Attorneys for the Baptist Foundation of Arizona's bankruptcy trust received a letter yesterday from Andersen representatives notifying them that the firm's insurer couldn't pay the settlement, the newspaper said.
Andersen must quickly resolve the shareholder lawsuits and persuade the Justice Department to drop the indictment, said Michael Cook, the former CEO of Deloitte & Touche LLP, the No. 2 accounting firm, and a member of Volcker's panel.
"This is not something that can wait five or six weeks until the trial," said Cook. "You have a limited opportunity because the client base will be uncertain and the financial liability will be uncertain. There is a real, competitive marketplace here."
More than 80 public companies have dropped Andersen as auditor this year. Equifax Inc., the largest US consumer-credit data company, and utility owner Xcel Energy Inc. today fired Andersen, increasing to 27 the number of companies in the Standard & Poor's 500 Index to do so in 2002. Atlanta-based Equifax hired Ernst & Young LLP and Minneapolis-based Xcel chose Deloitte & Touche.
"You read about the losses of clients but there are a lot of clients who remain committed to us," Andrews said. "When we've worked through this process you'll see a new Andersen that will set the standards for the auditing profession."
Before the client defections started this year, Andersen audited about 2,300 US public companies.
To serve large, multinational companies, accounting firms need an international network of affiliates, analysts have said.
Andersen's plan to merge its overseas businesses with KPMG LLP is falling apart. Affiliates in Japan, China, Hong Kong, New Zealand and Russia abandoned the plan and joined other rivals. Andersen's Australian unit yesterday agreed to combine with Ernst & Young. Volcker said Andersen may be able to hold its international network together, probably through affiliation agreements that would allow for cooperation on audits.
"There is a possibility of maintaining links between the auditing firm in the US and the auditing firms elsewhere to continue to serve Andersen clients,'' Volcker said. "It's clear that this will not be possible if Arthur Andersen in the US is under indictment."
Joseph Berardino resigned Tuesday as chief executive officer of the organization that coordinates the Andersen partnerships around the world. Andersen's 18 global partners meet next week in London and may appoint Aldo Cardoso, chairman of Andersen Worldwide, as Berardino's successor, the Times of London said.
Andrews refused to comment on what brought Andersen to the brink of collapse. "This is about looking forward, not backward," Andrews said.
Volcker said the firm lost sight of its origins when it began to offer services other than auditing. Last year, consulting provided about 60 percent of the firm's revenue, he said. Volcker also said that Andersen's accounting and consulting units had "feuded for a decade" before Andersen Consulting was separated and last year became a public company.
Andersen "got lost somewhere in the transition of emphasis to non-audit services," Volcker said. "I saw a brochure that described nine separate services being offered to clients, with auditing one of them. That is a failed model. In the future, there won't be any brochures like that."
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