Andersen's Culture Of Doing The Right Thing

Arthur Anderson Limited Liability Partnership (LLP) was established in 1913 into the Accounting industry. They offered tax, consulting, and, auditing services to large corporations everywhere. Their headquarters were located in Chicago, Illinois and eventually had over 85,000 employees in 84 different countries (Collins, 2016). By the 1990’s Arthur Andersen had become one of the largest accounting firms, and was recognized as one of the “big five.” Along with being one of the largest accounting firms Arthur Andersen was also one of the most reputable. There were many factors that distinguished Arthur Andersen from other accounting firms, and the most notable were the honesty and integrity Arthur Andersen had established for the company (Moore & Crampton, 2000). Andersen set high standards which in turn resulted in the growth of their prestige. Many companies came to Arthur Andersen because of the trust it had established in the public and in the accounting Industry. One of the ways Arthur Andersen established their reputation was through their organizational structure and the culture of the company.

Without a question the BOD should have placed a high degree of reliance on Andersen, which at the time was one of the most prestigious worldwide accounting firms. The auditors should have known the kind of accounting taking place in Enron. In my opinion, Andersen knew, at least to some extent, the company’s financial condition. However, Enron was already too deep under water that blowing the whistle so late would have created problems for Andersen as well. According to the case, on 02/05/01, Andersen held internal meeting during which it addressed the company’s accounting from and oversight of the LJM partnership. Andersen never discussed these concerns with the Audit and Compliance Committee. Although the BOD has its faults, it should have been able to rely on Andersen’s work.

Arthur Andersen (AA) contributed to the Enron disaster when it has failed to the management by failing to have Enron establish and enforce its own internal control. There has been flaws to AA‘s internal control. There has been assumption that AA partners were too motivated by revenue recognition thus, overlooking several criteria when providing their services to Enron. Additionally, AA also recognised the retention of audit clients as vital and a loss of any clients would be disadvantaged to an auditor’s career. In AA internal control, the person who is able to make most of the decisions is the person who is most concerned about the revenue or losses of the client’s company.

The architectural design of a firm varies greatly. In 1950, the business environment of Arthur Andersen included using the computer effectively for automated bookkeeping. Structure and regulation of the markets, helped Arthur Andersen to develop into a well-respected and reputable auditing company. The federal law in the 1930s requiring companies to turn over their financial statements yearly to an independent auditor not only strengthened Arthur Andersen, but also helped with their impeccable reputation. Arthur Andersen’s strategy included quality audits with a well-managed staff and profits. Promotions and rewards were plentiful when auditors made sound auditing decisions. In the 1990s, Arthur Andersen’s organizational architecture and strategy focused on generating new business, cost cutting, and performance evaluations along with decision rights over its business (Brickley, Smith, & Zimmerman, 2009).

Andersen – Although Enron committed the fraud, Andersen allowed Enron to get away with it. An audit firm has to be independent from their client and act in the best interest of the public. For this reason, I think that Andersen was the most responsible for the Enron crisis. Andersen could have declined continuing their relationship with Enron as their client, considering some Andersen representatives did not agree with Enron’s “aggressive” accounting and financial reporting decisions in the early months of 2001. Andersen also assisted Enron in restructuring some of the SPEs so they would still be considered unconsolidated entities. Andersen not only audited Enron, but they also went beyond the scope of what the quality audit should entail. It was also telling when personnel in the Houston office destroyed documents related to Enron and

Using the full extent of your collective understanding from the chapter reading, what went wrong with Jim's efforts to change the leadership culture for the better?

Nevertheless, Mr. Spacek shaped the firm into a genuine international company and during his 26-year term (1947 – 1973), the firm’s client-base rose from 2,300 to 50,000. Still, the company became increasingly involved in providing consulting services in the 1970s and in 1988, the Arthur Andersen & Co. (AA&Co.) was the largest consulting firm in the world. By this time, I had joined the firm as a Senior Executive Assistant and in 1989 after years of disharmony; the firm was split into two companies, AA&Co. (accounting services) and Andersen Consulting (consulting services). Although these entities were financially separate, they were governed by Switzerland-based Arthur Andersen Société Cooperative later named Andersen Worldwide SC, the ruling body of the worldwide Andersen organization.

