Accounting Firms Pledge

Accounting Firms Pledge to Improve Disclosure Guidance

By Leslie Scism. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 5, 2001. pg. A.10

Abstract (Summary)
Enron's stock and bond prices plummeted in recent weeks based on media revelations about related-party transactions that the company had referenced in disclosures criticized by some accounting specialists as indecipherable. Compounding problems at Enron are its admitted financial misstatements and billions of dollars in debt hidden for some time in partnerships that weren't consolidated into the financial statements.

NEW YORK -- Trying to shore up their reputation, the Big Five accounting firms pledged yesterday to develop recommendations by year end to improve corporate financial disclosures in some of the areas that blindsided investors in Enron Corp.

The united front by the nation's biggest accounting firms comes as shareholder litigation mounts against Big Five member Andersen LLP. The lawsuits concern financial filings going back to 1997 that Enron last month disavowed. Regulators are conducting a formal investigation of the energy-trading company, the scope of which includes Andersen's audit work for the Houston company. Andersen has said it is cooperating with investigators and studying what happened "to learn important lessons and do better."

The accounting debacle at Enron, which filed for Chapter 11 bankruptcy-court protection Sunday, is the latest in a string of high-profile blowups for the accounting profession during the past several years.

In their news release yesterday, Andersen, KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst & Young specifically promised to develop recommendations to the Securities and Exchange Commission for improved disclosure guidance on related-party transactions, off-balance-sheet "special purpose entities" and issues related to risks of energy contracts.

Enron's stock and bond prices plummeted in recent weeks based on media revelations about related-party transactions that the company had referenced in disclosures criticized by some accounting specialists as indecipherable. Compounding problems at Enron are its admitted financial misstatements and billions of dollars in debt hidden for some time in partnerships that weren't consolidated into the financial statements.

The five accounting firms also said they would work on new ways to improve audit effectiveness, as part of their effort to maintain investor confidence in the accounting profession.