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Monday, 17 June, 2002, 06:26 GMT 07:26 UK
Andersen wreckage 'means higher fees'
The world's biggest four accountants are set to get significantly bigger and charge higher fees following the guilty verdict handed to Arthur Andersen.

About 1,500 companies will be looking for new auditors following Andersen's decision to pull out of that business by the end of August.

Industry expert

The Andersen personnel will come running

Itzhak Sharav
But the industry will be much more cautious and rigorous in the aftermath of the trial, and that is likely to mean higher fees, experts say.

The US arm of Andersen - once of the world's most prestigious accountants - was found guilty of deliberately destroying evidence in order to hide its role in the Enron scandal.

Andersen gave its approval to Enron's accountants before the energy giant's shock collapse last December.

Jumping ship

The "Big Four" remaining auditors - Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte Touche - are expected to absorb most of Andersen's clients and personnel in the US.

Andersen's global network of partnerships has already been carved up and absorbed by its rivals.

"They won't have to do much raiding," said Itzhak Sharav, an accounting professor at Columbia University's business school in New York.

"The Andersen personnel will come running, asking to be raided."

But there is still the threat of lawsuits from investors hanging over individual partners involved.

More time, more fees

Andersen's fate has created a new caution in the wider industry.

"If you were a partner and you observed this verdict you would surely increase the steps in every audit you were involved in, spend more time on the documentation," said Randolph Beatty, dean of the Leventhal School of Accounting at the Marshall School of Business in California.


We must continue to focus laser-like on rebuilding the profession's reputation

James Turley
Ernst & Young chairman
"All of that leads to very severe increases in the time and fees for doing auditing."

Despite the threat of higher fees, experts agree the turmoil facing the industry will result in better accounting practices.

"There should be an improvement in the quality of audits which means an improvement in the financial reporting by companies," said Mr Sharav.

"We must continue to focus laser-like on rebuilding the profession's reputation and on restoring investor confidence in our capital markets," said James Turley, chairman of Ernst & Young.

Jury deliberations

The jury delivered a guilty charge against Andersen on Saturday, after 10 days of deliberations and five weeks of hearing evidence.

A few hours after the verdict was given, Andersen announced it would cease auditing public companies - the mainstay of its business - by 31 August.

Although the company must wait until 11 October to be sentenced, most analysts say it is likely to lose its licence to audit listed firms.

And the guilty charge is the final nail in the coffin of the firm's professional reputation that was already in tatters.

Arthur Andersen is planning to appeal against the conviction, but cannot do so until after it is sentenced.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Mark Gregory
"The case itself turned into a real marathon"

The trial

The disintegration

Background

IN-DEPTH
See also:

15 Jun 02 | Business
04 Jun 02 | Business
28 Nov 01 | Business
16 Jun 02 | Business
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