[A-List] Failure brings call for tougher standards (Enron) - IHT (fwd)

[Andre Gunder Frank <franka@xxxxxxx>]

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---------- Forwarded message ----------
Date: Thu, 17 Jan 2002 16:46:33 PST
From: shniad@xxxxxx
To: shniad@xxxxxx
Subject: Failure brings call for tougher standards (Enron) - IHT

The International Herald Tribune | www.iht.com Thursday, January 17, 2002

Accounting for Enron: Global ripple effects

Failure brings call for tougher standards

     By Eric Pfanner

London - The collapse of Enron, the giant energy trading company, has
challenged the notion that U.S. companies' accounting is the most reliable
and transparent in the world, some experts say, potentially taking a bit of
the shine off the U.S. financial markets' appeal to international investors.


While analysts question whether any rules could have prevented the failure
of Enron, they say the spectacular downfall of what was once the world's
seventh-most valuable company could also heighten the push for international
accounting and auditing standards to replace the patchwork of
country-by-country guide lines that exist today.

Because of the collapse of Enron - and the seeming inability of its auditor,
Arthur Andersen, to head off trouble - many international investors are
taking a more critical look at other U.S. shareholdings, analysts say.

One of the fundamental strengths of the U.S. stock market, even in the wake
of the Sept. 11 terrorist attacks, has been the idea that American companies
offer the most reliable earnings streams. But a series of accounting
scandals, culminating with Enron, and the increased use of questionable ways
companies report their financial results, appear to have shaken that notion
somewhat.

"There is no sign yet that people have lost confidence in corporate
America," said David Bowers, chief investment strategist at Merrill Lynch.
"But this will be something to watch. If you can't figure out what a company
is earning, how can you value it?"

Some analysts say international accounting and auditing standards, being put
forth by several industry groups, could make that task easier, at least for
cross-border investors. The new standards could also force accounting firms
to more rigorously separate their auditing operations from the lucrative
consulting work that they often do for the same clients.

European regulators have been in the vanguard in adopting rules proposed by
the London-based International Accounting Standards Board, aimed at creating
uniform standards around the world. By 2005, any company whose stock is
traded on a European exchange will have to adhere to this code.

American regulators have been seen as more reluctant to adopt these rules,
in part because of lobbying from U.S. companies that object to how stock
options would have to be accounted for under those guidelines. One expert,
who insisted he not be named, said the attention generated by the Enron case
was likely to lead to some sort of compromise under which U.S. and
international regulations would move more closely together, leading to their
adoption in the United States, too.

"There has been a perception for years that U.S. standards were the best in
the world," said John Collier, secretary-general of the Institute of
Chartered Accountants of England and Wales. "Now that notion has been at
least challenged."

American accounting standards have long been seen as the strictest. In part
because U.S. companies face a greater threat of shareholder lawsuits, U.S.
rules are more detailed than those in Europe, which are based more on broad
principles than on specific guidelines.

That kind of flexibility has benefits, Mr. Collier said. He said that an
Enron-style disaster would have been less likely to occur in Britain, where
accounting standards more closely mirror the international guidelines,
because the company would have been unable to keep the special partnerships,
which are the focus of the company's demise, off its balance sheet.

Another expert on international accounting rules disagreed, saying that the
problem with Enron was not the rules but whether they were followed properly
by the company and its auditor, Andersen.

Some experts predict that new international restrictions are likely to deal
with what they see as inherent conflicts between auditing and consulting
work. Critics contend that these arrangements - highlighted by the Enron
case - lead auditors to give less careful scrutiny to company's books for
fear of losing the consulting contracts.

The European Commission, for example, is currently drafting new guidelines
on the auditing industry, and the Enron collapse could prompt regulators to
call for greater separation of consulting and auditing work, said Michael
Bromwich, a professor at the London School of Economics.

"There's a very strong view in Continental Europe that consulting and
auditing should be separated," he said. "This will give impetus to that."

Bush Advisers Reviewed Enron

President George W. Bush's economic team, led by Lawrence Lindsey, a former
Enron adviser, conducted an internal review of whether the company's
collapse would hurt the overall economy and concluded there was little risk,
Reuters reported from Washington.

Mr. Lindsey and other aides were "doing their jobs" by reviewing the
collapse of Enron, Mr. Bush's biggest political patron, to determine whether
it could "have a broader impact on the economy," Ari Fleischer, the White
House spokesman, said Wednesday.

But Mr. Fleischer could not say when the review took place, whether Mr.
Lindsey was aware of Enron's contacts with top cabinet officials and whether
Mr. Bush knew about Mr. Lindsey's work.