Former U.S. Federal Reserve Board chairman Paul Volcker, in his first move since being tapped to scrutinize the procedures of embattled accounting firm Arthur Andersen LLP, yesterday named a high-powered team to aid him in the task.
Andersen brought in Mr. Volcker, who ran the Fed from 1979 to 1987, earlier this month in a bid to shore up a reputation badly scarred by the collapse of its energy trading client Enron Corp.
As Enron's auditor, Andersen signed off on books that are now widely seen as having been cooked.
Mr. Volcker named Charles Bowsher, a former Andersen partner and comptroller general of the United States, and P. Roy Vagelos, retired chairman and chief executive officer of drug company Merck & Co. Inc., to join him on Andersen's independent oversight board.
Mr. Bowsher leads the Public Oversight Board, which monitors the accounting profession's self-regulatory process, although that group voted to disband last month amid criticism that it was ineffectual.
William Mutterperl, once a top executive at FleetBoston Financial Corp., will serve as executive director of Mr. Volcker's board at Andersen.
The oversight board will receive assistance from an advisory panel headed by Russell Palmer, former dean of the Wharton School at the University of Pennsylvania.
The advisory panel's seven other members include such well-known financial figures as John Bogle, founder and retired chairman of mutual fund giant Vanguard Group, and John Bohn, retired CEO of Moody's Investors Service Inc. and the U.S. Export-Import Bank.
"We've got a real challenge here," Mr. Volcker told reporters gathered at a Manhattan law firm. "The most important single thing, I think, is that there are strong control procedures so that questions that accountants call technical issues aren't so technical."
He was referring to aspects of the accounting profession, such as special purpose entities, that were behind Enron's collapse. These SPEs are technically legal but are often abused by companies seeking to varnish their balance sheet.
Echoing remarks made last week by Securities and Exchange Commission chairman Harvey Pitt, Mr. Volcker said: "I think we would expect these technical issues to be resolved not just by looking at the letter of regulations and standards and how you get around it, but [whether]the company being audited respects the intent of the standards."
Mr. Volcker noted that the board's review will range from an analysis of profit sharing and pay packages that could compromise the quality of audits to questions about dumping certain clients.
He also said his team would take up the issue of whether auditors' taking positions with companies whose books they analyze is wrong.