Testifying at the first Congressional hearing regarding the Enron collapse, Andersen CEO Joe Berardino accused Enron of withholding key financial information during the audits performed by the Big Five firm. At issue is the information pertaining to a deal between a large financial institution and an Enron subsidiary.
Had Enron provided information about the partnership, Andersen would have been obligated to advise Enron to report the arrangement on the company's financial statements, according to Mr. Berardino. In early November, just before the debacle was reported in the national press, Andersen advised Enron's audit committee of possible illegal acts within the company, Mr. Berardino explained.
According to reports in The New York Times, Mr. Berardino took some of the blame during the hearing by admitting that Andersen had erred in its treatment of an Enron special-purpose entity (SPE). "We made a professional judgment about the appropriate accounting treatment that turned out to be wrong," he said.
Robert Herdman, chief accountant at the Securities and Exchange Commission, testified at the hearing as well, indicating the SEC's interest in encouraging the Financial Accounting Standards Board (FASB) to provide better guidance on when SPEs should and should not be consolidated on a balance sheet.
At the hearing, Richard Trumka, secretary-treasurer of the AFL-CIO, spoke harshly about Andersen's performance during the audits. "There was more than enough information in these statements alone to sound warning bells among the auditors that signed off on them," he said. "The financial statements themselves contain the proof that the auditors were aware of each of the transactions that led this company to grief."
Houston-based Enron is Andersen's largest client, paying $25 million for audit services and $27 million for other services in 2000. Mr. Berardino explained that 72% of the fees received by Andersen were for audit and tax work after taking into account fees paid to Andersen Consulting which has since been spun off into a separate company.