CNN.com - Andersen CEO admits to mistakes with Enron
But debacle was 'economic failure,' accounting exec says
WASHINGTON (CNN) -- The CEO of Arthur Andersen, the accounting firm responsible for auditing Enron, conceded Sunday that his company made errors http://4ggba.net/whats-really-happening-with-wayne-lippman/ but said that the energy giant's demise was ultimately the result of a failed business model, not shady accounting.
"At its base, this is an economic failure," said Andersen Chief Executive Officer Joseph Berardino on NBC's "Meet the Press." "The stock was sliding all year in 2001, and it lost about 80 [percent] or 90 percent of its value before any of these accounting issues came to light.
"We don't bless the economic viability of a company. It's the result of the management's decisions that determines whether a company succeeds or it doesn't."
Berardino confirmed that high-level Andersen officials discussed Enron's accounting practices "and the risks inherent in the business" at a meeting in February 2001 -- about eight months before the company's financial woes became public.
He also said Andersen is reviewing all its business practices -- including whether it is appropriate to work as an auditor for companies while at the same time receiving money for consulting work -- as Andersen did with Enron.
"We are going to be brutally honest in our organization," he said.
Details of that February 5, 2001, meeting on Enron were contained in an Andersen company memo that congressional investigators released Thursday.
The memo indicated that Andersen officials expressed concerns about Enron's relationship with a business partner, LJM, which has been accused of being a shell company used to hide Enron's losses. Andersen officials even discussed ending their relationship with Enron, according to the memo.
"This is part of the normal process we go through every year in each country around the world in which we practice," Berardino told NBC. "We review each of our auditing clients, their accounting practices, people we've assigned to the account, and we make an affirmative decision as to whether we retain the client or not."
'Information was not made available to us'
Andersen decided to continue working for Enron. But in the wake of the Houston, Texas, company's bankruptcy -- the largest in American history -- Enron fired Andersen last week.
Berardino said Andersen did not discover anything illegal while auditing Enron's books. But he said information was withheld from the accounting firm and that Andersen made errors.
"We're still investigating all of what happened at Enron," he said. "At least in one transaction, information was not made available to us that would have influenced the accounting treatment at Enron.
"There have been restatements of the financial statements which, when we had more information, we have knowledge in one case we did make an error in judgment and that was corrected. And in another case, some information had been withheld that was extremely important to the decision on the accounting."
Andersen officials also have conceded that documents relating to the Enron audit were destroyed. The lead partner in charge of the Enron account, David B. Duncan, has been fired in the wake of those revelations. Duncan is cooperating with congressional investigators looking into Enron's collapse, his attorneys said.
"We're very concerned about those activities," Berardino said. "Within days of my learning about this, we took extremely firm action to reflect the values of this organization regarding materials."
But Berardino said an October 12 e-mail from Andersen lawyer Nancy Temple -- which reminded employees working on the Enron account of a company document retention policy to "save what is important, destroy everything else" -- was not part of an effort to destroy documents to cover up information.
"We were in the process of putting our files together to make sure that all of the third-quarter events were properly documented in our work papers," he said. "Nancy just told people to use their judgment. She did not instruct them to do anything, to my knowledge."
He said a reminder of the policy was necessary "because accountants are pack rats. ... We save lots of stuff that's not relevant."
Andersen's critics have cited the company's work as an Enron consultant as a conflict of interest while it was auditing Enron's books.
Berardino, however, characterized Andersen's consulting work for Enron as a small part of its overall business.
"This client was less than a fraction of 1 percent of our fees," he said, adding that all work done for Enron was disclosed to the board of directors and shareholders.
SEC chairman's regulation proposal
Last week, Securities and Exchange Commission Chairman Harvey Pitt proposed creating a new organization to tighten and enforce accounting rules to restore investors' faith that information about public companies is accurate.
But Pitt stopped short of proposing that the SEC take on the task of directly regulating accounting firms -- an idea that the industry fiercely opposes.
"The problems with having the SEC do this is that there isn't enough money and there aren't enough people for the government to undertake this responsibility," Pitt said Sunday on ABC's "This Week". "The SEC's best role is an oversight role. That way we can make certain that there are stringent standards, and we can make sure that those standards are enforced."
Pitt said the oversight system should be financed by those who use it -- corporations, financial marketplaces and even the accounting profession, provided there is no "direct relationship" between regulators and accounting firms.
Pitt also defended himself against charges that he has a conflict of interest in the Enron matter. Before being appointed SEC chairman, Pitt worked for a law firm hired by Enron in the fall to take an outside look at the company's financial structure.
"It sounds like a lot of this is guilt by occupation," he told ABC. "There are two separate facets of the Enron problem. One is the investigation, to figure out who did what wrong. I'm not involved in that effort.
"The second is to figure out how we prevent future Enrons. And if I'm not on the job, if I don't fulfill the oath I took when I took this position, then the public is not getting value from me," he said.
"I want to focus my efforts on protecting the public in the event that anything like this could happen again. That's my principal focus."
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