Arthur Anderson Ethical Case Study

971 Words4 Pages
There were several internal control issues with Arthur Andersen (AA) that contributed to the Enron disaster. Firstly, AA gave Enron nonaudit services as well as audit services, meaning that AA could advise the structuring of transactions for desired disclosure outcomes and other work and later give an audit opinion on these transactions. This resulted in a blatant conflict of interest issue that many audit professionals did not recognize. Secondly, the “tone at the top” of AA did not encourage ethics or quality of work. Joe Berardino, CEO, made it clear that success was tantamount with revenue. He was noted by one former partner as the “most aggressive pursuer of revenue” that she had ever met. AA failed to recognize how angry the public…show more content…
Auditors who do not perform independently will face the potential risk of losing professional credibility and being punished with fines or imprisonment. Moreover, auditors should act ethically in the interest of public and provide unbiased audit reports to the public, especially to those who will make future decisions based on these audited financial statements, such as investors, employees or lenders. It does not mean that the auditor could not behave in both parties’ interest at the same time, but when a conflict occurs between interest of public and that of management, auditors should choose to behave independently, keep audit work fair and honest, and ensure their work assists the public to make a right evaluation on the audited client. Arthur Andersen partners responsible for quality control didn’t stop the flawed decisions of the audit partners since they didn’t have the power to. Arthur Andersen employed a practice that allowed the partner in charge of the audit to override a ruling of the quality control partner. The controversial practice was accepted at Arthur Andersen since the partners were motivated by revenue generation. Instead of the firm being focused on compliance with GAAP, the protection of public interest, and their own reputation, they were more concerned with potential revenue loss or gain based on the feelings of the
Open Document