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Andersen CEO fends Congress queries on Enron ventures

Big Five accounting firm Andersen fought accusations on Tuesday before Congress that it helped design off-the-books partnerships Enron Corp used to hide losses, enrich senior managers and hoodwink investors.

In heated exchanges with a congressional panel, Andersen chief executive Joseph Berardino contradicted the findings of a hard-hitting report issued on Saturday by a special Enron board committee on the company's stunning collapse.

The Powers Report, compiled by a group of Enron directors led by University of Texas Law School Dean William Powers, found Andersen was involved in forming partnerships with names like LJM1, LJM2 and Chewco and in the deals they made.

At a hearing on Monday, Powers told the House Financial Services capital markets subcommittee: "The auditors were paid a great deal of money to help design these vehicles."

On Tuesday, Berardino told the same subcommittee that Andersen knew about deals involving the ill-fated partnerships. "We were aware of the transactions," he said.

But he emphasised, "We did not help to establish. We reviewed the accounting that others developed."

As Congress continued intensive Enron hearings, the chief of America's fifth-largest accounting firm sat through more than four hours of grilling from exasperated lawmakers trying to force more details out of him about Andersen's role.

"Your ship is going to go down and you're going to be lashed to the mast unless you start talking to us," said an angry New York Democratic Rep Gary Ackerman.

Berardino repeatedly parried queries about who knew what and when at Andersen, pleading ignorance of just how Enron interacted with Andersen employees, some of whom destroyed thousands of Enron-related documents and e-mails.

"There are a lot of facts we don't know," he said. "I apologise I can't answer a lot of those questions about what happened."

The partnerships at issue unraveled with amazing speed last fall, pushing Enron into a death spiral leading to its Decemebr 2 filing of the largest bankruptcy in US history, devastating investors and destroying thousands of jobs.

After the hearing Andersen spokesman Patrick Dorton, reinforcing Berardino's position, said: "The Enron board and management conceived, initiated and made the decision to engage in these investment transactions. Lawyers and investment bankers created and structured these deals."

The Powers committee ignored Andersen's efforts to tell its side of the story, Berardino said.

"We begged them to talk to us," he said. "This committee did not talk to us."

The Powers report found the partnerships, which got an official nod from Andersen auditors, were part of "a systematic and pervasive attempt by Enron's management to misrepresent the company's financial condition."

ANDERSEN, ENRON SPLIT UP

Enron fired Chicago-based Andersen as its auditor on January 17, ending a long relationship in which some Andersen accountants ended up working for Houston-based Enron.

Andersen's involvement in the Enron affair has sullied the firm's reputation and those of other accountants, setting off a wave of concern in markets about financial reporting quality.

Responding to market concerns, Berardino called for changes to the accounting industry in response to the Enron affair, which he called "painful, but instructive."

He said US accountants should drop their simplistic pass/fail corporate auditing system and replace it with more flexible quality grades.

"I would suggest that we replace the current 'pass/fail' system with an auditor's report that grades the quality of the company's accounting practices," Berardino said.

Berardino said companies should tell the public more about "the imprecision of certain amounts in financial statements."

Echoing long-standing suggestions from others, he called for more disclosure of information about unusual events, segment and trend data and reports in "plain English."

Touching on a sore point for Andersen, which has said it was left in the dark by Enron on certain questionable transactions, Berardino said: "We should give serious thought to strengthening the penalties for misleading auditors."

He suggested "making it a felony to lie, mislead or withhold information from the auditor."

Berardino also reiterated that Andersen will no longer accept assignments from publicly traded US audit clients to design or implement financial reporting systems, or internal audit outsourcing engagements.

He also said the firm would take internal steps to improve its auditing, and that it has appointed former US Federal Reserve chairman Paul Volcker to chair a committee charged with overhauling the firm's auditing practices.

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