ARTHUR ANDERSEN: QUESTIONABLE ACCOUNTING PRACTICES Every entity or institution comprises of standards and guidelines in performing work in the most proficient, legal, and ethical manner. Whether it’s a compulsion of a parent to be held accountable for their child’s safety or a lawyer’s duty to abide by the rules of confidentiality pertaining to its client; we are constantly obligated and expected to act and behave in a certain manner. Hence, in the state of civilization every human is responsible to a form or being in some way or the other. Failure to meet or coincide with laws of civilization can result in deterioration of one-self and those around you. Precisely, there have been quite a few scandals which have taken place within the business arena. One such incident occurred with Arthur Anderson. Arthur Anderson was an accounting firm which began in 1913 and was acknowledged for “trust, integrity, and ethics” for a period of almost ninety years. It wasn’t until the early twenty first century, when Arthur Andersen was alleged for accounting misrepresentations. The following report will discuss the legal and ethical issues surrounding Andersen’s auditing of companies accused of accounting improprieties, contribution of Andersen’s corporate culture to its downfall, and finally ways in which the Sarbanes-Oxley Act can help minimize the likelihood of auditors failing to identify accounting irregularities. The legal and ethical issues which spurred around Andersen’s auditing of companies accused of accounting improprieties include, issuing false and misleading approvals of financial statements and authorizing unqualified opinions of such statements for achieving benefits related to self-interest within the company. Andersen repeatedly overlooked the consequences of its deceptive actions by compromising its world-wide recognition as an auditor. Initially, Andersen was accused of sympathetic deeds performed to its clients in the form of falsification of financial statements beginning with BFA, Sunbeam and had settled a lawsuit with its investors without admitting fault or liability. Consequently, Andersen had again violated the laws by providing misleading information to Waste Management’s investors due to a sentiment for greed. Despite the charges paid to the investor lawsuits and Securities Exchange Commissions, Andersen yet again dragged itself into a deeper hole of self-indulgence with Enron-one of its biggest clients. It was later shut down when the investigation by U.S Justice Department began a criminal investigation and was convicted for obstruction of justice due to destroying essential documents in relation to its auditing of Enron. The preceding criterion allows one to understand the consequences of failing to comply with the legal system. According to, “Auditing: An International Approach” by Wally Smieliauskas and Kathryn Bewley, public accountants have a responsibility to disclose any information once they are aware of them. For instance, in regards to Waste Management, Andersen soon discovered the unacceptable accounting practices pertaining to understating Waste Management’s expenses and overstating its earnings. Nevertheless, Andersen decided to neglect this fact and engaged in unethical and egocentric behaviour. This incident along with Andersen’s past wrongdoings contributed to its ultimate collapse as it disobeyed the legal responsibilities of an auditor which derive from law of negligence, which is also a part of the common law acknowledged as the law of torts. Negligence occurs when one fails to execute a responsibility with indispensable care. Andersen’s auditing practices came to an end as they were found to be materially misleading and allied with the elements of negligence.
1) There must be a legal duty of care to the plaintiff: Andersen was obligated to perform a legal duty to the third parties (investors).
2) There must be a breach in that duty: Arthur Andersen failed to follow the legal
Questionable Accounting Practices
Arthur Andersen and partner Clarence DeLany founded Arthur Andersen LLP in Chicago in 1913. Over a span of nearly ninety years, the Chicago account-ing firm would become known as one of the "Big Five" largest accounting firms in the United States, together with Deloitte & Touche, PricewaterhouseCoopers, Ernst & Young, and KPMG. For most of those years, the firm's name was nearly syn-onymous with trust, integrity, and ethics. Such values are crucial…
1.0 SUMMARY OF FACTS OF THE CASE STUDY
After understanding the overall of case study, Arthur Andersen: Questionable Accounting Practice, we have identified a few facts. The following subsection will present the facts.
1.1 ARTHUR ANDERSEN
Arthur Andersen LLP was founded in Chicago in 1913 by Arthur Andersen and partner Clerence DeLeny. Over a span or nearly 90 years, the Chicago accounting would became known as one of the “Big Five” largest accounting firms in the United States together…
The Downfall of Arthur Andersen
Henderson State University
ACC 5113-Advanced Auditing
Arthur Andersen was one of the “Big Five” accounting firms until its’ horrible downfall with Enron. In 2002 it decided to voluntarily give up its license to practice as Certified Public Accountants (CPA’s) in the States. The company was based in Chicago, Illinois and still resides there today even though after twelve years they have still not returned even close to their…
Capstone Case Study – Arthur Andersen LLP
Bus 680 – Economics for Business Decisions
1. Discuss the environmental, strategic and organizational changes that occurred over the life of Andersen in the context of figure 11.1.
While Andersen started off as a stable environment, once changes started being made to the main focus of the company many changes were expedited. While still successful in it’s auditing business, other opportunities arose that allowed for quicker…
society. "The purpose of ethics in accounting and business is to direct business men and women to abide by a code of conduct that facilities public confidences in their product and services" (Dr. Smith, L Murphy). The accounting profession has a long history of contributions to the efficient functioning of business operations, the capital market system and the economy in general. In the wake of corporate scandals and a struggling world economy, we look back at the accounting scandal at Enron, from…
quality and competitiveness” (Goetsch & Davis, 2010).
When coming into a career, you must deal with different individuals from all over the country as well as the world. These individuals will have different personalities and different values and ethics of there own. All individuals will try to apply them towards doing the best job they can. Most people will find that the values they incorporate in attempting to excel at their job will coincide with others. Quality also requires managers to be…
AC504: Ethical Issues in Business and Accounting
Unit 1 Assignments
June 30, 2015
Professor: Danyell Weaver
1.) Given strong profit growth, has there been any damage to Baidu.com’s reputation?
I am convinced that there has been a significant damage done to Baidu.com’s reputation. Baidu.com, an online news also known as the “Google of China” was involved in a case involving human’s health. The rumor about Baidu.com was that the company neglected its…
that Lay existed as a person who was dishonest and acted without integrity. Under his control, Enron was involved in fraud, causing investors to lose billions of dollars and many people to lose jobs. The second person we need to reference in Enron’s case is Jeffrey Skilling. He was the president COO, and also served as CEO from Feb. to Aug. 2001. On August 14, 2001, he left Enron without revealing any financial difficulties of the company. He just said that he wanted to spend more time with his family…
In our world most of countries give basic education for their citizens for free. Why is education so important for a person in our society? There are so many answers. Education makes people become smart, education makes people improve manners, and education makes people ascend to a higher social class. Education makes people achieve self-esteem; get the real benefit for life. Education develops and improves technology. That’s why if a country will not develop its education it will have no future…
Is that why we had the bail out of the banks? I know the bailout happened when the housing crisis happened but it makes me wonder if it had to do with the affiliation of Bush and Enron.
This article was great, although it did not talk about the fraud that took place at Enron, it did talk about how good ethical behavior is crucial in a company. I do believe this is very true. I know and believe that one’s…