The settlement is a landmark in the US regulators crusade for fair and accurate financial reporting.
Andersen settled with the SEC over violations of ‘anti-fraud provisions’ relating to its audit of Waste Management Inc’s financial statements dating from 1993 to 1996.
In addition three partners and a regional director agreed to a bar from practicing as accountants, with the right to request reinstatement after periods ranging from one to five years.
This represented the largest-ever civil penalty pay-out by a Big Five firm and was also the first time a Big Five firm had consented to an injunction of fraud.
The SEC has been fighting a campaign to maintain the integrity of audit so that investors have a basis for making informed decisions.
Richard Walker, the SEC’s director of enforcement, said Andersen ‘betrayed theirultimate allegiance to Waste Management’s shareholders and the investing public’.
‘Accountants,’ he said, ‘played a critical role in providing access to capital markets.
‘I will not shy away from pursuing accountants and accounting firms when they failed to live up to their responsibilities to ensure the integrity of financial reporting process,’ he warned.
In its defence, Andersen said all settlements were made without admitting or denying the SEC’s underlying allegations.
Terry Hatchett, Andersen managing partner for North America, said the SEC had not questioned the underlying quality or effectiveness of its overall audit methodology, nor had the SEC limited its ability to conduct audits for other public companies.
Hatchett, said the firm had made a ‘business decision’ to settle to avoid any litigation and end all disagreements with SEC.
Problems at Waste Management began in 1997 when the share price plunged on suspicion of accounting problems.
In 1998, the company admitted to overstating it pre-tax earnings by $1.43bn from 1992 to 1996, the largest restatement in history of the SEC.
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