November 16, 2001 Mr. Charles A. Bowsher Dear Mr. Bowsher: The Public Oversight Board (POB) was created in 1977 to serve as an independent private-sector body that would represent the interests of the public through its oversight of the accounting profession and the profession’s self-governance structure. The POB’s Web page says that it exists "to help assure regulators, investors and the public at large that audited financial statements of public corporations can be relied upon to provide an accurate picture of the financial health of those companies." Maintaining the POB’s credibility with the investing public therefore is vital to the integrity of both the accounting profession and the U.S. capital markets. To that end, the POB adopted a Charter in February 2001 that substantially increased the POB’s staff and budgetary resources and expanded its oversight responsibilities and authorities. Title VII of the POB Charter provides that the POB shall have oversight authority with respect to the SEC Practice Section (SECPS), and that the staff of the POB shall oversee all peer reviews, quality control inquiries and other matters relating to the quality of audits of the SECPS member firms. Title VIII authorizes the POB to conduct oversight reviews and to undertake other projects and actions on matters covered by the POB’s activities that the POB deems appropriate to protect the public interest. Accordingly, and for the reasons discussed below, I am writing to request that the POB conduct an oversight review or special investigation of Arthur Andersen LLP. Virtually all U.S. accounting firms that audit publicly held companies belong to the SECPS and are required to abide by its membership requirements. Peer review of member firms’ accounting and auditing practices is one of the Section’s membership requirements. The purpose of peer review is to provide assurance to the public and the reviewed firm that an effective quality control system has been established and maintained to provide reasonable assurance of compliance with professional standards. However, since this process was put in place in 1978, there has never been a qualified report issued by one Big Five accounting firm against another at the end of any peer review. I understand that Deloitte & Touche (DT) is currently conducting the triennial peer review of Andersen. Andersen is paying DT a lot of money to conduct their peer review--typically these reviews cost around two million dollars. At the same time, the Enron Corp. Form 8-K, filed with the Securities and Exchange Commission on November 8, 2001, discloses that DT also has been retained by outside counsel to a Special Committee of Enron’s Board of Directors to provide accounting advice in connection with the Special Committee’s "independent" review of the odious related party transactions, their financial impact on Enron, and Andersen’s audit (enclosure). This raises at least two questions: 1. Do DT’s dual roles create a conflict of interest: if DT finds numerous problems on Enron, will DT try to "whitewash" or reconcile them in order to be able to issue a clean peer review report? 2. Because DT is being paid handsomely by Andersen to do its peer review, how will this influence, if at all, DT’s "independent" judgment on Andersen’s work on Enron? Given the appearance of conflicts of interest, the public record to date regarding allegations of professional malpractice or worse by Andersen in both the Waste Management fraud and the evolving Enron Corp. accounting debacle, as well as the considerable damage to investors, there appears to be little reason for the public to have faith in Andersen or the peer review process. I expect that you will use your new authorities to restore public confidence in both the Board and the profession. The best accounting standards in the world are meaningless if the accounting and auditing processes are so inept or corrupt that they produce unreliable numbers and untruthful reporting. As securities expert Alan B. Levenson noted at yesterday’s SEC Historical Society Major Issues Conference: "Investor protection must trump self-interest." I request that POB’s investigation or review include adequate, transparent, and public disclosure of all significant issues identified, and that it be followed by timely follow-up by POB to review Andersen’s corrective actions to address the problems identified. Please provide me with a report on this matter which should include the results of any peer reviews that were conducted on Andersen during the periods relevant to the Waste Management and Enron Corp. matters. Thank you for your cooperation and attention to my request. I look forward to reviewing your report. Sincerely,
JOHN D. DINGELL Enclosure cc: The Honorable W. J. "Billy" Tauzin, Chairman The Honorable Cliff Stearns, Chairman The Honorable Edolphus Towns, Ranking Member The Honorable Michael G. Oxley, Chairman The Honorable John J. LaFalce, Ranking Member The Honorable Richard H. Baker, Chairman The Honorable Paul E. Kanjorski, Ranking Member The Honorable Harvey L. Pitt, Chairman Mr. Edmund L. Jenkins, Chairman
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