Andersen, Enron’s auditor, has already publicly admitted it made mistakes at the energy company, and has now been summonsed to testify before a second US Congress committee.
Publicly the Big Five firms in the US are maintaining a united front, but privately some are beginning to have misgivings.
A senior partner in one of the Big Five firms told AccountancyAge.com: ‘This is very damaging to the profession.’
In a startling admission that sent reverberations around the accountancy world, Andersen has candidly admitted it made mistakes in its audit of Enron.
Humbly addressing the US Congress’ financial services committee last week, Andersen’s boss Joe Berardino said: ‘There is some explaining to do.’
‘Andersen will not hide from its responsibilities,’ Berardino told the congressmen, and then preceded to confess Andersen’s sins.
‘I am here today to tell you candidly that this was an error in judgement,’ he said, describing how the auditors had failed to force the consolidation of a so-called special purpose entity, an off-balance sheet vehicle which disguised the level of debt at Enron.
The mega-collapse of Enron, which had $64bn of assets worldwide has left Andersen and other advisers open to legal action, with many asking exactly what the firm did for the $52m it took from the energy trader last year in audit and non-audit work.
Berardino went out of his way to justify the fees, saying it was not a simple company to audit.
‘Given this complexity, it should not surprise anyone that the fees paid to our firm for Enron’s audit were substantial,’ he argued.
But the real shock was Berardino’s admission that the profession will have to change.
Believing his firm, and the accountancy profession as a whole, faced a collapse in public confidence, the Andersen chief said: ‘Our system of regulation and discipline will have to be improved.’
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