NEW YORK (CNN/Money) -
Arthur Andersen auditor Carl Bass questioned Enron Corp.'s accounting practices as far back as December 1999, documents released Tuesday by congressional investigators show.
Bass expressed his discomfort in December 18, 1999, with Enron's aggressive hedging strategy for derivatives. In a message to John Stewart, an Andersen partner in Chicago, Bass said he told colleague David Duncan that he objected to using one derivative to hedge another derivative. Duncan was the lead audit partner on the Enron account.
"Derivatives cannot hedge derivatives for accounting purposes -- now or under FASB 133," Bass said. "Does Dave [Duncan] think his accounting works even under FASB 133? No way."
Both Bass and Duncan reportedly are in talks with federal prosecutors and their testimony could be used in the obstruction case against Andersen.
Andersen in January fired Duncan for instigating the destruction of Enron Corp. documents. Houston-based Enron allegedly used off-the-book transactions to hide $1 billion in debt and to inflate profits. Enron, once the nation's seventh-largest company, filed the largest bankruptcy in U.S. history last December.
Arthur Andersen, Enron's auditor for 16 years, was hit with a federal indictment March 14 for allegedly obstructing justice when it destroyed Enron documents. Andersen is now near collapse and called off merger negotiations Tuesday with KPMG International. The proposed Andersen-KPMG transaction would have combined the two firms's non-U.S. partnerships.
In a February 1, 2000 e-mail to Stewart, Bass laid out issues he had with a "complicated series of Enron derivatives." Three days later, Bass sent another message stating he was "still bothered" with a partnership, SPE, and believed it to be non-substantive.
Because of such complaints, a senior Enron executive asked Duncan to remove Bass from any review responsibility for the Enron account, the Wall Street Journal reported Tuesday. Bass was removed in 2000, the WSJ said.
Andersen could not be reached for comment.