Topic: Management discussion on Arthur Andersen


When we think of auditing and accounting, we think of five big giants. They have captured and dominating most of the business in the market. But we have few complications and convictions about a giant auditing, accounting, professional services and tax consulting company i.e. Arthur Andersen, LLP.

Arthur Andersen, LLP is a Chicago based Limited Liability Partnership Company founded in the year 1913.  Until June 15th, 2002 Arthur Andersen is listed as the top five auditing companies in the world. With the one of biggest financial scandal in United States Arthur Andersen came back into news with few facts.

Arthur Andersen on June 15th, 2002 was convicted for obstruction of justice for shredding documents which are related to Enron auditing case. This resulted in the Enron Financial Scandal, which shocked many stock holders and investors.

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This case brought Arthur Andersen into spot light of audits reports of other companies, some of them are Waste Management, Sunbeam and WorldCom.

With this incident Enron is registered as the biggest bankruptcy in the history of United States companies.

On May 31st, 2005 there case filed against Arthur Andersen, i.e. Arthur Andersen LLP v. United States Supreme Court. This resulted in the serious flaws in financial malpractice.  As of 2008 Arthur Andersen, LLP declared bankruptcy and as of today company is totally dissolved. It is said that during Enron downfall, Enron’s accounting and auditing company, Arthur Andersen instructed one of there employees to destroy documents related to Enron Auditing. The Securities and Exchange Commission charged Arthur Andersen with false financial charges, which resulted in surrendering its CPA license declaring a bankruptcy in the business.

      With this issue, Andersen has lost much of its business and 2/3 of its employees left

      the company with this case on file. There was a fine that was filed against Andersen

      for half a million USD, which in turn reversed the image of the entire company.


    There are innumerous problems that are caused before and after the serious flaws

    against the company.  This is regarded as the major accounting scam, which caused

    serious and rapid decline in the market down trend and market perception of Enron.

    Enron being a large company in the industry with the missteps in accounting changed

    the entire market perception and resulted in the total bankruptcy says “Beresford,

    Financial Market Analyst”

    Once the accounting and auditing went wrong with Arthur Andersen there credibility is

    on the challenge, then resulted in market devaluation of the Enron company.

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Market Devaluation: With the accounting scandal in 2001, Arthur Andersen was devaluated in the market. Serious flaws against auditing and accounting procedures the down trend has started in the company as well as company’s image in the industry.

Even though Arthur Andersen claimed back the case saying that there were only 3 employees who are responsible for the mistake and they are removed from there jobs for these flaws, the court didn’t listen to them.

Market Perception Method, clearly states that company should have a market perception and act according to that. When ever there is a down fall in the companies market, the company should act against the changes and make certain policies and procedures. Which can make the company to continue the trend.

Employee Standards: Giant companies maintain certain data policies; keep secure of the client’s information. But in this case Arthur Andersen failed to implement such Data Protection for the client important financial documents. With huge employee strength of more than 28000 in United States the company faced the serious case against Data Malfunction and obstruction of justice.

Operations Plan Theory, which involves theoretical way to presenting operations for the process was failed to implement at Arthur Andersen. Saying that confidential documents of the clients were destroyed without the intervention of the top management officials.

License Procedure: In majority of accounting and auditing companies, these companies follow the procedure that was given the license provider. For Example CPA and CFA’s have certain financial procedures that need to be followed. In Enron case being its business down fall in the market, being an accounting company should have followed certain procedures that will be issued by CPA and CFA’s for the post bankrupted companies.  “Management Issues, 2005: Enron and Andersen Financial Scam”

Business Failure: Andersen with this financial scam said that they will stop all the consulting assignments for its current clients, which is regarded as the good step, but in the market having good perception and market tendency. Arthur and Andersen have lost its large business to other companies. This is totally regarded as Business Failure.


Certainly there are lot of changes in accounting and auditing companies in the recent past, with the financial malpractice at Arthur Andersen.

Data Protection and Employee Standards is the first solution to avoid these types of errors in the operation, companies need to process Data Protection Plans, which involves storage of clients financial data and other records. Now a day all the financial institutions maintain this plan in order to reduce and investigate fraud affairs. Employee Standards should be given a top importance which involves supervision and control over the employees. Henry Fayol said that Supervision and Control are the basic steps for the quality and quantity operations at any company.

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Ethical Business Standards should be maintained at companies, which is not followed at Arthur Andersen. Financial Consulting companies should have in-depth vision on there clients and there business. Business Ethics should be followed with the clients so that they can have a good relationship with the clients. In Enron’s case Arthur Andersen has taken a false step in analyzing companies down fall, which resulted in two large companies down fall.

Business Agreement, companies should maintain a business agreement which contains certain clauses which can protect the companies against legal affairs. Arthur Andersen didn’t have complicated business agreement with Enron about the financial complications; they had in the recent past. “Harvard Journal on Management Issues, 2003”


Arthur Andersen being one of the top auditing and accounting company in the world, as bankrupted with a single false step.  Even though now the case is solved with ruing thousands of investors, share holders and employees we have few areas to think about it. Weather its Enron’s idea to implicate the financial records or it’s a false data manipulation by Arthur Andersen. However lots of people have lost their money with both the companies. The human tragedy at a lot of different levels. Governments should take necessary steps and implement certain rules and guidelines for the companies and its clients about the business procedure.

When United States Congress gets involved in this case, there were few often unintended consequences. Most of these are related technical accounting and arguments that the people in Congress can’t evaluate and take a decision on.

Many investors and shareholders both at Enron and Arthur Andersen haven’t got a proper judgment in this case. They have lost millions of dollars on the market in a single take. Enron officials didn’t have an answer for this even Arthur Andersen officials will be able to speak about this. In both the cases more than 55,000 + employees are left jobless, which has shocked the entire industry of commerce.

With a business of Andersen was doing a lot of non-audit work for the Enron. In the 2001-02 fiscal years their audit fee was $25 million, which was really a big amount.  But they also did $27 million worth of non-audit work which includes consulting and other tax oriented services. Where is the entire profit of Arthur and Andersen? In any case weather it is profit or loss both the companies have faced a trail and were brought to bankruptcy.

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1. Arthur Andersen, LLP v. United States, 544 U.S. 696 (2005) from Cornell University’s Legal Information Institute

2. Blind Faith: How Deregulation and Enron’s Influence Over Government Looted Billions from Americans.

3. Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, 2003: Beth MacLean and Peter Elkin.

4. Management Issues, 2005: Enron Financial Scam

5. Henry Fayol, Management Principles of Operations, 2001 Edit. 16, Oxford Publications.

6. Arthur Andersen, LLP legal case file, United States Supreme Court, Document 25.

7. Accounting expert discusses accountability issues at Enron, Arthur Andersen, by Beth Roberts at



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