By Deepa Babington
NEW YORK, Jan 28 (Reuters) - Andersen, the auditor for collapsed energy trading giant Enron Corp., is now facing questions over its audit of another client now languishing in bankruptcy.
High-speed communications company Global Crossing <GX.N> on Monday said it filed for Chapter 11 bankruptcy protection in a move that experts said further compounded the woes of its embattled auditor Andersen.
A major client filing for bankruptcy is hardly good news even in the best of times for any accounting firm. And neither is it an indication of misdeeds by the auditor.
But given the drama and scandal surrounding the Enron <ENRNQ.PK> saga in which Andersen is deeply embroiled, the accounting firm can expect its audit of Global Crossing to be put under the microscope and garner a lot more attention than may be warranted, say academic experts and industry observers.
"It comes at a bad time for Andersen," said Mark Nelson, an associate professor of accounting at Cornell University."The problem that happens to a firm like this is that if something bad happens, then the next bad thing that happens resurrects the specter of what happened before... So now something that might not be on most on people's radar screens - this particular client and this particular problem - begins to seem like a sinister progression of things."
One issue at which investors and others are likely to cast a critical eye is the amount of fees that Andersen earned through non-audit work versus audit work, experts say. The fees are likely to once again turn up the heat on the issue of auditor independence since at the very least they raise the appearance of conflict-of-interest issues, experts say.

BIG NON-AUDIT FEES
The telecom company paid Andersen about $2.3 million in audit fees in 2000, but shelled out $12 million, or nearly six times as much in fees for non-audit work in the same period, according to Global Crossing's latest proxy filing.
"To have a non-audit fee that's five to six times its audit fees would, I think in the minds of many people, raise the concern that if the auditor is making so much money from non-audit services, would it potentially affect their judgment?" said Joseph Carcello, a professor of accounting at the University of Tennessee."It's bad enough if you lose a client with a fee of $2.2 million but here if you lose this client you lose $14 million. Whether or not in actuality there is an impairment of judgement of Andersen or not, there's just no away you can conclude that."
An Andersen spokesman declined to comment.
Chicago-based Andersen has come under heavy fire over its audit of collapsed energy trader Enron and subsequent revelations that its partners destroyed documents related to the Enron audit. Congressional investigators have been grilling Andersen partners over the document destruction and the talk among industry observers is whether the once premier name in accounting can survive the scandal.
Though the amount of fees that Global Crossing paid its auditors gives the appearance of a conflict of interest, one can hardly pass judgement on the issue given the dollar amount alone, said David Ruder, a former Securities and Exchange Commission chairman and a law professor at Northwestern University. More information is needed about what type of non-audit work Andersen provided, Ruder said.

FIERCE DEBATE
The issue of auditor independence and providing consulting services has been a source of fierce debate within the accounting industry in recent times. The SEC had originally sought to ban firms from providing consulting services to the companies they audit. But the agency, after waging a battle with the top accounting firms, finally backed down and only required that corporations disclose the fees they receive from auditors for consulting and auditing work in their proxy statements.
The issue of auditor independence has assumed significance in the corporate arena once again following Enron's demise and subsequent disclosures that Andersen partners destroyed documents related to the Enron audit.
When Enron first began to unravel last fall, experts were quick to criticize the amount of fees that the energy trader paid Andersen, making it one of the accounting firm's top clients. Enron paid Andersen almost the same amount for its audit and non-audit work in 2000: $25 million in audit fees and $27 million in non-audit fees, which included fees for consulting services.
Not everyone, however, is of the opinion that consulting fees necessarily cloud an auditor's independence.

ROLES MAY NOT CONFLICT
A study by the University of Southern California found that fees received by accounting firms for both auditing and consulting services don't impede their ability to keep those dual roles separate. Instead, after analyzing the proxy statements of 944 companies, the study found that firms are likely to issue going concern opinions -- a statement that they doubt the company is viable -- for clients paying higher audit fees.
Also at issue is whether Andersen should have expressed doubts over Global Crossing's viability when it signed off on the company's books for its fiscal year ending Dec. 31, 2000, said Carcello. Under accounting standards, the clean audit opinion Andersen offered then essentially meant that the auditors believed the company was not likely to file for bankruptcy for at least the next year, he said.
Auditors cannot change that clean audit opinion if new information about the company's liquidity surfaces much later, said Carcello.
Since Global Crossing filed for bankruptcy almost a month after the one-year period that Andersen's clean opinion was valid for, one can't fault Andersen for not expressing a doubt on the telecom company's viability, said Carcello.
"They haven't done anything that's professionally wrong," said Carcello."But certainly attorneys and people who might sue auditors will generally say that the last audit opinion you issued was a clean opinion - it wasn't one year but it was awfully close to one year - shouldn't you have seen this coming?"
((Deepa



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