Verdict Does Little to Advance Reform of the Audit Industry
…much of the blame for Andersen's fall must be given to the managers of the firm in recent years. Had the current generation of managers been willing to resign and accept blame for what clearly was a failure by Andersen to do its job well, they might have been able to persuade the government not to file the charges, and to work to secure a settlement with investors that would let Andersen live.

That did not happen.

As the government pondered Andersen's preindictment arguments, it saw a firm that in recent years had seemed to be more and more like any other business out to make a buck, and less and less like a firm dedicated to high-quality audits. Managers emphasized selling consulting services to clients and rewarded auditors who did the best job of that, even if their auditing skills were not exemplary. Andersen's top management was implicated in fraud at one major client, Waste Management, leading to a suit by the Securities and Exchange Commission alleging fraud. The firm settled without admitting any wrongdoing.

While Andersen was trying to persuade the S.E.C. not to bring charges in the Waste Management case, it assigned one senior partner who was implicated in that case - and who was ultimately barred by the S.E.C. from auditing public companies - to write the document-retention policy that became a central issue of the trial just concluded. That policy called for destruction of many memorandums as a normal course of business, including the sort that had implicated the policy's author.

After it settled the Waste Management case, Andersen did not discipline any auditors. Even those who were barred from working as auditors kept their jobs.

To survive the Enron scandal, Andersen needed to persuade the public that Enron was an aberration and that the firm could be counted on to do better. Bringing in Mr. Volcker seemed to indicate that was possible, but at crucial points the firm's management seemed to be unable to act, and in the end it was unable to cut a deal to give Andersen new life.

Often in the past, the S.E.C. - which has authority to file civil suits against violators of securities laws, but cannot prosecute them in criminal trials - has been frustrated by the reluctance of many United States attorneys to bring criminal charges in accounting cases. Even in the case of Sunbeam, another company that collapsed after it turned out that profits it reported did not exist, there has been no indictment, although Sunbeam's former chief executive, Albert J. Dunlap, has been sued by the S.E.C., along with the company's former chief financial officer and former auditor from Andersen.

The reasons for the reluctance of prosecutors have included a fear that juries can easily be persuaded of reasonable doubt in accounting cases, in which expert witnesses can insist that what might seem obvious to a layman was not so clear. Add to that the difficulty of preparing such cases and the lack of accounting expertise in most United States attorney's offices, and the decision not to prosecute has sometimes seemed prudent.

In the wake of the Enron scandal, however, prosecutors have taken a new look at that area. Criminal investigations have been begun against such companies as Computer Associates International and Adelphia Communications, and in recent days law enforcement sources have said that the United States attorney in Newark was considering bringing charges against auditors from Ernst & Young who certified fraudulent financial statements at CUC International. Three employees of that company, which later merged into the Cendant Corporation, have pleaded guilty in a conspiracy to falsify the books, and fraud charges are pending against the company's two former top executives.
http://www.nytimes.com/2002/06/15/business/15CND-ASSE.html?pagewanted=all&position=top