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The Honolulu Advertiser
Posted on: Tuesday, April 9, 2002

Crippled Arthur Andersen to lay off 7,000

Advertiser News Services

NEW YORK — Stung by the loss of corporate clients because of the Enron scandal, accounting giant Arthur Andersen said yesterday it would lay off about 7,000 employees — 27 percent of its U.S. work force — in an effort to cut costs.

Arthur Andersen employees are seen in downtown Chicago headquarters. The accounting firm said it would lay off 27 percent of its U.S. staff to cut costs as it loses clients in the aftermath of the Enron Corp. scandal. Cuts will hit hardest on administrative and audit practices staff.

Associated Press

The layoffs will hit Andersen's audit practice and administrative staff the hardest, with the largest percentage of cuts expected in the firm's headquarters in Chicago. Andersen employs about 26,000 people in the United States.

"Of all the issues we have confronted recently, none compare to actions we are now forced to take with our employees," said Larry Gorrell, Andersen's managing partner for the United States, in a statement.

Andersen, the nation's fifth-largest accounting firm, said the staff reduction would conserve cash as it struggles to become a smaller, audit-focused firm.

Andersen has been crippled by a criminal indictment last month on an obstruction-of-justice charge from the alleged destruction of Enron documents.

The accounting firm served as both consultant and auditor to Enron and has been linked to Enron's strategy of hiding billions of dollars of debt and hundreds of millions of dollars in losses in a series of secretive partnerships.

The firm is fighting the indictment, and the case is set for trial May 6.

Meanwhile, Andersen has lost more than 140 of the large public-company clients that make up the bread and butter of its business.

"Andersen has just been on a slide downhill for some weeks now, and this is just another few inches down toward the bottom," said Arthur Bowman, editor of Bowman's Accounting Report.

In recent years the firm also conducted controversial audits for Waste Management and Sunbeam.

"The product that Arthur Andersen has is the credibility of financial statements," said Joshua Ronen, a professor of accounting at New York University. "It pretty much lost its product."

Andersen said yesterday it was "building the firm of the future with audit and tax expertise." These are some of the reforms proposed by Paul Volcker, the former Fed chief who chairs an independent board now overseeing the firm.

But many in the accounting profession question whether the firm will be around much longer. Many of its foreign affiliates are breaking away from the Andersen Worldwide umbrella organization and are merging with other firms, such as Ernst & Young and PricewaterhouseCoopers.

In the United States, Andersen reportedly has reached an agreement for partners in the northwest to join KPMG and has agreed to sell most of its U.S. tax business to Deloitte & Touche.

"I don't think that Arthur Andersen will survive," said Ronen. "It either will go to bankruptcy or will simply break down into little pieces, as it is trying to do now."