KPMG Consulting Inc. declined to comment on Monday about what effects, if any, the conviction of Arthur Andersen LLP this weekend will have on KPMG Consulting’s ongoing efforts to acquire IT services units from the accounting firm’s parent company, Andersen Worldwide SC.
KPMG Consulting announced in May that it had signed a letter of intent to acquire most of Andersen Worldwide’s business consulting units, which provide IT and business management services.
As of last week, McLean, Virginia, KPMG Consulting had already either acquired or entered into definitive agreements with several of the 23 Andersen Worldwide IT business consulting units on the table, including those in China, Hong Kong, Japan, Norway, Finland, Switzerland and Sweden.
But the largest of the 23 units KPMG Consulting is after is the one belonging to Arthur Andersen, which is Andersen Worldwide’s U.S. firm. On Saturday, a jury drove a stake through the heart of Arthur Andersen when it found the accounting firm guilty of obstruction of justice for destroying Enron Corp. documents to disrupt an investigation by the U.S. Securities and Exchange Commission (SEC).
Back in May, during a conference call to discuss KPMG Consulting’s plans to acquire the Andersen Worldwide units, KPMG Consulting’s Chief Executive Officer Rand Blazer said the acquisition of Arthur Andersen’s business consulting unit was dependent on Arthur Andersen resolving “in the most prudent and most effective way” the liability issues it faces. One of those liability issues was the criminal charge of obstruction of justice.
A KPMG Consulting spokesman on Monday declined to comment on Saturday’s verdict and on whether it might make KPMG Consulting unwilling to acquire the Arthur Andersen business consulting unit.
What is clear at this point is that, unless it’s set aside by the judge, the jury verdict has ended Arthur Andersen’s audit practice because a guilty verdict triggers an automatic suspension of the company’s ability to practice before the SEC, Arthur Andersen said in a statement Saturday.
The SEC and Arthur Andersen have set August 31 as the date when the company will stop auditing publicly-traded companies in the U.S. and practicing before the SEC, they said in separate statements on Saturday. The SEC said its Enron investigation continues.
If Arthur Andersen can’t audit publicly traded companies in the U.S., it will most certainly collapse. Arthur Andersen didn’t immediately return calls seeking comment on the verdict.
Arthur Andersen plans to appeal the decision, which it called “wrong” in a statement Saturday.
Arthur Andersen audited Enron, which engaged in what critics call dubious accounting practices to hide billions of dollars in debt, before the company filed for bankruptcy last year. Arthur Andersen’s role in the scandal re-ignited a debate over whether accounting firms should sell nonaudit consulting services — such as IT consulting — to clients they audit. This practice compromises auditor independence and opens the door to conflicts on interest, critics charge. Arthur Andersen provided both audit and nonaudit services to Enron.
