Arthur Andersen Research Paper

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.

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.

Arthur Andersen LLP is one of the “Big Five’ accounting firms. The firm was accused of shredding documents and getting rid of e-mail messages that pertained to their audit of Enron. This occurred after finding out that the Securities and Exchange Commission had begun an investigation of Enron’s accounting. The firm was

Before 2002, shocking scandals in the stock markets generated substantial losses to investors and, for a time, the United States economy was in near chaos. Enough evidence of impropriety, financial statements, market analysts, politicians and company executives, emerged to increase investor skepticism for a long time (Larson, Thompson and Walters, 2004). The primary focus of this problem was the concerns regarding the ethical behavior of business enterprises and the effectiveness of accounting and auditing norms (Larson et al. 2004). The Sarbanes-Oxley Act of 2002 was signed into law by President George W. Bush to enhance the public's confidence in the accounting profession (Larson et al., 2004). This Act, considered one of the most noteworthy

According to Pompper (2014), “incidents of high-profile deception over the past” four decades “have threatened the reputation of the … accounting function” (p. 131). For instance, an investigation was conducted into the financial audit and reporting process after the savings and loan banking crisis in the 1980s (Pompper, 2014). In addition, the criminal convictions of executives and bankruptcies of Fortune 500 companies such as Enron and WorldCom in the turn of the century motivated Congress to pass the Sarbanes-Oxley Act (SOX) in 2002 to strengthen regulations within the accounting profession (Whittington & Pany, 2014). As a result, the SOX introduced provisions that changed the accounting function, such as the establishment of the Public Company Accounting Oversight Board (PCAOB) and other major elements; however, the SOX regulations subsequently resulted in consequences to its compliance.

I was first introduced to the world of business through a book called Pipe Dreams: Greed, Ego, and the Death of Enron. At the time, though I had difficulty understanding all the complicated underlying causes for the energy giant’s collapse, I was struck by the fact that Arthur Andersen, Enron’s auditor, failed to fulfill their obligations to conduct proper audits, and ultimately lost their CPA licenses. This made me interested in the role of auditors and the reasons behind their significant—though not always positive—influence. It also motivated me to learn accountancy at the University of Hong Kong upon graduating from high school.

Arthur Andersen was Enron’s auditor. There were no checks and balances to ensure that Mr. Andersen’s financial statements and bookkeeping were correct. Enron and potential investors were drawn in by Mr. Andersen’s reports reflecting that Enron was a financially stable and investors should invest with Enron. Andersen’s integrity had not come into question in regards to accuracy and accounting procedures.

Robert Brym and Robert Andersen co-authored this journal article, which documents their findings from a study on the Arab Spring’s impact on Tunisian attitudes and priorities. Andersen first earned his BA in Political Science and Sociology, from King's University in 1992, directly followed by a Master's and Ph.D. graduate degrees in sociology from Western and McMaster Universities. Throughout his education and employment, he has contributed to and published many books and journal articles related to his research in political economics, statistics, and social science. He is an experienced academic who began teaching as an assistant professor in 1998 at Brock University, before going on to chair the Sociology Department at the University of Toronto

One of the “Big Five” accounting firms, Arthur Andersen, provided top-notch auditing, consulting, and tax service to several clients. Deemed as one of the leaders in the industry, Arthur Andersen services attracted major corporations and individual clients. Slowly, however, Arthur Andersen began to run their services with a greater focus on the clients’ management and performance and less on accounting standards and the investors’ well being. In June 2002, everything changed. Arthur Andersen became the first major accounting firm to be criminally convicted after being in “position as one of the leading professional services firm in the world, with over 85,000 staff in 84 countries and revenues in excess of $9 Billion” (Smith and Quirk 1). The company and its management began to act unethically and irresponsibly with several clients that they had been providing both auditing services and consulting services, a lethal combination. Ultimately, Andersen’s role in the scandals involving large corporations such as Enron, Waste Management, WorldCom, and Sunbeam led to not only these companies’ downfalls, but the

Andersen partners may be spared if they studied and learned from past audit firm failures. Knowing the collapse of L&H, Andersen partners may envision their own demise and preclude themselves from dealing with and being involved in Enron’s dishonest financial practices. However, due to Enron’s supposed mounting success during the 1990s, why would an audit firm turn down or

Assigned auditors were more than aware of the accounting misrepresentation of financial statements, overstating net income. Still instead of walking away from the client and resign, Andersen in pursuing short-term goals stayed with the company and moreover played by the Giant’s rules. More and more accounting firms at that time started to provide consulting services along with auditing to the same companies which always indicates a conflict of interests. Auditors are the guardians and rules players where consultants are giving advices and showing how to avoid some accounting oversights. Andersen also in order to make good profits stepped on the side of combining two contradicting to each other services. Waste Management had lots of former Arthur Andersen employees which also led to close ties between two companies. That situation undoubtedly led to inability to turn down fraudulent accounting practices Waste Management was exercising at that time for a long period of time.

Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.

Author Andersen provided both consulting and auditing services which created an inherent conflict of interest. On one hand, Andersen was auditing an Enron financial recording system and strategy based for the most part on the advice of its own consultants. Evidence eventually surfaced that some internal

Arthur Andersen, established in 1913 became one of the most coveted and prestigious accounting firms in the world and a part of the “Big Five”.  Despite this success, Arthur Anderson was also a part of one of the largest fraud scandals in history.    After the original Arthur Anderson passed away in 1947, Leonard Spacek became the managing partner and eventually convinced the rest of the partners to stay together despite possible uncertainties with the company moving forward financially.  After the forming Arthur Andersen in 1989, the company’s corporate culture began to change with the new management that had been set forth.  With more and more competition coming into the market, Arthur Andersen decided that the only way they will be able to keep up with competition is through fraud and ethical misconduct.

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.