PracticeAccounting FirmsUncertainty looms over Andersen

Uncertainty looms over Andersen

A curious email arrived at Accountancy Age last week.The author claimed that Andersen, currently fighting for its professional life, was looking to merge with another Big Five firm, possibly KPMG.Andersen promptly dismissed this as a 'dead duck'.

But although rumours of mergers, both among the Big Five and in the mid-tier, are ten a penny, this one is worth a closer look.

One senior UK partner of another Big Five firm told Accountancy Age he could see the Enron affair bringing Andersen down. ‘People are after blood; they don’t just want capture, they want execution,’ he said.

Sitting in his Chicago office, Joe Berardino must have his head in his hands. His lawyers must be equally despairing.

Andersen’s assets are limited, its insurance is limited and a multi-billion dollar claim against it could mean, in the simplest terms, that the firm ceased to practice.

But its clients would still need auditing, so either the business could be broken up and divided among the remaining four firms or shunted wholesale into just one.

That, of course would only happen were a law suit to be successful – Andersen could seek to protect its business and its people by signing a merger deal before then.

There are compelling arguments in favour of a merger.

Andersen is known to be weak in the US, especially now it has split from its consulting sibling, Accenture.

It has the least number of large clients in the US – it also only audits seven per cent of the UK’s FTSE 100 – and has now begun to realise just how dependent it was on its consultants for its reputation.

In terms of size, it cannot hope to compete with PricewaterhouseCoopers, and another of the Big Five might welcome the chance to boost its numbers ? KPMG in this respect does indeed look a likely contender.

But would the authorities wear such a merger?

During the last round of mega-mergers, the authorities on both sides of the Atlantic let it be known it would tolerate a Big Five, but not a Big Four.The proposed merger between Ernst & Young and KPMG subsequently fell by the wayside.

This time, however, there might not be such an easy choice.Clients are now questioning whether their audit needs are best served by a firm whose reputation is in tatters.

If they weren’t concerned when the storm first broke, they will be now following the firm?s admission of document destruction last week.

Andersen might not have been using the shredding machines with such Maxwellian zeal, but it still cannot assure investigators when the destruction stopped.

A senior partner in the UK said Andersen was a ‘bloody good firm’ but that it had lost its way following its divorce from Accenture.

Maybe other partners can see how good a firm it is and are pushing for a takeover.

If there is any silver lining for the Andersen partners, it’s that they are personally protected by limited liability partnership law.But that will provide scant reassurance.

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