Freddie Mac drops Andersen
Mortgage provider ends 31-year relationship with the independent auditor.
March 6, 2002: 5:36 p.m. ET
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NEW YORK (CNN/Money) - Mortgage provider Freddie Mac dumped accounting firm Arthur Andersen as its auditor Wednesday after 31 years and hired rival PricewaterhouseCoopers.
But Freddie Mac will still use Andersen for consulting work, officials said.
"Arthur Andersen has provided Freddie Mac (FRE: up $0.81 to $65.00, Research, Estimates) with high-quality audit service since 1970," the company said.
Andersen's connection to bankrupt energy trader Enron Corp. has led some of its top clients to reconsider their relationships with the auditor. The Chicago-based accounting firm is currently trying to settle litigation resulting from its role in Enron's collapse.
Several companies have switched to other accounting firms as a result of the scandal. Last week, drugmaker Merck (MRK: up $1.21 to $62.67, Research, Estimates) dropped Andersen and appointed PwC as its outside auditor for 2002. Enron, which is currently in bankruptcy protection, fired Andersen in January after the firm admitted to shredding Enron documents.
Merck represented $4.1 million in audit fees for Andersen while Enron generated $25 million, according to Art Bowman, author of Bowman's Accounting Report.
The nation's third-largest airline, Delta Air Lines (DAL: up $1.26 to $36.91, Research, Estimates), and International Paper have also been considering replacing the accounting firm.
The loss of Freddie Mac, a publicly traded company the government established in 1970 to provide a flow of funds to mortgage lenders, is the latest setback for Andersen.
"Andersen appears to be doing everything it can to turn this around but nothing is stopping the train from roaring down the track," Bowman said.
The departure of such long-standing clients suggests that companies are dropping Andersen as a way to reassure investors. "Creditors could be saying that they need a different name on the audit sheet now," Bowman said.
Last week, the American Institute of Certified Public Accountants and the top accounting firms decided to break from Arthur Andersen, claiming the firm's tarnished reputation was harming the coalition's ability to lobby congressional panels, according to a Wall Street Journal report. 
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