Arthur Andersen LLP, Enron Corp's auditor until last month, hired former Federal Reserve Chairman Paul Volcker as an unpaid adviser to help make ``fundamental changes'' in the way the company does business.
The fifth-largest US accounting firm alos said it will stop providing internal audit services and information technology consulting to its US audit clients. The decision matched similar moves announced last week by three of its biggest accounting rivals.
Volcker, 74, who served as Fed chairman from 1979 to 1987, will be chairman of a yet-to-be-formed independent oversight board for Andersen and will be assigned a staff and the power to order changes in the firm's audit practices.
"The kimono's not open, it's off," Joseph Berardino, Andersen's chief executive officer, said a press conference in New York. "It's obvious the public has been let down more than once. We will be very tough on ourselves."
Andersen's announcement comes a day before its executives are to testify before congressional committees investigating Enron's collapse, and a day after a report by experts hired by Enron blamed Andersen for helping the company mask losses and hide debt.
Former Enron Chairman and Chief Executive Kenneth Lay canceled his congressional testimony, saying that lawmakers "inflammatory" comments about the report had prejudged the outcome.
Andersen served as Enron's auditor for more than a decade, approving the company's financial statements even while off-balance-sheet partnerships hid billions in debt and pumped up profits.
"I would not be here if I didn't think there was an opportunity to make fundamental changes," Volcker said at a press conference, held at the offices of Andersen's law firm Davis Polk & Wardwell. "There will certainly be a major pullback from services provided to audit clients."
At least 10 congressional committees are investigating Enron's collapse, including probes as to whether Andersen's consulting fees led it to ignore warnings about Enron's books.
Enron paid Andersen US$25 million in audit fees and US$27 million in non-audit fees in 2000, the firm has said.
Enron in December filed for Chapter 11 bankruptcy court protection, leaving thousands unemployed, wiping out US$26 billion in market value, and costing employees about US$850 million in retirement funds.
Congressional, Securities and Exchange Commission and Bush Administration officials have called for changes in auditing practices and disclosures -- changes Berardino said Andersen will help lead.
"I think you're going to see a fundamental restructuring of the accounting industry in the United States," Berardino said. "We expect to be ahead of the curve."
SEC Chairman Harvey Pitt called the Volcker appointment "a major step" in restoring public confidence in the accounting profession, though he said it would not deter investigations into the Enron debacle.
"As an individual firm response, what Andersen has done is welcome, but it will not divert us one nanosecond from pursuing the efforts on which we are embarked," Pitt said.
Representative James Greenwood, a Pennsylvania Republican whose US House subcommittee is investigation Enron, told the Cable News Network program "Late Edition" that "there's something that bothers me about the notion a company has to bring someone else in and tell them what they have been doing wrong."
Berardino said the oversight board, the equivalent for the partnership of an outside board of directors, will operate under a written agreement. "Arthur Andersen agrees to be bound by the determinations of the oversight board," he said, reading from the document.
Volcker said accounting firms' attitudes need to change.
"There are a lot of problems in this industry," he said.
"I don't think you can attack the problems by regulation and legislation alone."
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