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News > CEOs
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Berardino refutes Enron claim
graphic February 5, 2002: 4:13 p.m. ET

Andersen CEO says energy trader didn't consult his firm for internal probe.
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  • Special Report: Enron's Collapse
  • Lay resigns from Enron board - Feb. 5, 2002
  • Ex-CFO Fastow to take Fifth - Feb. 4, 2002
  • Say goodbye, Mr. Berardino - Feb. 4, 2002
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  • Andersen
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    NEW YORK (CNN/Money) - Joseph Berardino, CEO of embattled accounting firm Arthur Andersen, denied Tuesday that his firm failed to cooperate with an internal Enron Corp. probe, saying the energy trader simply stopped trying to include the accounting firm in the investigation.

    Speaking before the House Financial Services Committee, which is investigating the Enron bankruptcy and the accounting irregularities surrounding it, Berardino rejected a claim by an Enron-prepared internal investigation, led by University of Texas Law School President Dean Powers, that Andersen refused to cooperate with the investigation.

    "Nothing could be further from the truth," he said in a 17-page statement delivered to the committee before his testimony.

    He said Andersen, the No. 5 U.S. accounting firm, provided its audit working papers and that Enron asked to talk to some Andersen staff. They were in the process of setting up interviews with that staff when Enron fired Andersen in December, and the firm never heard from Enron's investigative committee again, Berardino said. In his written remarks, he said Enron declined Andersen's subsequent requests to communicate.

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      graphic Rep. Jim Greenwood (R-Pa.), shares his view on Enron with CNNfn's Amanda Lang.

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    "The committee did not speak to people at Andersen," Berardino testified.

    Berardino, who testified to the Financial Services Committee in December, could not answer lawmakers' requests for specific information about the process of Andersen's audit of Enron, saying he was not intimately involved with the audit. He also maintained that Enron withheld information from Andersen.

    He admitted that Andersen auditors reviewed several "special purpose entities (SPEs)," companies created by Enron to move assets and liabilities off its balance sheet, over a period of five years, and received about $5.7 million in payments for doing so. Andersen decided whether or not these SPEs complied with accounting principles, Berardino said.

    He also said that it was Andersen's job to review such SPEs over time and make sure that their assets were enough to support their liabilities. When irregularities with these SPEs came to light, the liabilities were returned to Enron's balance sheet, the company had to dramatically revise its financial statements, its stock value plunged and it eventually filed for bankruptcy.

    Berardino said he had no specific information about the SPEs -- including even the number of them that were set up -- or his firm's review of them.

    "We had human beings making judgment calls," he said. "I don't know how good or bad those calls were because I don't have all the facts."

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    He did admit that Enron's finances had to be restated once due to an improper conclusion by Andersen and that another restatement was made because of Enron's withholding information.

    While expressing sympathy for Enron investors and employees -- many of whom lost their jobs and had their retirement money invested entirely in Enron stock, which has lost nearly all its worth -- he also tried to pin the ultimate blame for the "tragedy" on Enron.

    "This company [Enron] made bad business decisions," he said. "They made investments that didn't pay off. At the end of the day, we do not cause companies to fail."

    Committees of both the Senate and House of Representatives, as well as the Justice Department and Securities and Exchange Commission, are investigating Enron and its accounting practices, as well as Andersen's role in the scandal and its destruction of Enron-related documents and e-mails.

    Berardino said he knew nothing about the documents that were destroyed and only found out about the shredding after the fact.

    Andersen has fired the partner who was managing the Enron audit, David Duncan, saying it was his idea to destroy documents. Duncan invoked his Fifth Amendment right not to incriminate himself under oath when called before a Senate subcommittee last month.

    'No more end runs around Enron'

    Kenneth Lay, Enron's former chairman and a friend and political donor to President Bush, on Monday declined to testify before Congress after initially agreeing to do so. And former Enron Chief Financial Officer Andrew Fastow plans to invoke the Fifth Amendment in an appearance Thursday, a congressional source told CNN/Money.

    Several lawmakers on the Financial Services Committee expressed their anger about the refusal of Lay and others to testify.

    "No more end runs around Enron," said Rep. Joseph Crowley, D-N.Y.

    In his testimony Tuesday, Berardino said his firm was still reviewing the 200-page Enron report, which was released Saturday. Andersen blasted the report after its release and said it thought its audit of Enron was "conducted with rigor and in full accord with the standards of [the accounting] profession."

    But Berardino also said Andersen had changed several of its practices to avoid the appearance of conflicts of interest, including no longer taking certain consulting and outsourcing jobs from publicly-traded companies and establishing new internal offices to review its audit practices and ethics.

    "We took this step because, in the current context, it's important for my firm and my profession to build more confidence in the public in terms of conflict of interest and the quality of audits," Berardino said.

    The firm, which was recently fined for irregularities in its work on Waste Management Inc. (WMI: up $0.57 to $25.15, Research, Estimates) and criticized for its work for bankrupt Sunbeam Corp., has hired former Federal Reserve Chairman Paul Volcker to review and change its audit practices.

    Berardino also called for changes in the way audit reports are prepared, saying the current "pass/fail" system lets companies get away with barely adequate accounting. Instead, he suggested companies be graded on a scale by auditors.

    He also suggested that withholding information from auditors be made a felony offense. graphic

      RELATED STORIES

    Special Report: Enron's Collapse

    Lay resigns from Enron board - Feb. 5, 2002

    Ex-CFO Fastow to take Fifth - Feb. 4, 2002

    Say goodbye, Mr. Berardino - Feb. 4, 2002

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    Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

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