Andersen’s Right Brain Accounting has Firm Going Down (Under)
By Robert Warne - January 29, 2002There are reports that Andersen is losing clients as a result of its association with the failed energy giant, Enron Corp. The firm may be losing some clients, but there still seems to be a market for its services. President George W. Bush joked recently that he had some good news and some bad news. The good news was Saddam Hussein was going to allow the U.S. to resume weapon inspections in Iraq. The bad news was, Hussein wanted Anderson to do the inspections.
Bush must have felt like he was on a roll with the laughs generated from a joke like that. For Andersen partners though, the roll they are on isn’t a joke. It’s a serious roll of liabilities associated with its accounting practices here in the U.S. and New South Wales.
Revelations today in the ongoing investigation into the collapse of HIH Insurance Ltd. in Australia focused on Andersen’s involvement with the giant insurer. Andersen has been at the scene of three massive bankruptcies in recent years. Many are concerned about what the accounting firm actually knew before these companies crumbled.
The Associated Press reported that Wayne Martin, legal counsel assisting the Royal Commission looking into the HIH bankruptcy said, “There are indications from certain documents that HIH’s auditor Andersen signed accounts that ‘significantly overstate, or incorrectly stated the company’s financial position’ as of June 30, 2000.”
In March 2001, HIH crumbled in the face of approximately $2.75 billion in liabilities. It was just nine months earlier that Andersen blessed HIH’s books that reported $500 million in net assets for the 2000 fiscal year.
Both HIH and Enron’s filings for bankruptcy protection caught the public by surprise. Both companies relied on creative accounting to boost their balance sheets. Red flags were raised for both companies months before their collapse, but nothing was done.
Another piece of information that came out in a USA Today report was that three of HIH’s board members were former Andersen partners. Geoffrey Cohen, HIH’s chairman, Dominic Fodera, HIH’s CFO and Justin Gardener had all taken part in the HIH audit committee. It has also been reported that at least two top finance executives at Enron were former Andersen partners.
HIH announced its departure from California in October 2000. Shortly after, Insurance Commissioner Harry Low conserved two of its subsidiaries March 30, 2001, because they failed to comply with California’s minimum capital and surplus requirements.
Payouts for Andersen relating to the Enron bankruptcy are expected to reach record levels as investors who lost nearly $80 billion file suits. This expectation is based on previous smaller cases in which Andersen paid large amounts. The firm paid $110 million to settle an accounting fraud lawsuit related to the bankruptcy of appliance maker Sunbeam Corp. in May 2001. In 1998 suit involving Waste Management, Andersen forked out another $75 million.
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