Q1: Why didn’t Arthur Andersen stand up to WMI management?
Arthur Andersen was one of the largest accounting firms in the United States and became the company’s auditor throughout this period. During 1992 to 1996, Arthur Andersen and its partners help WMI’s senior officers to manipulate company’s financial report in order to meet the target. They employed a multitude of improper accounting practices to achieve this objective.
In my opinion, the reason why Arthur Andersen didn’t stand up to WMI management is because the firm having a conflict of interest and a lack of independence when auditing a client’s financial statements. In this case, the firm chooses their own interests rather than other group and organization’s interests. Secondly, the concept of independence allows the auditors to carry out their work freely. Independence is needed from individuals that would have an interest in the results published in financial statements of a company. A lack of independence because Arthur Andersen’s consulting services division created a serious conflict of interest. As the result, Arthur Andersen paid a fine of $7 million and the largest accounting firms had to close its doors in 2002 after 90 years of business.
The fall of Arthur Andersen is one of the great tragedies of modern business. Andersen had long set the industry standard for professionalism in external accounting. In its own eyes, the fi rm stood for public service and independent integrity, protecting shareholders’ interests and the fi nancial system. Andersen employees often spent their entire careers at the fi rm, whose corporate culture was strong and consistent, supported by a rigorous system of education and acculturation into the fi rm’s values.
But cultures need to be tended to; otherwise they slowly wither away. Andersen is a classic example of how, through external pressure and internal neglect, norms cease to be binding and values lose their force. A company’s reputation needs to be...
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