More Disciplinary Action for Andersen

The Texas State Board of Public Accountancy has fined Arthur Andersen LLP $250,000 in two separate disciplinary actions dating back to 1993 and 1989. Also a former Andersen partner has been reprimanded.

In one action, Andersen was fined $125,000 for its audit and stock appraisal for client Randalls Food Markets. The finding of the board was that in 1993 Andersen was dishonest, fraudulent or grossly negligent, in appraising the company's stock in an employee benefit plan at $21 a share when in 1995 it was determined that the actual value of the stock was $9.

Employees of Randalls Food Markets brought a lawsuit against the supermarket, Andersen, and others and won a settlement in excess of $16 million.

In a separate action, Andersen was fined another $125,000 for inappropriate accounting techniques in its 1989 audit of World Cycle Corp. In valuing World Cycle's inventory Andersen checked or observed physical inventories at 22 of World Cycle's locations. Then, instead of examining the inventory at other locations, the CPA firm trusted employees of World Cycle who indicated that similar inventory existed at another 56 locations. The accountancy board described the audit work as being insufficiently documented and said that it included an unacceptably high risk of error.

In connection with the World Cycle fine, retired Andersen partner Wilbur Armatta was reprimanded. As part of the reprimand, Mr. Armatta agreed to remain retired. In accepting the fine and reprimand for the World Cycle audit, neither Andersen nor Mr. Armatta admitted to any wrongdoing.

"In the whole scheme of things, we recognize that these may not seem like large fines," said William Treacy, executive director of the Texas board. "But two $125,000 fines are significant regardless of who you are." The largest fine the board has ever assessed is $500,000.

The Texas State Board of Public Accountancy is the organization that licenses certified public accountants in Texas. The board is currently conducting an investigation into Andersen's involvement in the demise of Enron Corp.

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