probably wouldn't consult beforehand, considering they have so many clients," said Bowman, editor of Bowman's Accounting Report, an Atlanta-based publication that monitors the industry. "Chicago knows only what it sees in the review process, and I don't know how thorough that is."
Andersen spokesman Patrick Dorton declined to comment on the specifics of the review process, saying: "We're working to find out all the facts. We're prepared to take all the appropriate steps necessary to maintain the confidence and integrity of our firm."
The newspaper ad, which ran Wednesday in The New York Times, The Wall Street Journal and The Washington Post, is scheduled to run as soon as today in other newspapers, he said.
Andersen counts among its clients some of the nation's biggest companies, including Merck & Co., International Paper and Sara Lee Corp., according to an industry publication.
With both the Enron fallout and the glare of an investigation intensifying, experts see a possible merger with another Big Five accounting firm as unlikely to be imminent despite talks among the companies in recent months.
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