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Saturday, 2 March, 2002, 07:54 GMT
Andersen suffers double blow
Andersen's reputation has been damaged
Arthur Andersen, the US accountancy firm at the centre of the Enron bankruptcy scandal, has suffered a double blow.

The first came when the multinational pharmaceutical company, Merck, ended its 31-year relationship with Andersen. The accountancy firm had come under close scrutiny from both customers and critics for its part in last year's collapse of the US energy giant.


This settlement is an important step in building confidence in our firm

Arthur Andersen
The second came when the accountancy firm agreed to pay millions of dollars in compensation in a case unrelated to the Enron affair.

In a statement, Merck did not comment directly on Andersen, but said increased attention was being paid to the role of outside auditors.

Andersen conducted auditing and consultancy work for Enron and its reputation has been damaged by the company's downfall.

Merck has picked PricewaterhouseCoopers, the world's biggest accountancy firm, to take over from Andersen.

Merck said: "This appointment concludes a rigorous selection process that was part of Merck's annual formal review of auditing services."

Bankruptcy scandal

Andersen's second setback came when it agreed to pay millions of dollars in compensation in a bankruptcy case.


These investors, many of whom are elderly, trusted the misleading financial statements audited by Andersen

Attorney General Janet Napolitano
An investment fund, known as the Baptist Foundation of Arizona, collapsed three years ago after running up huge debts which Andersen, its auditors, did not disclose.

As a result, senior managers of the foundation were able to mislead the board of directors and defraud the foundation's investors, the state lawsuit alleged.

More than 13,000 investors lost nearly $570m when the non-profit foundation was wound up after having set up more than 120 shell companies.

"These investors, many of whom are elderly, trusted the misleading financial statements audited by Andersen," Attorney General Janet Napolitano said.

Andersen said the firm had made a business decision in agreeing to settle the case, without admitting or denying blame.

"This settlement is an important step in building confidence in our firm," the company said in a statement.

Andersen has been given until 15 April to pay out $217m in compensation.

See also:

05 Feb 02 | Business
Audit giants called to account
29 Jan 02 | Business
Andersen on the defensive
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