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Andersen Verdict Unlikely to Spark Industry Overhaul


Although the verdict against Arthur Andersen is a black eye for the auditing industry, it is unlikely to lead to substantive reforms, industry experts said Saturday.

Major accounting firms probably will introduce internal controls and do a better job of self-policing. At the same time, however, they have portrayed the scandal involving energy trader Enron Corp. as an aberration and are vowing to fight congressional efforts to impose significant changes on the industry.

"The other four big [accounting] firms decided to distance themselves as far as they could from Andersen even though they aren't that different and have the same problems," said Lynn Turner, an accounting professor at Colorado State University's Center for Quality Financial Reporting and a former chief accountant of the Securities and Exchange Commission. "As far as the profession making reforms, I don't think the verdict will have any impact."

Andersen was found guilty of obstructing a government probe into financial irregularities at Enron, which filed for Chapter 11 bankruptcy protection Dec. 2.

Andersen was accused of shredding documents related to its audit of Enron.

The case has focused public attention on the failure of auditors to raise red flags. But efforts in Congress to impose stricter rules and oversight are facing stiff opposition from the industry, particularly from the nation's four largest accounting firms and the profession's self-regulatory organization, the American Institute of Certified Public Accountants.

In the wake of the Enron and Andersen disclosures, Sen. Paul S. Sarbanes (D-Md.) introduced legislation to create a Public Company Accounting Oversight Board to keep tabs on auditors of public companies. The bill also would have restricted consulting work by accounting firms and forced lead partners to rotate on audits--two factors that its proponents said would have helped prevent the Enron accounting debacle.

But the industry fought the bill on grounds it would create an undue regulatory burden and "result in a de facto government takeover of the accounting profession," the accountant group said last month.

Against heavy lobbying by the industry, and with only a one-vote majority on the 21-member Senate Banking Committee, Sarbanes pulled his bill last month. A proposal submitted by the Republican members of the panel is considered more likely to win approval.

The alternative bill proposes a professional standards board but with fewer powers. Moreover, accounting firms would not be restricted from consulting work and forced to rotate partners on audits.

As the Andersen case continues--the firm has vowed to appeal--reforming the accounting industry could turn out to be a political issue for the Nov. 5 elections, Turner predicted.

"I do sense that this is going to be an election issue in November," Turner said. "The little guy on the street will be able to vote for reforming the industry, but until then concerns about the industry are going to be overshadowed by the squabbling over legislation."

Despite uncertain prospects for reform, the verdict will alter the way accounting professionals do business, predicted Randolph Beatty, dean of USC's Leventhal School of Accounting.

"It's pretty clear individual partners will be on guard at a significantly higher level," Beatty said. "They are going to be under more scrutiny than ever before, and there will be a lot more risk to auditors. The verdict makes the future in public accounting a bit cloudy."

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