Ex-Andersen accountant testifies in Enron trial

HOUSTON — Enron Corp. tried to dodge accounting rules by dropping a plan to sell assets in a failed water business, a former Arthur Andersen LLP accountant said on Monday.

John R. Sult, who oversaw the books on Enron’s Azurix water venture for Andersen, told jurors the energy trading company could avoid a writedown of hundreds of millions of dollars by promoting, instead, a $1 billion growth strategy for the unit.

“By merely standing up and making the assertion that the strategy exists somehow makes the problem go away,” he testified, explaining his view of Enron’s plan.

Enron founder Kenneth Lay is accused of improperly avoiding writedowns and former Chief Executive Officer Jeffrey Skilling is accused of misusing reserves. The two men are beginning the eighth week of their federal fraud and conspiracy trial.

Another former Andersen accountant, Thomas Bauer, corroborated earlier testimony from former senior Enron accountant Welsey Colwell that the energy company wrongly dipped into reserves to pad earnings. Bauer said he and Colwell now work at a Houston consulting firm, but that on advice from his lawyer, he hasn’t discussed the trial with Colwell.

Bauer, who oversaw the books of Enron’s profitable trading operation, said companies can establish reserves for costs related to assets or liabilities — such as lawsuits — but cannot set aside income in good times to pad earnings in bad. “It is not discretionary to pick a number that helps with an earnings target,” Bauer said.

Skilling lawyer Randy Oppenheimer sought to show, as he cross-examined Bauer, that companies routinely consider levels of reserves when finalizing their books to prepare quarterly earnings reports. He asked Bauer whether there was anything “illegal or nefarious” about checking reserves when ascertaining whether a certain earnings target can be met.

“If you can do it legitimately, I would agree with that,” Bauer said, but added later: “I don’t think you should be looking at your reserves with a mind toward meeting your earnings target.”