After admitting to mistakes in its audit of the bankrupt energy giant – to say nothing of its shocking admission that it shredded client documents – vultures are circling. As one UK senior partner says: ‘People are after blood; they don’t just want capture, they want execution.’ Andersen’s assets are finite, its client list relatively short and its insurance limited. A successful multi-billion dollar claim against it could mean that the firm ceases to practice.
Clients would still need auditing, so either the business could be broken up and divided among the ‘Big Four’ or shunted wholesale into just one.
A merger might be the only way to avoid a meltdown scenario, though regulatory approval cannot be taken for granted. During the last round of mega-mergers, authorities on both sides of the Atlantic let it be known it would tolerate a Big Five, but not a Big Four. A proposed merger between Ernst & Young and KPMG subsequently fell by the wayside.
But this time there may not be an easy choice. Clients are questioning whether their audit needs are best served by a firm whose reputation is in tatters. Many industry watchers describe Andersen as a ‘bloody good firm’ that has lost its way following its divorce from Accenture. This could be seen as takeover talk. If there is any silver lining for Andersen partners, it’s that they are protected by limited liability partnership law.
But that would provide scant reassurance if they find themselves without a firm to work for.