Grim outlook for Andersen after latest scandal

Disgraced firm faces law claims and break-up.

The revelations about accounting fraud at WorldCom could prove the final nail in the coffin of the disgraced accounting firm Andersen.

WorldCom's $4bn financial black hole is the latest in a line of scandals to hit the once prestigious firm that takes its name from the ambitious financial wizard who started the operation in 1913.

The collapse of Enron, the Houston-based oil company, led to allegations that Andersen had failed in its duty as the company's auditor and had shredded key documents before investigators could get hold of them.

Some believe the seeds of decay may have been sown even earlier, when the firm paid a $110m (£73.3m) settlement to shareholders in Sunbeam, another bankrupt US firm, who had accused Andersen of contributing to inflating its profits in 1998.

Whatever the root cause, Andersen is now being carved up in an unsightly scramble among its competitors - notably Deloitte & Touche and Ernst & Young - to snap up its most attractive parts in Europe and Asia which have worked hard to distance themselves from their north American brothers.

In the US, the picture is grimmer. This month's damning court case that resulted in the firm no longer being allowed to audit quoted company accounts was a clear sign that America is taking no prisoners in its attempts to clean up the reputation of the world's biggest corporate jungle.

Andersen was found to have deliberately destroyed tons of documents to keep them from the hands of investigators prying into Enron's accounts. Its ordeal by court is not yet over, even after the guilty verdict by the Houston jury after 72 hours of deliberation.

Claims are still being laid against the firm by shareholders in Enron for the losses they suffered, and industry sources expected the revelations at WorldCom to provide the latest reason for shareholders to call in their lawyers. Andersen is already being investigated by the powerful US regulator, the securities and exchange commission, for its role in Enron. The SEC is also crawling over the books of WorldCom.

Yesterday Andersen was trying to salvage what is left of its credibility by insisting its work for WorldCom complied with the standards set out by professional bodies and the SEC.

Andersen said it had not been told by the finance director of his accounting policies: "It is of great concern that important information about line costs was withheld from Andersen auditors."

Some market specialists admitted to being relieved yesterday that it was once again Andersen that had been the auditor of a troubled company. The involvement of another auditing firm might have exacerbated the fear that the sickness spreading through corporate accounts is even deeper.