- The Washington Times - Saturday, March 16, 2002

CHICAGO (AP) The exodus of blue-chip clients from Arthur Andersen LLP accelerated yesterday with four more Fortune 500 companies bolting amid concern the end may be near for the now-indicted auditing giant.
Sara Lee Corp., Abbott Laboratories Inc., Northeast Utilities and Brunswick Corp. all severed decades-long relationships with Andersen as their auditor, and others also said they were considering firing the Chicago-based firm.
Combined, the four paid Andersen more than $15 million in auditing fees in 2001. But more than the lost revenue, their hasty departures are an ominous sign for a firm whose business now appears to be in free fall.
Accounting industry analysts say the stream of defections is likely to turn into a flood in coming days as a result of Thursday's criminal indictment of Andersen for shredding documents related to its audits of collapsed energy trader Enron Corp.
"Chances are now much greater than before that Arthur Andersen as we know it will not exist," said Itzhak Sharav, an accounting professor at Columbia University. "There is no great reason for clients to stay with them, assuming that sooner or later this indictment will spell the end of the firm."
Andersen spokesmen did not return repeated phone calls seeking comment. The firm had provided auditing services for Sara Lee since 1965, Abbott since 1963, Northeast Utilities since 1977 and Brunswick since 1942.
All of the corporations either had decided to oust Andersen before the indictment or, in Abbott's case, had made contingency plans that were approved yesterday in an emergency board meeting.
Sara Lee Chairman and Chief Executive Officer C. Steven McMillan, whose company's headquarters are located just two blocks from Andersen's in downtown Chicago, said the decision became necessary "once it became clear that Andersen's viability as an audit firm was in great jeopardy." The $5 billion consumer-goods firm, the largest of the latest clients to cut ties, paid Andersen $6.6 million in auditing fees last year. It said it had made no decision on a new auditor.
Abbott, based in North Chicago, made no comment about the Enron scandal or indictment and said it had not selected a new auditor. Chairman and Chief Executive Officer Miles White voiced "high regard" for Andersen's professionalism.
Northeast Utilities, based in Berlin, Conn., picked Deloitte & Touche to replace Andersen. The New England energy supplier said it began looking to replace Andersen months ago. The company called the decision difficult because it had received "exemplary" auditing service from Andersen but was concerned about its future.
Lake Forrest, Ill.-based Brunswick hired Ernst & Young as its auditor.
Andersen, which had about 2,300 public audit clients last year, already had lost more than a half-dozen Fortune 500 clients this month. Petroleum refinery operator Valero Energy Corp. joined that fast-growing list Thursday, disclosing it had hired Ernst & Young.
The moves follow defections earlier this month by Delta Air Lines, FedEx Corp., Freddie Mac, Household International, Merck & Co. and SunTrust Banks.
According to Atlanta-based AuditorTrak, which monitors the industry, Andersen has lost 43 audit clients since the start of the year including 12 it has quit itself and gained two. Most of the recent defections are not included in that total.
Other corporations are almost certain to follow as they file annual proxy statements and hold shareholder meetings. Smithfield Foods said after Thursday's indictment that it was considering replacing Andersen. Waste Management, American Home Products Corp. and UAL Corp., parent of United Airlines, all said their relationships with Andersen were under review.
A grand jury indicted Andersen for shredding documents related to its auditing client Enron, which filed for bankruptcy in December.
"It's difficult to imagine a CEO or chairman standing before shareholders endorsing an indicted CPA firm as auditor," said Arthur Bowman, editor of Atlanta-based Bowman's Accounting Report, an industry publication.
Andersen insisted Thursday that it had no plans for a bankruptcy filing, but Mr. Bowman said industry observers still saw that as an option because it was the likeliest way to seal a deal with another Big Five accounting firm. An acquisition by a major firm, he said, could happen as early as next week.
"Every one of them would like to get Andersen if the price is right, and the price has to include no extension of liability," he said.
Andersen is the fourth-largest auditing firm, with $3.97 billion in U.S. revenue and $9.21 billion worldwide last year, said Mr. Bowman. It ranked behind PricewaterhouseCoopers, Deloitte & Touche and Ernst & Young and ahead of KPMG in U.S. revenue. Worldwide, it ranked ahead of only Ernst & Young among the Big Five.
Bloomberg News reported yesterday that KPMG made a presentation Thursday to Andersen's board, hours before the Justice Department accused the accounting firm of hindering an investigation into Enron's collapse, one person familiar with Andersen said. Still, the talks may not result in an agreement, another person said.


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