Running head: CORPORATE CULTURE AND ITS ROLE IN THE DOWNFALL
Corporate Culture and its Role in the Downfall
Of Arthur Anderson LLC and Sunbeam Corporation
Darrell V. Davis
Grand Canyon University
Bus 604 Business Ethics
July 5, 2009
Corporate culture plays an extremely important role in the development of a company. Whether explicitly stated or not, the culture of a company reveals its attitude, motivation, and intentions. Arthur Andersen’s and Sunbeam’s cultures revealed that they were on the hunt for huge profits at the expense of independence and sound financial reporting, respectively. They instituted accounting practices that they knew pushed the envelope of, if not legality, acceptability. In fact, they were bedfellows in Sunbeams accounting methods. With each of the company’s histories, they had the resources to make better decisions regarding their actions. Yet, it appears they ignored their responsibility to the public in order to garner the highest gain. Arthur Andersen LLP
Arthur Andersen LLP, with its ninety year history, for a long while stood as one of the most well respected, influential, high-earning, and ethical accounting firms in the world. Yet, with the rise of its consulting services, several apparent oversights, the demise of a number of its clients, and questions of the firms relationships with clients; the company came under attack from investors of its clients, regulators, and courts. Without a valid defense, based simply on its profession and who the company was suppose to defend, Andersen found itself answering tough questions and paying millions of dollars in restitution. The result was that Andersen was forced to cease auditing public companies and to end its long history as a well respected accounting practice. There are several legal and ethical issues surrounding Andersen’s audits of companies accused of improprieties and they center around the fact that Andersen either knowingly failed to report these improprieties or either missed them in the course of their audits. In either case, Andersen did not fulfill its duty as an auditing firm which is represented by the number of its clients that collapsed. These clients include Baptist Foundation of Arizona (BFA), Sunbeam, Waste Management, Enron, WorldCom, Global Crossing and Qwest Communications (Ferrell, O. C. Fraedrich, J., Ferrell, L., 2010). Of prime importance, is that Andersen had established relationships with these clients, spanning some years, and offered auditing and consulting services. Legally and ethically these relationships violated major aspects of accounting theory and ethical standards. For one, Andersen’s independence was impaired by offering both services. Secondly, the element of quality control, as it relates to the accounting profession, addresses areas of independence, acceptance and continuance of a client, monitoring, personnel management, and engagement performance (Bisk, N., 2000). All of which were violated by Andersen. All certified public accountants (CPAs), particularly partners and senior auditors, are tested, trained, and expected to know the basic elements of auditing. With as much documentation as is required to show an understanding of a client’s internal control and compliance with quality control policies and procedures, it is easier to believe that Andersen ignored any indications of noncompliance than the idea none were found. Even with the very small chance that Andersen found no indications of accounting irregularities from the number of its clients that experienced problems with its reporting, Andersen fell subject to scrutiny in training and development of its employees. One of the critical elements of generally accepted auditing standards (GAAS) is training and development that sets it apart as a profession and maintains public trust (Bisk, 2000). All auditors involved with the issuing of unqualified opinions should have had the technical training to discover...
References: Bisk, N., (2000). CPA comprehensive exam review: Auditing. Tampa: Bisk Publishing.
Epstein, B., Nach, R., & Bragg, S. (2006). Wiley GAAP 2007: Interpretation and application of generally accepted accounting principles. Hoboken: John Wiley & Sons, Inc.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2010). Business ethics: Ethical decision making and cases (7th ed. 2009 Update). Boston: Houghton-Mifflin.
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