Arthur_Andersen

In the 1980s and 1990s Arthur Andersen was one of the 'Big 5' accounting firms; the others being PricewaterhouseCoopers (PWC), Deloitte Touche, Ernst and Young, and KPMG. The “Big 5” provided auditing and tax services to most of the west's major companies and were highly regarded and trusted. However, in the aftermath of the craze stirred up by the Enron scandal, a slew of charges that were directed towards Arthur Andersen led to their surrendering of their licenses as Certified Public Accountants (CPA) in 2002. Although Arthur Andersen still technically exists as a company, and despite the verdict in relation to the criminal charges being overturned by the US Supreme Court, Arthur Andersen has sustained a highly damaging tarnish to its reputation that prevents its return to its former high status. Most analysts now speak of a 'Big 4' following the troubles that hit Arthur Andersen. Arthur Andersen was essentially brought down by the Enron scandal, which erupted in 2001 when it was reported by the Powers Committee, which had been appointed by Enron's board, had come to the conclusion that certain failings had been detected in Arthur Andersen's accounting services as provided to Enron. By July the following year, Arthur Andersen was found to have obstructed documents, having shredded documents related to its Enron auditing activities when the scandal began to break out. The Enron scandal was one of the largest corporate disasters in the 20th century, with millions affected and billions of dollars found to have been tied up in practices that were subsequently deemed by some analysts to have been unethical and risky. The bankruptcy of Enron was the largest bankruptcy in US corporate history, which was followed by a string of bankruptcies (Worldcom went bankrupt in 2003 surpassing Enron in size of bankruptcy) that shined light on the unethical practices in the business industry of America. As the Enron scandal gathered pace, Arthur Andersen bosses are said to have instructed employees to shred documents ahead of an expected investigation by the Securities and Exchange Commission (SEC). Subsequently, on May 6th 2002, Arthur Andersen was charged with obstructing the proceedings of the SEC in Texas. The jury found the company guilty, and as a result Arthur Andersen had little choice but to surrender its CPA license, a move that effectively put Arthur Andersen out of business, at least in the US. Later, in the case of Arthur Andersen LLP v United States 544 US 696 [2005], however, the conviction of Arthur Andersen on charges relating to obstruction of justice were overturned by the US Supreme Court on the basis that there had been inconsistencies in regards to how the jury in the original case was directed. Because Arthur Andersen was acquitted of wrongdoing, the company is technically free to resume trading in the US. In reality, Arthur Andersen's reputation has taken such a massive hit that it is difficult to see how they could ever return to the auditing industry. As of mid-2010, Arthur Andersen is reduced to just 200 or so employees (less than 1% of its employment roster at the peak of its business in the late 1990's and early 2000's) and most of these spend their time dealing with what many analysts expect to be the eventual dissolution of the company as a whole. The Arthur Andersen scandal was one of the principal events that drove the establishment of the Sarbanes-Oxley Act (2002), which aimed to significantly improve corporate governance and accountancy standards in the US. Among other things, the Sarbanes-Oxley Act strengthens the role of the SEC and created a new agency, the Public Company Accounting Oversight Board (PCAOB), to oversee and regulate the accounting industry. While supporters of the Sarbanes-Oxley Act insist that it has helped to curb the wilder excesses of US corporations, others argue that US competitive advantage on the international stage has been permanently damaged, and that the scandals involving Arthur Andersen, WorldCom and others have simply served to damage US accountancy firms' international prestige. The Arthur Andersen and Enron scandals were two of the most significant corporate events of the early 21st century, and paved the way for a new debate on corporate governance. In particular the world of accounting was shown not to have in place the safeguards that many had believed were offered. Accountants are supposed to stay separate from their clients, so that professional duties are not compromised by personal and corporate links. In the case of Arthur Andersen and Enron, it is arguably the case that the two companies were not necessarily as separate as they might have been. References Dreazen, Y.J. (2002). WorldCom’s Federal Contracts May Be Vital”. Wall Street Journal, B.2 Toffler, Barbara Ley and Reingold, Jennifer. Final accounting: pride, ambition, greed and the fall of Arthur Andersen. New York, Broadway Books, 2003.