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Mon, Mar 18, 2002 - Page 21 News List

Volcker faces accounting sector

COOKED BOOKS The former Federal Reserve chairman says that whatever happens at Andersen, he will also to look for ways to reform the industry in the US as a whole


Former Federal Reserve chairman Paul Volcker, hired to lead an oversight board to overhaul business practices at Arthur Andersen LLP, said his group will continue to press for accounting industry reform whether Andersen survives or not.

Volcker, speaking on Bloomberg Radio this afternoon, said that the panel has decided to "keep together so that we can keep our views on the reform of the profession alive."

Andersen, Enron Corp's auditor for more than a decade, is struggling to survive after being indicted by the Justice Department on charges of destroying documents and obstructing the government's investigation into the energy trader's collapse.

Volcker said he hopes Andersen survives so that it can serve as an example to the accounting industry that a firm devoted exclusively to auditing can prosper. The former Fed chairman has suggested that the other four major accounting firms would prefer to see Andersen fail rather than adopt the changes his group has recommended.

"These firms have become financial conglomerates," Volcker said. ``Auditing is in danger of becoming the tail on the dog rather than the dog. I don't think that's right in terms of the vital public purpose that an auditing firm has. They are the last line of defense to make sure financial reporting is accurate.'' Andersen is in talks to sell all or part of the firm to rival KPMG LLP, the third biggest accounting firm, as clients continued to flee, people familiar with the situation said. Abbott Laboratories and Sara Lee Corp. both dropped the Chicago-based firm as auditor, bringing its client losses for the year to more than 40.

Volcker's board -- which includes Charles Bowsher, current head of the accounting industry's Public Oversight Board and Roy Vagelos, former Chairman of Merck & Co -- has demanded Andersen split its accounting from its consulting business and initiate more than a dozen reforms to make senior managers more accountable.

The board has seven-member advisory panel which includes John Bogle, founder of Vanguard Group, Ned Regan, former comptroller for New York State, and Michael Sutton, a former chief accountant at the Securities and Exchange Commission.

The increase in revenue from consulting work has put pressure on accounting firms' audit partners to "go around the edges of the envelope and make things look a little better than they really are," Volcker said.

Volcker's recommendations, which Andersen has pledged to implement, would end all revenue and profit-sharing and cross-subsidies between auditing and consulting partners.

Volcker said yesterday morning he hadn't talked to Andersen senior management since the indictment was announced Thursday.

The charges make the outlook for the firm "much, much more difficult," Volcker said. "The future of Andersen is in very great jeopardy."

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