Andersen was once a thriving global institution that focused on providing accounting services to public companies. Before its solvency, Andersen was attributed to significant changes in the accounting industry as it introduced automation in accounting services including other achievements (Sellers, Fogarty, & Parker, 2012). From a business environmental perspective, Andersen began as an accounting firm in 1914 which later expanded to providing consultancy and auditing services. Moreover, a technological aspect (as mentioned above) of accounting was introduced in 1950s that contributed to the significant changes that the firm encountered.

Because Arthur Andersen was trusted and widely lauded as a great accounting firm, it had many clients and a significant profit margin. When it was discovered that the firm had "adjusted" documents for Enron, Arthur Andersen was forced to surrender its CPA licensing (Sachdev, 2003). It was heavily fined, but the damage to its reputation was the worst issue it faced. Once a

At the time the fraud existed, internal controls were almost non-existent. The management team employed a number of improper accounting practices that did not comply with GAAP. As stated earlier, CEO Dean Buntrock not only allowed internal controls to be bypassed, he encouraged them to be ignored and shaped accounting policy with the sole purpose of making the targeted earnings numbers every year. The auditing firm, Arthur Andersen, LLP, was also shown to have complicity. The partners at Andersen knew that the company’s policies were not compliant so they provided Waste Management with proposed adjusting entries to their books. Waste Management refused to make the adjustments so Andersen had Waste Management sign off on a list of 32 steps the company must do to change its practices. The document legally constituted an agreement among the two parties and clearly shows that Andersen was aware of fraud that Waste Management had covered up in the past. Furthermore, Andersen did not stand up to the company and continued to

Because of the economic boom that took place in 1980s and 1990s, consulting services became very large profit generators that benefited companies in great profit margins. These consultants helped companies make a lot of money, and gain more partners from the consulting field. Public accounting firms became greatly interested in increasing their revenue by providing consulting services for their clients. In the 1980s, auditing became a “commodity service” inside public accounting firms. The emphasis on hiring switched from hiring experienced, accounting professionals with extensive accounting backgrounds, to hiring those with a different “skillset” that could bring great revenues to the company. What happened was that the large public accounting firms provided both consulting services and auditing services

Once Andersen’s counterpart, Andersen’s Consulting eclipsed Arthur Andersen, the firm decided to take action and create new strategies to cutting costs and inflating revenues.  Another policy action put in place required partners to retire from the company at 56 years of age.  This ultimately led to the hiring of younger adults (usually coming right out of college) who are inexperienced and not quite ready to take on the demands of being an auditor.

There were many issues in this case but one of the main issues that stood out was the fact that Andersen there was a conflict of interest because Andersen was the auditor and consultant for Enron. There are positive attributes when auditing and consulting at the same time for a client such as building a relationship with the client and promotes business; allows the auditor to become familiar with the clients’ business environment, and reduces the overall cost of the client. However, when a firm audits and consults for their client, the audit/consulting firm works so closely to the client that it makes ethical decisions very difficult to make and the auditors lose objectivity and become partial due to the conflict of interest.

WorldCom acquired Arthur Andersen as the independent external auditing for the company. As WorldCom grew after the merger with MCI, Andersen began to invoice less than they should have. The charges were defended as an opportunity to prolong business with WorldCom. (Kaplan and Kiron, 2007). This is an immediate red flag for a company. Where were the ethical practices of the independent auditor? If the auditor has no ethics, how can one possibly be assured that the company is performing its intended function appropriately? The board of directors should have immediately been informed of Andersen’s practices and made a decision to confront Andersen’s practices and possibly obtain new independent auditors.

Arthur Andersen supplied external auditing service to Enron since 1980s, internal auditing since 1990s. The long-term cooperation between Arthur Andersen and Enron blurred the lines between external auditor and the company under auditing. Many accountants of Enron were ex-employees of Arthur Andersen. The close relation between the Arthur Andersen and Enron led to the