The Texas State Board of Accountancy has moved to revoke the license of beleaguered accounting giant Arthur Andersen over its auditing work for Houston-based
. It is the first time the state has tried to block a major accounting firm from practicing in that state, according to William Treacy, the head of the Texas State Board of Accountancy.
The move also is believed to be the first time in more than a decade that a state accounting board recommended banning an accounting firm from doing audits. In 1990, California recommended the sanction for Ernst & Young for portraying the failed Lincoln Savings and Loan as profitable. That case settled in 1991 when the accounting firm paid a $1.5 million fine, according to the
The Connecticut State attorney general also is considering taking action against Andersen. Attorney General Richard Blumenthal earlier this year asked the Connecticut Board of Accountancy to conduct an investigation into evidence of potential legal and ethical breaches by Andersen that, "may merit suspension or revocation of its permit to practice in Connecticut as well as other sanctions."
Texas officials charge that Andersen violated the Public Accountancy Act and state accounting board rules in its work for Enron. In its recently filed complaint, the accountancy board charged that Andersen "lacked independence, integrity and objectivity" in its audits of the energy trading company and had "a culture that placed profits over professionalism."
An Andersen spokesman did not return calls for comment.
The case could go before an administrative law judge in 90 days, at which point Andersen could plead its case to retain its license. But it will more likely take months before the hearing is held due to the size of the case, Treacy said. The Texas board also is seeking more than $1 million in penalties and fines from Anderson.
"It surprised me that
Texas officials filed this soon," said Barton Baldwin, the chairman of the National Association of State Boards of Accountancy.
Baldwin said that typically if a state revokes the license of a firm, licensed individuals at the firm can still practice accounting in the state on their own or for another firm unless they, too, have their license revoked.
Separately, Andersen is on trial in Houston on charges of discarding records as Enron faced a federal probe into more than $1 billion of financial losses. A conviction on the criminal charge of obstruction of justice could disqualify Andersen from auditing companies listed on stock exchanges.