John R. Sult and Thomas Bauer, former audit partners at Arthur Andersen LLP, testified on Tuesday at the conspiracy and fraud trial of Enron executives Kenneth Lay and Jeffrey Skilling, that they were misled on plans to avoid a write-down of assets and were unaware of the misuse of reserves to pad earnings, the Associated Press reports.

Bauer, the chief auditor of Enron’s wholesale division, said he did not know the company was using reserves to meet earnings targets and would not have approved if he had known, the Chicago Tribune reports. “No one gave me this information,” Bauer said. “That’s earnings management; that’s never OK. . . . Enron had an obligation to me to provide all documents, all agreements, oral or written and they didn’t do that,” said Bauer.

John R. Sult, former auditor of Azurix’ Wessex water venture, testified that Enron sought to avoid a write-down of hundreds of millions of dollars by promoting a $1 billion growth strategy for the unit instead, the New York Times reports. Enron would have been required to record the loss to be in compliance with an accounting rule that would take effect in January 2002, but by saying that the company planned to make a $1 billion investment in Asurix, Enron could avoid the writedown. “By merely standing up and making the assertion that the strategy exists somehow makes the problem go away,” Sult said, according to the Times.

Shown emails where Enron managers discussed the company’s efforts to avoid big write-downs on the Asuriz water unit and the likelihood that Andersen would challenge them, Sult said “I find this document appalling. It’s got a tone of deceit to it.”

Ronald Barone, corporate director of finance at Standard & Poor’s (S&P) the debt rating agency, who also testified on Tuesday, said that early in October 2001, S&P learned from Enron officials that the company would be taking a $1.2 billion accounting adjustment. “That was news to us,” Barone said, the AP reports. “We were very surprised to hear about this.”

One week later, on October 12, Mr. Lay headed off a potential reduction in Enron’s credit rating when, in an unusual step, he called Barone and said that “he was committed to credit quality, and he would take the necessary steps available to him and shore up the balance sheet and right the ship, so to speak – his terms, not mine,” the AP reports.

At a meeting on that same day, Bauer testified, Lay told him that the Wessex water venture was to be “the platform” for a new push into the water distribution business, according to the Wall Street Journal. Bauer said that the meeting was set up to provide information to Andersen on impairment at the British water and waste water unit. Bauer admitted that Lay wasn’t told at the meeting that Asurix was “impaired.”

Several days after the meeting, the Journal says, Mr. Lay told investors in a conference call that Andersen had determined no write-down of the Asurix asset was needed. Bauer said that he heard Lay make this statement and did not correct him.