Andersen 'infected by greed'

The man hired to oversee an overhaul of Andersen has admitted that the firm had been "infected by greed."

Former Federal Reserve chief Paul Volcker told the Senate Banking committee that regulators had not kept auditors in check after they became greedy during the financial boom.

"You have a great brew of greed, and hubris, and excesses, and financial wishful thinking, and that adds up to a weakening of the auditing process ... They [Andersen] have been infected. We've got to reverse that process," said former Federal Reserve chief Paul Volcker.

Mr Volcker has been hired by Andersen to review policies and procedures within the accounting firm after extensive criticism about its handling of the Enron's books.

His remarks come just days after Andersen's chief executive Joseph Berardino defended his firm's role before the House Financial Services Committee.

In denial

Mr Berardino vehemently denied that Andersen helped set up a series of complex external financial partnerships used by Enron to squirrel away millions of dollars of undisclosed debt.

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

Joseph Berardino: denies helping to set up partnerships

Mr Berardino added that auditors should grade companies' financial statements according to how watertight their accounting practices were, rather than issuing a simple "pass" or "fail."

But asked whether he acknowledged that statements prepared by Andersen did not accurately reflect Enron's financial position, Mr Berardino said he could not answer "with authority".

Some US observers say Andersen, which as Enron's auditor gave its approval to overstated accounts, deserves to be reprimanded as much as the failed energy giant.

And there has been speculation that the scandal - and especially demands for reparation - could bring about the collapse of Andersen, which employs 85,000 people in 84 countries.

PR job

Enron used a complex warren of accounting partnerships to deceive investors about the full extent of its debt.

The company went bankrupt shortly after admitting that it had inflated its profits over a four-year period, leaving thousands of investors out of pocket and depriving many former employees - who had invested in Enron stock - of their retirement savings.

While Enron executives have been keeping silent, Mr Berardino has launched a campaign to polish his firm's tarnished image.

At a previous hearing in December Mr Berardino had said: "If my firm has made errors in judgment, we will acknowledge them. We will make the changes needed to restore confidence."

Blame game

Enron and Andersen are trying to shift blame onto each other over the misleading accounts.

Enron claims that Andersen billed the company an extra $5.7m for helping to set up the debt-concealing partnerships that caused the firm's downfall.

But Andersen says that Enron withheld information, and that it had voiced opposition to an Enron statement over its profits.

The investigations are made much more difficult by the shredding of key financial documents by both Enron and Andersen employees.

David Duncan - the document-shredder and senior audit partner of Enron - refused to testify during an earlier hearing.