PracticeAuditCracks open in Big Five Enron alliance

Cracks open in Big Five Enron alliance

Cracks are beginning to appear in the alliance formed between the Big Five firms in the face of severe criticism over the Enron affair.

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.’

Links

PwC sells further Enron company

Enron collapse is IAS weapon

Related Articles

Is predictive analytics the end of the annual audit?

Audit Is predictive analytics the end of the annual audit?

22h Martin Herron, MHA MacIntyre Hudson
Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

Audit Auditors ‘in the dock’ over Carillion as report calls for Big Four break-up

6d Emma Smith, Managing Editor
PCAOB sanctions former Deloitte Turkey CEOs over altered documents

Audit PCAOB sanctions former Deloitte Turkey CEOs over altered documents

2w Alia Shoaib, Reporter
KPMG South Africa to review past audit work amid fresh scandal

Audit KPMG South Africa to review past audit work amid fresh scandal

1m Alia Shoaib, Reporter
FRC introduces £10m sanctions for Big Four firms

Audit FRC introduces £10m sanctions for Big Four firms

1m Alia Shoaib, Reporter
Ukraine’s PrivatBank files $3bn claim against PwC

Audit Ukraine’s PrivatBank files $3bn claim against PwC

2m Alia Shoaib, Reporter
Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

Audit Grant Thornton to exit FTSE 350 audit market, citing Big Four dominance

2m Alia Shoaib, Reporter
Big Four dominate FTSE 250 audit market in Q1 rankings

Audit Big Four dominate FTSE 250 audit market in Q1 rankings

3m Alia Shoaib, Reporter