Arthur Andersen: Questionable Accounting Practices
1. Describe the legal and ethical issues surrounding Andersen's auditing of companies accused of accounting improprieties. The legal issues that surrounded Andersen's audition were that there was conflict of interest and there was lack of independence on the part of Andersen. In this context, Andersen took up lucrative management consultancy projects for the clients of whom it was the auditor.
From the deontological ethical perspective Andersen had the duty to report frauds committed by its clients. This is failed to do. This is an act that has little moral value from the perspective of virtue ethics.
2. What evidence is there that Andersen's corporate culture contributed to its downfall?
The evidence that Andersen's corporate culture contributed to its downfall is supported by the fact that Andersen took up lucrative management consultancy contracts from Enron. In addition, when Enron cam under investigation from the Federal authorities, Arthur Andersen shredded documents related to Enron. This incident shows that Andersen had a culture that contributed to its downfall. It actively contributed to obstruction of justice.
3. How can the provisions of the Sarbanes-Oxley Act help minimize the likelihood of auditors failing to identify accounting irregularities?
The provisions of Sarbanes-Oxley Act help minimize the likelihood of auditor failing to identify accounting irregularities are the requirement that the auditor should be independent. Further, the requirement that auditors comment on the internal control of the firm should be reported. Further, there are severe penalties imposed on those auditors that give false statements. Each of these provisions helps minimize the likelihood of auditors failing to identify accounting irregularities. The act lays down the quality of auditing required, the quality of control, and independence standards and rules. Further, there are provisions of...
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