Accounting firm Andersen says its employees destroyed a number of documents related to its audit of energy trader Enron.
Andersen, under fire in recent months for signing off on Enron's books, said a "significant but undetermined" number of electronic and paper documents and correspondence related to its handling of Enron's audit had been disposed of or deleted.
The disclosure could further deepen the accounting firm's woes, both on the legal and regulatory fronts, said experts. The company is already being sued over its handling of Enron's audit.
"It sounds pretty damning," said Mr Arthur Bowman, editor of the widely read industry newsletter Bowman's Accounting Report. "The ramifications could be huge. You can just imagine the litigation industry lining up to feast on Andersen's bones".
Most accounting firms keep their audit records for at least three to four years, said Mr Bowman, who noted it was the first time he had seen such a disclosure in the 22 years he has covered the industry.
The revelation comes less than a month after Andersen chief executive Mr Joseph Berardino told the US Congress that Enron had failed to give its auditors crucial information that went to the heart of the energy trader's spectacular collapse.
He also admitted that Andersen's audit team had made an error in how it accounted for one of Enron's several off balance sheet entities.
A key question surrounding Andersen's latest disclosure is when the Enron-related documents were destroyed, experts said.
Andersen said the documents were discarded before the Securities and Exchange Commission had subpoenaed the accounting firm. After the subpoena was issued, the firm said it had issued instructions to preserve documents. It said it did not know whether that instruction had been violated.
Regulators would adopt a tough stance against the firm if any documents were destroyed before the subpoena was issued, but after the SEC had begun looking into the case, said a legal source.