Arthur Andersen is holding merger talks with rival Deloitte Touche Tohmatsu as the accountancy giant fights for survival after being tainted in the Enron scandal, writes mark Tran in today’s Guardian. There are discussions in New York between Andersen and Deloitte with lots of possible options, including a merger or a sale of a lot of the parts.

Andersen in London declined to comment on the reports that emerged over the weekend. The negotiations by the two big accounting firms were said to have begun in earnest last week around the same time that Andersen learned that it faced a possible indictment on obstruction of justice in connection with the shredding of thousands of documents.

Such an indictment would be unprecedented for a large accounting firm – usually individuals and not the entire firm is pursued – that relies on its good name as its stock in trade in reviewing financial statements. In any case, Andersen’s reputation has been in tatters since the Enron debacle, where it stands accused of failing in its duties as auditor.

Andersen has admitted and apologized for the destruction of documents in its Houston office. But it tried to blamed the shredding on David Duncan, the chief partner on the Enron account, who has since been sacked.

But Duncan, who is cooperating with prosecutors, said he was acting under orders from the firm’s Chicago headquarters. Duncan’s colleagues have backed up his version of events in sworn statements to plaintiffs’ lawyers.

The biggest sticking point in any merger is how Deloitte would avoid taking on all the legal and financial liabilities Andersen faces for its role in Enron. In addition to potential fines from criminal charges, Andersen faces possible regulatory action by the Securities and Exchange Commission as well as lawsuits from companies and individuals hurt by Enron’s collapse.

A possible solution is for Deloitte to acquire all but Andersen’s American operations and let the US arm stand alone temporarily to deal with Enron-related problems.

But, if Deloitte acquired Andersen, the Big Five accounting firms would become the Big Four, raising potential monopoly issues. Deloitte, the No.2 accounting firm would almost catch up with the industry leader, PricewaterhouseCoopers, if it acquired Andersen.