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  • Downfall of Arthur Andersen

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    Susan Mealer Rodgers
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    Arthur Andersen started as an ethical auditing firm but lost its way over time. As its consulting business grew more profitable than auditing, it began using its auditing division to help win consulting clients, even if it meant altering documents. This created conflicts of interest. The final blow was its work for Enron, where it failed to catch accounting issues and destroyed documents related to the scandal. Poor leadership allowed profits to become prioritized over ethical practices, ultimately leading to Arthur Andersen's downfall when it was found complicit in Enron's fraud and bankruptcy.

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    Arthur Andersen started as an ethical auditing firm but lost its way over time. As its consulting business grew more profitable than auditing, it began using its auditing division to help win consulting clients, even if it meant altering documents. This created conflicts of interest. The final blow was its work for Enron, where it failed to catch accounting issues and destroyed documents related to the scandal. Poor leadership allowed profits to become prioritized over ethical practices, ultimately leading to Arthur Andersen's downfall when it was found complicit in Enron's fraud and bankruptcy.

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    © All Rights Reserved
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    84 views3 pages

    Downfall of Arthur Andersen

    Uploaded by

    Susan Mealer Rodgers
    Arthur Andersen started as an ethical auditing firm but lost its way over time. As its consulting business grew more profitable than auditing, it began using its auditing division to help win consulting clients, even if it meant altering documents. This created conflicts of interest. The final blow was its work for Enron, where it failed to catch accounting issues and destroyed documents related to the scandal. Poor leadership allowed profits to become prioritized over ethical practices, ultimately leading to Arthur Andersen's downfall when it was found complicit in Enron's fraud and bankruptcy.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as doc, pdf, or txt
    of 3

    Downfall of Arthur Andersen

    The Downfall of Arthur Andersen


    Jo Ann Porter, Ellianne Gallardo, George Hardy, Jason Paree, Neil Burnworth
    FIN/571
    4/28/2014
    Charles Marchand

    Downfall of Arthur Andersen

    2
    The Downfall of Arthur Andersen

    ArthurAndersenandcompanystartedoutasanupstandingethicalfirm.Therecredoas
    statedinthereadingwastoThinkstraightandtoTalkStraight.Thatmottoisuniquetotheir
    situationinseveraldifferentways.Iftheuppermanagementwouldhavecontinuedtostickby
    thiscredoandcontinuetoinfluencetheculturaloftheorganizationtostandstrongandbythis
    ArthurAndersenwouldprobablystillbearoundtoday.Somewherethecredobecamelostand
    justapartofhistorybecausetheirthinkingandtalkingallbecameunethicalandcrooked.The
    firstmistakecamewhenArthurAndersenandpartnersoftheconsultingfirmcouldntcometo
    anagreementonhowtodivideuptheearningsfromtheconsultingpractice.Thisfeudcausedfor
    thetwofirmstosplit,leavingArthurAndersentoonlyhavetheauditingfirmtoprovideservices.
    Duetothetimeschangingandnewtechnologytheauditingfirmwasntgeneratingasmuch
    fundingasoncewas,sotheystartedtheirownconsultingfirm.AstheconsultingfirmofArthur
    Andersenstartedthriving,itstartedgeneratingmoreoftheearningsforArthurAndersen.With
    theAuditingfirmstrugglingandtheconsultingfirmboom,ArthurAndersenstartedusingthe
    twofirmstohelpeachothergainbusiness.Evenifthatmeantalteringdocumentsorauditsto
    saleconsultingservicestocustomers.Thenextproblemcamewiththescandalofother
    accounts,buttheEnronaccountistheonethatdiditforArthurAndersen.ArthurAndersenwas
    responsibleforhandlinganaccountthatgenerated$52millioninfees
    WhenmistakesstartedtobemadebyArthurAndersen,ArthurAndersenforgotaboutthe
    fourcornerstonesthatAndersentaughthisemployees:"providegoodservicetotheclient;
    producequalityaudits;managestaffwell;andproduceprofitsforthefirm."Theseareallgreat
    goalsiffollowedinthatorder,however,whenmakingaprofitbecamethemostimportantthing
    forAndersen,thisiswhenleadershipshouldhavesteppedinanddideverythingwithintheir
    powertomakesurethatallPoliciesandProcedures(P&P)werebeingfollowed,completely.
    WhileitissaidthatGAAPisonlyaguideline,asthecompanyleaderstheyareinapositionto
    includeGAAPinthecompany'sP&Pinanefforttomakeensurethatthemakingofprofitsdid
    notbecomethemostimportantaspectofanyoneworkingforthecompany.
    ArthurAndersonaccountingfirmshouldhadbetterleadershipinmanagement.The
    executiveshouldhadpredictedthefirmlivelihoodcouldbeaffectedifthereisaconflictof
    interest.Managementshouldhadneverassignedtheconsultingdutiestotheaccountants.That
    allocationofdutiescreatedmajorconflictofinterestbetweencompaniesandthefirm.Senior
    managementinvolvementincompanysfinancesdidnotallowfortheauditortodotheirjob.
    Thecompanyshouldhavealsoredirectedconsultingdutieswhentheseriesofaccounting
    scandalemergeinthe1990s.Anothermajorfailurethecompanycommittedwasthetransferring
    ofthatoneemployeewhoobjectedtothepracticesatEnron.Thisactionshowedotherindividual
    itwasnotokaytodeterfromtheunethicalbehaviors.Anotheractionthatledtothecompany
    extinctionwasaskingforthedestructionofdocumentrelatedtoEnronpaperwork.
    ThemistakesbytheArthurAndersenwereegregiousandundeniable.Notonlyhad
    ArthurAndersensconflictsofinterestledtotheirowninternalethicalbreakdowntheyallowed
    Enrontohideitsfinancialproblems.ThisallowedEnrontocompletelybankruptthosethathad
    investedintheirstock.Andersonwasresponsibleforensuringfirmsuseethicalpracticesintheir
    financialreporting.Insteadtheycooperatedinhidingunethicalbehaviorinreturnforbusiness.

    Downfall of Arthur Andersen


    Leadershipcouldhavepreventedallofthisbyeitherchoosingtoeliminatetheconflictof
    interestorerectingstrictbarriersbetweenthedifferingobjectivesofitsbusiness.Asitwas,
    Anderson'sleadershipprovidedacultureofacceptingunethicalbehaviorandincreasingly
    profitingfromit.

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