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Tuesday, 19 March, 2002, 14:57 GMT
Q&A: Andersen offices defect to KPMG

Six months ago Andersen was an esteemed giant in the accountancy world. Now its non-US offices say they are quitting for a new life within rival KPMG.

BBC News Online examines what is happening to a firm which a year ago said the Andersen name stood for "time-tested values, a unique one-firm global operating approach".

So what, in a nutshell, was announced on Tuesday?

Andersen partnerships in 83 countries will merge with the local branches of rival accounting giant KPMG.

The merger encompasses all parts of Andersen with the exception of the Andersen partnership based in the United States.

Why have they jumped ship?

The move isolates these Andersen offices from the US operations, which have become mired in scandal over the bankruptcy of power giant Enron.

Staff at Andersen US, Enron's auditor, are said to have shredded documents relating to the energy giant's finances, so fouling official investigations into the bankruptcy.

Andersen US was last week banned from government work after being indicted by a Federal grand jury on the charge of obstruction of justice.

Despite claims that staff from other Andersen units are also implicated in the Enron debacle, non-US offices have repeatedly denied involvement.

The KPMG deal offers regional Andersen offices the chance to restart with a clean sheet.

Indeed, the operations may even ditch the 89-year-old Andersen brand and cloak themselves completely in KPMG colours.

When will Andersen signs start disappearing?

Not yet.

Indeed, the tie-up still faces significant hurdles.

First, KPMG has been notably silent over the deal - Tuesday's press conference was made by Andersen officials alone.

Secondly, merger negotiations will have to be carried out on a country-by-country basis, reflecting Andersen's disparate structure.

Not all Andersen offices have yet publicly declared support for linking with KPMG, and regional political concerns are likely to cause at least some local turbulence.

And thirdly, all deals will have to be scrutinised by national financial regulators - in all 83 countries.

Already the UK's Financial Services Authority has raised its eyebrows at the merger of Andersen and KPMG operations in Britain.

What's the problem?

The accounting world has been dominated by the "big five" global firms, a club which includes KPMG and Andersen.

For accountants, a KPMG-Andersen merger is equivalent to, in soccer terms, Manchester United tying up with Chelsea or, in the soap world, Eastenders and Brookside joining forces.

The worry is that the merger will create a firm big enough to completely dominate some local accounting markets, and offer a poor or expensive service without any risk of losing clients.

Outside the US, Andersen earned $5bn last year, and KPMG $7.4bn.

In the UK alone, the merger will, on paper, create a firm with 18,000 employees, although some jobs are likely to go as duplication is cut out.

Who will be the new member of the big five?

There won't be one.

The big five will instead become the "big four".

The mid-tier accountancy firms, such as BDO Stoy Hayward in the UK, are too small to compete on a global basis.

What happens to Andersen's US operations?

That is the multi-million dollar question.

Chiefs at Andersen US face fines of up to $500,000 and five-year probation terms if the document-shredding claims stand up in court.

And the firm has already lost about 50 clients which provided it with annual fees of well over $100m.

Andersen has also been suspended from US government work.

Even if the firm does rise from the wreckage caused by Enron's collapse, it will be some years before it can again boast, as its website does today: "Global experience, local expertise".

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