Arther Anderson

Scandal
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By – Rahul Hazra ,Chadni Khatun ,Srideep Lahiri

 Arthur Andersen LLP was an American holding company based in Chicago. Formerly one of the "Big
Five" accounting firms (along with PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst &
Young, and KPMG), the company had provided auditing, tax and consulting services to large
corporations. By 2001, it had become one of the world's largest multinational businesses.

 The firm of Arthur Andersen was founded in 1913 by Arthur Andersen and Clarence DeLany as
Andersen, DeLany & Co. The firm changed its name to Arthur Andersen & Co. in 1918.

 The consulting wing of the firm became increasingly important during the 1970s and 1980s, growing
at a much faster rate than the more established accounting, auditing, and tax practice.

 This disproportionate growth, and the consulting division partners' belief that they were not
garnering their fair share of firm profits, created increasing friction between the two divisions.In
1989, Arthur Andersen and Andersen Consulting became separate units of Andersen Worldwide
Société Coopérative.
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CONTINUATION……
 Arthur Andersen increased its use of accounting services as a springboard to sign up clients for Andersen Consulting's
more lucrative business.The two businesses spent most of the 1990s in a bitter dispute. Andersen Consulting saw a
huge surge in profits during the decade. The consultants, however, continued to resent transfer payments they were
required to make to Arthur Andersen.

 In August 2000, at the conclusion of International Chamber of Commerce arbitration of the dispute, the arbitrators
granted Andersen Consulting its independence from Arthur Andersen, but awarded US$1.2 billion in past payments
(held in escrow pending the ruling) to Arthur Andersen, and declared that Andersen Consulting could no longer use
the Andersen name.

 As a result, Andersen Consulting changed its name to Accenture on New Year's Day 2001 and Arthur Andersen
meanwhile now having the right to the Andersen Consulting name rebranded itself as "Andersen".

 Following the 2001 scandal in which energy giant Enron was found to have reported $100bn in revenue through
institutional and systematic accounting fraud, Andersen's performance and alleged complicity as an auditor came
under intense scrutiny. The Powers Committee (appointed by Enron's board to look into the firm's accounting in
October 2001) came to the following assessment
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 The evidence available to us suggests that Andersen did not fulfill its professional responsibilities in
connection with its audits of Enron's financial statements, or its obligation to bring to the attention of
Enron's Board (or the Audit and Compliance Committee) concerns about Enron's internal contracts over the
related-party transactions".

 On June 15, 2002, Andersen was convicted of obstruction of justice for shredding documents related to its
audit of Enron, resulting in the Enron scandal. Although the Supreme Court reversed the firm's conviction,
the impact of the scandal combined with the findings of criminal complicity ultimately destroyed the firm.

 Nancy Temple (in the firm's legal department) and David Duncan (lead partner for the Enron account) were
cited as the responsible managers in this scandal because they ordered subordinates to shred relevant
documents

 In 2014, Wealth Tax and Advisory Services (WTAS), a tax and consulting firm started by several former
Andersen partners, changed its name to Andersen Tax after acquiring the rights to the Andersen name. It
rebranded its year-old international arm, WTAS Global, as Andersen Global. As of 2018, Andersen Global
took over the former URL for the Andersen accounting firm.
 What were Issues involved in Arther Anderson Scandal. ?
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 In 2001 The Powers Committee which was appointed by Enron's board to look into the firm's
accounting in October 2001 was found to have reported $100bn in revenue through institutional
and systematic accounting fraud.

 Andersen's performance and alleged complicity as an auditor came under intense scrutiny. 

 The evidence suggests that Andersen did not fulfill its professional responsibilities in connection
with its audits of Enron's financial statements. And its obligation to bring to the attention of Enron's
Board in concerns about Enron's internal contracts over the related-party transactions.

 Finally on June 15, 2002, Andersen was convicted of obstruction of justice for shredding
documents related to its audit of Enron, resulting in the scandal.

 The Supreme Court reversed the firm's conviction, the impact of the scandal combined with the
findings of criminal complicity ultimately destroyed the firm.

 Nancy Temple in the firm's legal department and David Duncan who was the lead partner for the
Enron account were cited as the responsible managers in this scandal because they ordered
subordinates to shred relevant documents.
 z What lead to the failure ?

 As the U.S. Securities and Exchange Commission will not accept audits from convicted felons, the firm
agreed to surrender its CPA licenses and its right to practice before the SEC on August 31, 2002 effectively
putting the firm out of business. 

 The 2005 ruling theoretically left Andersen free to resume operations. However, It was reported that by then,
Andersen was "nearly defunct," with about 200 employees remaining from a high of 28,000 in 2002

 This all happens due to Nancy Temple who was in the firm's legal department and David Duncan who was
the lead partner for the Enron account were cited as the responsible managers in this scandal because they
ordered subordinates to shred relevant documents.

 Which resulted Andersen was convicted of obstruction of justice for shredding documents related to its audit
of Enron, resulting in the scandal

 After then  United States Chamber of Commerce vice president Stephen Bokat pronounced Andersen as
"dead," and said that "there is no putting the company back together”.

 William Mateja, a counsel to the Attorney General who had supervised the Andersen appeal, told NPR that
he did not believe the government would seek a retrial because obviously there's nothing left of Arthur
Andersen, and to spend the taxpayers' money on another prosecution. In this way the firm Andersen has
never returned as a viable business on even a limited scale. 
 ANDERSEN’S RESPONSE TO THE DOWNFALL
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 Andersen’s document retention policy was to destroy client documents if the client was under investigation.

 The Sec began a formal investigation of Enron and requested Andersen’s accounting documents.

 However they destroyed two tons of paper by shredding. The destruction of documents continued until the
SEC had a subpoena sent to Andersen advising it to stop shredding documents

 The SEC does not allow convicted felons to audit public companies so Andersen informed the SEC they would
cease to practice on August 31, 2002 essentially marking the end of the 90 -year-old accounting institution.

 The federal authorities after the Enron collapse started the overall investigation of other AA clients

 WorldCom, Qwest Communications, Global Crossing, Merck and Baptist Foundation of Arizona announced
themselves insolvent.

 Arther Andersen had to sell all their international offices which were were bought by the “big four”

 The accounting industry reacted to the Enron case and introduced changes (new regulations) that would
improve itself and the economy
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Recommendations

 They should Enable safeguards to protect ethical climate

 Comprehensive understanding of assets, tools ,and resources can prepare

 Leadership and managers to find new solutions for new problems encountered.

 Proper focus on core values that guide the most useful principles.

 Implement systems that measure the effectiveness of ethics initiatives.

 Visible code of ethics to encourage ethical business decisions as a priority.

 Refuse to tolerate misconduct from top down.

 Supported and clear flow of company work should be followed.

THANK YOU ALL .