Accounting firm Andersen, under fire for its handling of the books of fallen energy giant Enron Corp., on said Sunday it hired former Fed Chairman Paul Volcker and that it would stop offering some consulting services in its first major step at restoring its battered credibility.

The No. 5 accounting firm has faced a barrage of criticism in recent weeks as a steady stream of revelations about its role in the Enron saga have surfaced.

The cigar-smoking, 6-foot-8-inch tall Volcker, has agreed to chair an independent oversight board that will review policies and procedures within the firm, Andersen said.

``This is a step in the right direction. Andersen's future is in question -- They have to take bold steps, said Mark Cheffers, who heads accounting consultancy www.accountingmalpractice.com. ``Of course, it remains to be seen whether it's window dressing, whether there will be any real changes or whether or not it matters.''

The oversight board, funded by Andersen, will also have the authority to mandate changes in the accounting firm's practices, which Volcker said were likely to be ``substantial.''

``This is not window-washing or eye-washing,'' Andersen Chief Executive Joseph Berardino told reporters at a news conference. ``This is not where a report comes in a month later that says nothing. This is about getting answers to what the American public needs from an auditing firm.''

Andersen also confirmed that it would join several other Big Five accounting firms in agreeing to no longer offer internal auditing services and certain technology consulting services such as designing computerized financial systems to its publicly traded audit clients in the United States.

The move marks a sharp reversal for the accounting firms who fought a bitter battle against regulators looking to restrict auditors from providing consulting services to their clients just a few years ago.

Andersen continues to provide management consulting and other consulting services such as advice on tax issues to its audit clients. The firm retained a business consulting practice after a bitter split from sister firm Andersen Consulting, now known as Accenture, in 2000.

A solemn Berardino, sporting a pin of the American flag on his lapel, said the firm would continue to grow its business consulting practice -- which brought in $1.7 billion in revenues for Andersen's most recent fiscal year.

Critics say earning hefty fees from doing consulting work for clients, then turning around and auditing their books, risks clouding the auditor's independence. Lawmakers, and investors particularly, questioned whether the $27 million for non-audit work and $25 million in audit fees from Enron that Andersen raked in 2000 had impaired its impartiality. Enron had also outsourced its internal auditing to Andersen in the past.

Internal auditing is typically done by a group of accountants who work within a company and report to the board's audit committee, said Cheffers.

``It's a recognition that providing these services leads to an appearance of conflict of interest,'' said Cheffers. ``But it still leaves open a substantial area -- there are certain kinds of management consulting and tax consulting -- that make you an advocate of your client.''


Volcker's hiring parallels another high-profile effort to revive a scandal-scarred company. In 1991, Salomon Brothers, nearly crippled by revelations it submitted rigged bids at a U.S. Treasury auction, turned to legendary investor Warren Buffett to rebuild the investment bank. Buffett was an investor in Salomon when he took over as interim chairman in 1991.

When Enron began to unravel last fall, accounting experts were quick to criticize Andersen for signing off on the energy trader's books, which were later restated. The criticism intensified after Andersen in January said some of its partners had destroyed documents related to its audit of Enron.

Andersen's latest announcement comes a day after an Enron internal inquiry report also lambasted the accounting


Investor confidence in the accounting profession -- entrusted with the lofty job of blessing a company's financial statements -- has been battered in the wake of recent events.

``I don't think you can attack this problem through legislation and regulation alone,'' Volcker said at the press conference held at the offices of law firm Davis Polk & Wardwell, adding that the dynamics within the auditing firm must be scrutinized as well.

``Some months ago, in addressing the International Conference of Financial Executives, I stated that my concern was that the profession of auditing and accounting is in crisis,'' Volcker said. ``That crisis is now evident to everyone.''

Volcker, who was chairman of the Federal Reserve from 1979 to 1987, is currently chairman of the trustees of the International Accounting Standards Committee Foundation. The foundation is the parent organization of the International Accounting Standards Board, an independent London-based body that sets accounting standards.

As pressure mounted on the accounting industry, top accounting firms PricewaterhouseCoopers, KPMG and Ernst & Young said last week they would support proposals preventing them from providing information technology and internal auditing services to their audit clients.

The moves came after recent calls for the New York Stock Exchange to tighten its accounting rules for listed companies and prevent auditors from working as consultants for the same firm.