Meanwhile, another major client dumped Andersen as its auditor Monday. FedEx Corp. followed the lead of other blue chip companies, including Delta Air Lines, Freddie Mac, Merck & Co. and SunTrust Banks.
Paul Volcker, the former Federal Reserve chairman who is overseeing the board charged with making over Andersen, acknowledged that the reforms may not come in time to save the firm.
"What we have here is a run on the bank because everyone else is running," Volcker told reporters. "If everybody leaves, there's no firm left. Obviously it's not good for the country for 2,500 businesses looking around for a new auditing firm overnight."
Citing legal sources, the Post said federal prosecutors have set the deadline for the troubled accounting giant to agree to enter a guilty plea, even as its lawyers this week continue efforts to avoid criminal charges.
The Post said it was not clear how quickly the U.S. Justice Department would act if Andersen fails to agree to a guilty plea.
The paper, citing sources, reported that federal prosecutors have told Andersen they intend to charge the firm with obstruction of justice for failing to prevent document shredding after it learned Enron's accounting procedures were under investigation and the subject of lawsuits.
The chief of the Justice Department's criminal division, Michael Chertoff, will preside at a meeting on Thursday to determine Andersen's fate, the newspaper said.
Andersen signed off on bankrupt Enron's books and has admitted its Houston office shredded documents sought by investigators probing the collapse of the once high-flying energy trading company. Both Enron and Anderson are the targets of lawsuits by Enron investors.
Andersen attorneys took the unusual step of approaching the Justice Department about their legal exposure late last month instead of waiting for prosecutors to come to them. The firm hoped to reach settlements with all the parties bringing law suits against it and sought assurance from the Justice Department that it would not face criminal charges relating to the destruction Enron-related documents, the Post said.
Enron, and Andersen's role as its auditor, is the subject of more than a dozen U.S. congressional investigations as well as probes by the Securities and Exchange Commission and the Justice Department.
Negotiations began quietly last week between New York-based Deloitte Touche Tohmatsu and Chicago-based Arthur Andersen LLP, said a source familiar with the talks, speaking on condition of anonymity. News of the talks were first reported Monday by The New York Times and The Wall Street Journal.
However, the reforms mandated by Volcker's board could make Andersen a less appealing merger partner, said Ed Ketz, an accounting professor at Penn State's Smeal College of Business.
Ketz said several of the reforms were meaningful, such as requirements that Andersen rotate the partner that deals with a particular audit client at least every five years and forcing auditors to wait for a certain amount of time before being hired by an audit client.
Due to the rapid pace of client defection and the restrictions forced by Volcker's board, however, Ketz said Andersen has "significantly higher" chances of going under now than it did two weeks ago.
"I think they're trying to stop the defection of clients," Ketz said. "These seem to be good, substantive changes, but it seems to be too late...I feel sorry for Andersen."