Baruch's Tinker Co-Edits Renegade
Accounting Journal: Recent Article
Suggests Andersen Took the Fall for Enron
Former Partner Details “Lynching” of Accounting Firm
Sometimes an article
in an obscure publication can create a sensation. That would
appear to be the case with Mary Ashby Morrison’s “Rush
to Judgment: The Lynching of Arthur Andersen & Co.”
Morrison, a former staffer in the now dismantled accounting
firm, indicts not only KPMG, the accountants for the special
purpose entitities (SPEs) that were the vehicles of Enron’s
fraudulent accounting schemes, but also the SEC and the Justice
Department, both of which, Morrison charges, were complicit
in the decision to scapegoat and destroy Arthur Andersen.
Morrison presses her case in the journal Critical Perspectives on Accounting (Vol., 15, Issue 3, April 2004) in language as lucid as it is biting, Critical Perspectives is co-edited by Tony Tinker, professor of accountancy at Baruch, and he received the original draft of the article along with a request to pass it along to legendary accounting critic and professor emeritus Abraham Briloff. One read, and Tinker wanted to do more than share it with Briloff. He asked Morrison if he could publish it.
“I think she is saying important things that no one has yet said,” Tinker remarked in a recent interview. “It starts an important debate and will probably generate some necessary media attention.” He describes the magazine as international in its sources and concerns and very much an industry gadfly. Now in its 15th year, Critical Perspectives has a history of challenging the accounting establishment. Briloff is a case in point: Critical Perspectives is the only leading accounting journal, says Tinker, that “still publishes his work.” Briloff, Tinker reports, was banned from at least one leading academic journal after critiquing the then Big 8. He is now partially rehabilitated after his prophetic pre-Enron writings, says Tinker.
In the article, Morrison recounts how Enron committed gross fraud using its off-balance sheet partnerships, Chewco and LJM, fraud made possible with the help of several major financial institutions. Neither the SPEs nor the banks were Andersen audit clients. Morrison carefully documents how Andersen accountants were repeatedly frustrated and deceived in their attempts to gather reliable and objective information about the structure and operations of the SPEs. In the end, she concludes that Andersen was itself defrauded, along with Enron shareholders.
The Justice Department’s decision, in March 2002, to indict Andersen on obstruction of justice charges delivered the coup de grace to the once esteemed firm. The indictment charged Andersen with destroying documents vital to the Enron investigation. But, according to Morrison, at no time, before or after receiving a government subpoena, did Andersen destroy any of its meticulous audit work papers. The so-called documents, she contends, were nothing more than “duplicate memos, old magazines, and requests for charitable contributions,” the sort of routine scrap paper that is everywhere consigned to paper shredders.
The destruction of Andersen, Morrison argues, served multiple purposes. It provided an incensed public with a scapegoat, and it conveniently took the spotlight off the financial institutions without whose assistance and “investments” the Enron fraud would not have been possible. Rival accounting firms also benefited from the decision to “push Andersen off the bridge,” by subsequently acquiring most of Andersen’s clients. Indeed, Morrison is unwilling to give anyone involved in the case a free pass. “Individuals in all three branches of our government acted to subvert her rule of law,” she contends.
A preface to Morrison’s paper by Brendan T. O’Connell suggests that her study of the Enron/Arthur Andersen case “casts doubt on key aspects of the audit function itself,” predicated as it is on honest, objective and reliable responses to auditors’ queries. A special issue of Critical Perspectives in Accounting, entitled Enron.con is forthcoming in July and will examine the Enron case in fuller detail.