Andersen's role in the Enron blowup and its destruction of thousands of records could be the fatal mistake for the firm that approved faulty books at Waste Management, Sunbeam and the Baptist Foundation of Arizona.

''The question for Arthur Andersen is survival. For the profession, it's how to make sure it doesn't happen again,'' says Mark Cheffers, CEO of AccountingMalpractice.com.

Practices at Andersen's Houston office are especially emblematic of the often cozy relationship between accounting firms and companies they're supposed to be watching, experts say.

To be sure, the investigation of Enron and Andersen is still in its early stages. It's unclear how responsible the auditor was in hiding secretive partnerships named Chewco to mask debt. But regulators are expected to zero in on several aspects of Andersen and the accounting industry:

* Andersen's Houston office. ''The Houston office is reckless and willing to do things other offices are not willing to do,'' says Bill Lerach, partner with Milberg Weiss Bershad Hynes & Lerach, one of the law firms preparing a securities class-action lawsuit against Enron.

The office, headed by Steve Goddard, has led the firm's aggressive charge to win energy clients. In addition to Enron, Andersen audits the books of Dynegy, Apache and Mirant.

Enron's business was critical to the Houston office. Last year, Enron paid Andersen $25 million to audit its books and an additional $27 million for consulting services -- making it one of the firm's biggest customers and enough to employ about 200 of the office's 1,700 accountants, people close to the situation say. Andersen, which posted $9.3 billion in revenue last year, declined to comment on Enron's importance.

And at least two Andersen employees, Richard Causey and Jeffrey McMahon, were recruited by Enron to be its chief accounting officer and chief financial officer, respectively.

Such relationships between companies and accountants, while common, create a conflict of interest, says Sean Egan, managing director of Egan-Jones, a debt-rating firm that was one of the first to cut Enron's debt to junk levels.

* Lack of punishment of accountants signing off on faulty books. Andersen partner Phil Harlow, sued by the Securities and Exchange Commission for signing off on Sunbeam's fraudulent books, is still employed at Andersen's Fort Lauderdale office.

Another Andersen accountant, Jay Ozer, was not only the lead auditor of the Baptist Foundation of Arizona, alleged to be a Ponzi scheme, but was also part of the team that signed off on the books of Charles Keating's failed Lincoln Savings & Loan. Ozer has retired.

* Document-retention procedures. A memo telling Andersen to destroy documents may have violated accounting rules. Accounting firms are required to keep records regarding current clients, says Galina Datskovsky, CEO of MDY Advanced Technologies, which handles corporate records. If Andersen accountants destroyed documents, the firm could face criminal indictment, Sen. Joseph Lieberman, D-Conn., said Sunday.

Arthur Andersen declined to discuss its records-retention policy.

* Treatment of partnerships that keep debts off companies' books. Firms ranging from Edison International, another Andersen client, to Ford Motor, Target and Xerox all use so-called special purpose entities.

''This is the start of a long and torturous time for the accounting profession,'' says Arthur Bowman of Bowman's Accounting Report.

See also:
Andersen 'Seeking Big Five Merger'
Andersen Tries to Maintain Client Loyalty Amid Enron Debacle