Enron sacks Andersen as auditor

Andersen has been widely criticised for its handling of the Enron account, especially after the revelation that it destroyed documents related to its Enron audits.

Enron said it would begin looking for a new auditor immediately.

"We can't afford to wait any longer in light of recent events, including the reported destruction of documents by Andersen personnel and the disciplinary actions taken against several of Andersen's partners working in its Houston office," Enron chairman and chief executive Kenneth Lay said.

New rules

Meanwhile, within days of official inquiries being launched into Enron's collapse, US regulators have unveiled proposals for new rules on corporate supervision.

The Securities and Exchange Commission (SEC), America's main stock market regulator, announced plans for a private commission to oversee the accountancy industry.

The failure of auditors to warn on the true state of Enron's finances has been the subject of bitter criticism, and may even lead to punishment for Andersen.

The SEC's plans may prove controversial, however, since the US accounting industry already has the Public Oversight Board, a key part of its self-policing regime.

Tightening the rules

SEC chairman Harvey Pitt, who once worked for Andersen, said Enron's collapse highlighted the deficiencies in the current rules governing disclosures contained in corporate financial statements.

"This commission will not tolerate this pattern of growing restatements, audit failures, corporate failures and then massive investor losses.

"Somehow we have got to put a stop to a vicious cycle that has now been in evidence for far too many years," Mr Pitt told a press conference at the SEC headquarters.

Regulators are under enormous political pressure to tighten the rules on auditing firms, which have been accused of being lax on clients in order to keep their business.

Firms such as Andersen have built considerable consulting and other services businesses on the back of their auditing work, something that critics say could create conflicts of interest.

Called to account

Meanwhile, the case against Andersen has continued to gather pace.

The accounting firm has now confirmed that an internal memo dated February last year raised concerns about Enron's viability, long before the first public hints were given.

The memo asked for discussion on whether Enron should be retained as a client, pointing to potential conflict of interest issues surrounding the energy firm's heavy use of external partnerships.

Intense trading between Enron and such off-balance-sheet partnerships was one of the main factors behind the firm's seemingly sudden collapse late last year.

Andersen has insisted that the memo was a routine matter, part of the annual process of client review.