Accounting Board Recommends Revoking Andersen's Texas License

AUSTIN, Texas – The state's accounting board moved Thursday to revoke Arthur Andersen LLP's accounting license in Texas because of its role in Enron Corp.'s collapse, the board's executive director said.

The Texas State Board of Public Accountancy also is asking for at least $1 million in fines and penalties.

The board reached its decision after a six-month investigation and is asking for a hearing on a notice it filed before the State Office of Administrative Hearings. A date has not been set.

"It's regrettable that the board has rushed to judgment," said Andersen spokesman Patrick Dorton, noting the obstruction of justice trial involving Andersen is ongoing. "We feel this action is unwarranted."

The notice for the hearing accuses Andersen of violating the Public Accountancy Act and board rules in auditing Enron's financial statements.

It also said Andersen destroyed documents, "bringing discredit to the profession" regardless of whether the firm is convicted at the trial.

Andersen received more than $1 million a week in fees from Enron for auditing and other services, the notice says.

The move could prompt states around the country to consider similar actions, said Arthur Bowman, editor of Bowman's Accounting Report.

"They can jerk a license, they can suspend a practice, they can mandate education," Bowman said.

The last time a state accounting board recommended banning a firm from doing audits was in 1990, when California targeted Ernst & Young over charges it portrayed the failed Lincoln Savings and Loan as profitable. The case was later settled.

Chicago-based Andersen has acknowledged that its Houston office shredded documents related to Enron audits last fall. The shredding came about the time federal regulators began investigating possible accounting improprieties.

Andersen is on trial in Houston for destroying documents related to Enron. Enron, based in Houston, declared bankruptcy Dec. 2.

Thursday's move is another setback for Andersen, which has lost more than 500 publicly traded clients, or nearly a quarter of the 2,300 companies whose books it audited last year.

Andersen also was the auditor last year for as many as 32,000 private, mostly smaller companies. It is not known how many of those have changed auditors.

State Rep. Steve Wolens asked the Texas board in January to investigate Andersen and the standards of Enron's accountants.