“The major accounting firms and their trade group have made a break with Arthur Andersen LLP to aid the industry’s fight against mounting legislative proposals to revamp the auditing business,” writes Michael Schroeder and Greg Hitt in today’s The Wall Street Journal.

“An accounting-industry coalition decided last week to distance itself from Andersen, Enron Corp.’s former auditor, out of concern that the firm’s damaged reputation is tarnishing the group’s ability to effectively lobby Capitol Hill and that reforms under consideration by the firm could go far beyond what the rest of the industry is willing to accept. The coalition is comprised of the American Institute of Certified Public Accountants, the trade group, and the other members of the Big Five: Deloitte Touche Tohmatsu, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP.”

“Andersen’s role, as Enron’s auditor, in the collapse of the Houston energy-trading firm is under investigation by the Justice Department and the Securities and Exchange Commission. On Capitol Hill, more than 10 committees are probing the matter, and lawmakers are preparing legislative proposals to change financial reporting and increase oversight of auditors. In addition, angry shareholders, creditors and employees have filed lawsuits against Enron and Andersen.”

“The accounting industry is struggling to respond. To lead its lobbying effort, the coalition recently hired the Washington lobbying firm of Clark & Weinstock, which boasts former Reps. Vin Weber (R., Minn.) and Vic Fazio (D., Calif.), as well as Ed Kutler, once a top aide to former Speaker Newt Gingrich. Mr. Weber also served for four years as a public board member of the AICPA.”

“Arthur Andersen is in the middle of a firestorm,” Mr. Weber said. “For the near term, the coalition and Andersen will pursue separate paths.” The coalition conveyed its decision by telephone last Wednesday afternoon to Andersen’s head of government relations in Washington.”

“People close to the profession have said that Andersen may remake itself solely as an audit firm, spinning off all other consulting businesses. The other major firms, they said, want to distance themselves from the kind of extreme changes Andersen may adopt in its bid to recover its reputation and assure its survival as an independent firm. In early February, Chicago-based Andersen appointed former Federal Reserve Board Chairman Paul Volcker to head a committee that will evaluate Andersen’s operations and recommend wide-reaching reforms to the company.”

“Ever since the appointment of Paul Volcker and Andersen announced its reforms, the other firms have been very concerned that those kinds of reforms will be applied to all of them,” said a person close to the industry.”

“Andersen said it is working to regain public trust. “In connection with others or alone, our intention is to set new standards to strengthen audit quality and take the necessary steps to restore public confidence,” said Andersen spokesman Patrick Dorton.”

“Andersen already has made some changes internally, deciding it will no longer provide information technology consulting or internal audit services to audit clients – a move some other Big Five firms have followed, although they are reluctant to go further with more significant changes. Andersen also created two new internal offices for audit quality and for ethics and compliance.”