Arthur Andersen LLP’s troubles have grown, according to a report in the Wall Street Journal Friday. Already under
Congressional and regulatory scrutiny for its alleged role in cooking the books at Enron (and facing an indictment on charges of
obstruction of justice), the U.S. Securities and Exchange Commission (SEC) is now reviewing the firm’s accounting methods because of
its position as auditor for three telecommunications companies now under SEC review, the Journal reported.
Andersen is the auditor for Global Crossing, Qwest and WorldCom — all three of which the SEC is investigating and a U.S. House
panel is questioning. The SEC review of Andersen is
part of its probe of the accounting practices of the three telecoms, and not a separate inquiry, according to the Journal.
Much of the SEC’s and House panel’s interest in the telecoms revolves around their swaps of network capacity agreements, or Indefeasible
Rights of Use (IRUs). Regulators are looking into whether the telecoms used IRU swaps to inflate revenues in 2000 and 2001.
In testimony before the House Financial Services Subcommittee on Oversight and Investigations, Global Crossing Chief Executive
Officer John J. Legere said his company’s treatment of swaps followed the accounting model Andersen had provided and had been fully
Andersen maintains that it conducted its audits for the three companies properly, according to the Journal.
The SEC’s inquiries into Global Crossing and Qwest both relate to capacity swaps. The probe of WorldCom centers on how the company
booked sales, classified assets of companies it acquired and accounted for debts it couldn’t collect.