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…
This is a 6-page essay discussing ethics and governance in business. It identifies one specific organization and critically evaluates its performance in relation to the key principles of business ethics. It provides background information about the organization, information about ethical dilemmas within the organization and possible ways these dilemmas can be solved. It relies on 15 sources and is presented in Harvard format.
Enron and Ethics
Enron is an American company based in…
Ethical Standards for Management Accountants
By Tom Parnelle
Instructor: Dr Earl Godfrey
Course: Managerial Accounting
December 11, 2011
Ethical Standards for Management Accountants
In today’s economy, it is important to make informative business decisions. Profit margins are shrinking, labor and material costs are rising and global pressure on our markets continues to tighten (Sider Group 2009). To be competitive in a global or even local market, managers must understand the…
17 April 2013
ETHICS IN BUSINESS AND ACCOUNTING
Ethics in business is an extremely important characteristic for a successful business person to have. Ethics is defined as codes of conduct by which actions are judges as right or wrong, fair or unfair, honest or dishonest. The most important part of being a successful business person is gaining trust from your boss, peers, and customers. Without the trust of your boss, peers, and customers there is no possible…
During today’s class, I was impressed by the question that could you ever really understand the income statement without understanding comparative? I never thought about this question before.
In financial accounting, the balance sheet and income statement are the two most import types of financial statements. A balance sheet lists assets and liabilities of the organization as of a specific moment in time, i.e. as of a certain date. An income statement is a report for income and…
lawsuit towards the company. The lawyers in this case felt as though they will not be winning the case and will lose a approximated amount of thirty million dollars. Now when the company is told that will be close to the amount due to be owed, is when the problem of when to report the amount came into play. In a case like this it is rare for a company to accrue the amount on loss contingency without knowing the true and full amount. In accrual based accounting the measuring of the entity’s and resource…
the SEC complaint states “the more the trucks were used, and the older they became, the more defendants said they were worth.”
3) The managers at Waste Management clearly wanted to manage earnings for their own self benefit. As is frequently the case, the management team’s bonuses and compensation were tied to earnings. If earnings are higher, their bonuses are higher, and they appear to be running the company in a profitable way, which frequently leads to raises in basic compensation. In addition…
Ethics in accounting is of utmost importance to accounting professionals and those who rely on their services. Certified Public Accountants (CPAs) and other accounting professionals know that people who use their services, especially decision makers using financial statements, expect them to be highly competent, reliable, and objective. Those who work in the field of accounting must not only be well qualified but must also possess a high degree of professional integrity. A professional's good reputation…
You are an entrepreneur: The Taste of Europe Business Plan.
ACC 557 – Financial Accounting
Author: Arisay I. Arana Escobar
Professor: Howard Katz
May 21, 2014
The Taste of Europe Business Plan
According to DeThomas and Derammelaere (2008), one of the first things that a business plan most contain is the business description; this one must describe the natureof the business as well as what it is, which products is going to sell, what target…
Do Ethics Classes help Accounting Students
This paper describes a case study of the experiences and attitudes of Accounting educators and students regarding the effects of ethical courses for there major. I present professional educators options on how the classes should be implemented, and interviews with Ole Miss alums with their degrees in Accounting. The purpose of the study is to gather information concerning the content and reliability in university ethics courses.…