Summary of Facts of the Case Study

An implicit theme of this case that I want students to recognize is the contrast between the persistent and vigorous efforts of David Sokol to “get to the bottom” of the suspicious items he uncovered in JWP’s accounting records versus what Judge William Conner referred to as the “spinelessness” of JWP’s auditors. The JWP audits were similar to most problem audits in that the auditors encountered numerous red flags and questionable entries in the client’s accounting records but, for whatever reason, apparently failed to thoroughly investigate those items. On the other hand, Sokol refused to be deterred in his investigation of the troubling accounting issues that he discovered. The relationships that existed between members of JWP’s accounting staff and the Ernst & Young audit team apparently influenced the outcome of the JWP audits. Of course, the Sarbanes-Oxley Act of 2002

This $490 million came from the netting manipulation when they offset their expenses with unrelated gains on the sale of assets. The geography manipulation allowed them to move millions of dollars to different sections of the income statement to “make the financials look the way we want to show them” said James Koenig, one of the primary forces behind the scandal. However, none of the fraudulent activities would have gone unknown for so long without the aid of the auditors, Arthur Anderson LLP, involved with Waste Management.

The Enron and WorldCom scandals were arguably the incidents that permanently changed the procedures for accounting controls. In response to these incidents, the Sarbanes-Oxley Act (SOX) of 2002 was passed. Once the knowledge of these scandals was made public, a number of subsequent accounting scandals were discovered in public companies such as Tyco International, HealthSouth, and American Insurance Group. In addition, a then-employee-owned company, Post, Buckley, Schuh & Jernigan, Inc. (dba PBS&J, now known as “Atkins North America, Inc.”), was also hit by a similar accounting scandal. Henceforth, a case study of PBS&J is presented where we will examine the fraudulent transactions that

The Molex Corporation is an electronic connector manufacturing firm, which is based in Illinois. This company is facing a financial reporting problem in which the financial statements were overstated. Joe King ,the CEO of the company, was appointed in July of 2001, and was responsible for managing and inventory control, among other very important duties. Diane Bullock was hired in 2003, to replace the previous CFO. Both Bullock and King were being accused of what? by the external auditors, Deloitte & Touche, for not disclosing an 8 million pre-tax inventory valuation error.

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.

In addition, associated with the misapplication of accounting methods, the financial industry has been plagued with one disaster after another involving numerous scandals from top leading American companies. Consequently, the Sarbanes-Oxley Act was passed in 2002 compromising eleven sections that are generated to insure the responsibilities of the company’s managers and executives. This act identifies criminal penalties for particular unethical practices and currently has new policies that a corporation must follow in their financial reporting. The following examples describe some of biggest accounting methods as a result of the greed and the outrage of the ethical and financial misconduct by the senior management of public corporations.

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.

Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly,

2. Evaluate Andersen’s claim that their problems on the Enron audit were due to a few “bad partners” in the organization. If you disagree with this claim, discuss what you think were the root causes of the problem. I do not believe Andersen’s claim. I believe that they had full knowledge of what was happening at Enron. I believe that Enron was paying off the auditors (staffers) in the Houston office. I believe they were

executives were accused of overstating revenue from software licenses in collusion with executives from PurchasePro Inc.AOL sold the software licenses for PurchasePro. The parties were accused of deceptive accounting practices that resulted in investors believing that the sales projections of PurchasePro had been met when they had not and the result was that the stock prices of PurchasePro were inflated and overstated by 37% in the first quarter of 2001. Out of court settlements were reached by AOL and executives including a $210 million fine in order to avoid being criminally and civilly prosecuted. The defendants in this case who did not accept plea agreements were found to be 'not guilty' and this is stated to be due to the lack of documentation of what had occurred on AOL's networking and computer systems.

The WMI accounting fraud case described a financial fraud committed by senior management of WMI, with the help of Arthur Andersen the external auditors. The case depicts the effort of several years to inflate profits at WMI, employing aggressive accounting practices which enabled the WMI to conceal $1.7 billion in form of expenses (Riley and Rezaee, 12). By eliminating or deferring expenses, WMI managed to meet earnings targets and improve

In 1913, the company Arthur Andersen started by Arthur Andersen and Clarence Delany by the name of Andersen, Delany, & Co. In 1918, it was given the name Arthur Andersen & Co. The company supplied tax, consulting services and auditing for the large business, and itself had a position in the "Big Five" accounting firms. In 2002, this firm was found guilty for auditing an energy corporation, Enron and it surrendered back its rights of auditing. This led to Enron 's bankruptcy and loss of 85,000 jobs.

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.

The scandal that started the series of accounting scandals is Waste Management Inc. Waste Management Inc. is a publicly traded waste management company that reported 1.7 billion dollars in fake earnings (US Government Accountability Office, 2002). The accounting scandal was discovered in 1998 when a new chief executive officer took a look at the financial statements. The

On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to Enron’s audit which resulted in the Enron scandal. The impact of the scandal combined with the findings of criminal complicity ultimately destroyed the Arthur Andersen LLP. The company was accused of destroying thousands of Enron documents that included not only physical documents, but also computer files and Email files. By giving it the role of consultant along with their original role as external auditors, Enron made Arthur Andersen LLP a key player in Enron auditing.