Solved: 1 What did Arthur Andersen contribute to the

Enron disaster

1. What did Arthur Andersen contribute to the Enron disaster?

2. What Arthur Andersen decisions were faulty?
3. What was the prime motivation behind the decisions of Arthur Andersen’s audit partners on
the Enron, WorldCom, Waste Management, and Sunbeam audits – the public interest or
something else? Cite examples that reveal this motivation.
4. Why should an auditor make decisions in the public interest rather than in the interest of
management or current shareholders?
5. Why didn’t the Arthur Andersen partners responsible for quality control stop the flawed
decisions of the audit partners?
6. Should all of Arthur Andersen have suffered for the actions or inactions of fewer than 100
people? Which of Arthur Andersen’s personnel should have been prosecuted?
7. Under what circumstances should audit firms shred or destroy audit working papers?
8. Answer the “Lingering Questions” in the case (p. 105 in the text).

Once the largest professional services firm in the world, and arguably the most respected,
Arthur Andersen LLP (AA) has disappeared. The Big 5 accounting firms are now the Big 4. Why
did this happen? How did it happen? What are the lessons to be learned? Arthur Andersen, a
twenty-eight-year-old Northwestern University accounting professor, co-founded the firm in
1913. Tales of his integrity are legendary, and the culture of the firm was very much in his
image. For example, “Just months after [Andersen] set up shop in Chicago, the president of a
local railroad insisted that he approve a transaction that would have inflated earnings. Andersen
told the executive there was “not enough money in the City of Chicago” to make him do it.”

ANSWER
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