Andersen UK hits back at Enron claim

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The UK arm of stricken auditor Andersen claimed to be the victim of a smear campaign yesterday as it delivered its angriest denial yet of involvement in the systematic shredding of documents relating to the collapsed US energy giant Enron.

John Ormerod, managing partner of Andersen in the UK, said the shredding allegations, made by the US Justice Department last week, were "an outrageous smear on our practice here which is totally unjustified". Andersen's offices around the world operate as distinct legal entities. Enron was audited by the firm's Houston practice. "[No] documents destroyed in London ... were material," Mr Ormerod said. "It would be more appropriate to ask why smears are being made against the UK practice." He declined to say why he thought there was a smear campaign against Andersen in the UK.

Mr Ormerod voiced confidence that the backdrop to the proposed merger of Andersen's non-US offices with rival Big Five accounting group KPMG would help the controversial deal to gain regulatory approval. The companies confirmed talks on Monday. "It's perhaps an unprecedented arrangement we are contemplating in unprecedented circumstances," he said.

The Financial Services Authority, which regulates auditors but has no formal role in competition matters, said it was worried about the prospect of multinational companies having a choice of only four audit firms if Andersen and KPMG merged. The pair would become the world's second-largest auditor after PricewaterhouseCoopers, whose founding merger was also criticised by the FSA in 1998.

The European Commission has indicated that it believes competition in the auditing industry requires five international firms. It said it would launch an inquiry into the Andersen deal if the details – such as whether Andersen is broken up first or sold as a Europe-wide body – merited it. Four years ago, the Commission in effect blocked a plan by KPMG to merge with Ernst & Young.

Andersen confirmed its operations would be rebranded KPMG, but there will be market research to gauge whether to revive the Andersen tag.

Negotiations about how to structure the transaction, which would see no payment made by KPMG, were only just getting under way yesterday. Any deal would be likely to cause large job losses, although Chris Rowlands, another UK managing partner, said redundancies were not inevitable "at this stage". KPMG would see its staff numbers outside the US swell from 82,500 by another 57,000.