Word: arthur
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...that only works if the outside auditor isn't in-house, and Arthur Andersen was half in bed with Enron from the start. In a proportion common to the Big Five accounting firms, half the $52 million a year Arthur Andersen collected from Enron was for its accounting services, and half was for its consulting business. And much like Wall Street analysts have become loss-leaders for the investment banking operation down the hall, accountants - outside auditors - have become a way to get the firm's consultants, who make the big profits, in the door. Relationships get formed. Hands wash...
...years ago, Andersen CEO Joseph Berardino, arguing that the Big Five could police themselves, led the squawking that ultimately got former SEC chairman Arthur Levitt to back down from proposals to forbid accounting forms from doing consulting work. When the current scandal first started to bloom, Berardino insisted to Congress that 70-year-old accounting rules don't give auditors the tools to flag the kind of risky behaviors that got Enron in trouble - and that it's the laws governing client disclosure that are toothless, allowing an Enron to hide its shadiest deals from the poor auditors trying...
...these days, Arthur Andersen doesn't look much like an accounting firm that didn't know enough. "Enron whistle-blower" Sherron Wadkins didn't just tell Lay in August about her fears that their company would "implode in a wave of accounting scandals" - she told a top man at Andersen, who then told three Andersen partners, including the recently disavowed David Duncan, who was overseeing the Enron audit...
...karma, and full disclosure does eventually come to those who wait. Enron's debt-concealing, off-the-balance-sheet partnerships (which Enron's pet law firm says were "creative and aggressive" but not illegal) and warped revenue yardsticks eventually brought it down, and now we all know about them. Arthur Andersen's reputation as an honest accountant is now permanently tarred, and it will suffer at Wall Street's hands for devaluing its auditor's seal of approval. (As a consultant, though, you've got to love the way they go that extra mile...
...Because while Sherron Wadkins certainly seems to have been a conscientious employee with a sharp eye for trouble, whistle-blowing isn't whistle-blowing if only Ken Lay and some Arthur Andersen partners - who probably didn't need the advice and certainly didn't follow it - heard the noise. Blowing the whistle on Enron's creative accounting, however, wasn't Wadkins' job. It was the job of the certified public accountants - the outside auditors - at Arthur Andersen...