Case Study of Arthur Andersen
Business Ethics Decision-Making Cases Write-ups
Arthur Andersen:
Questionable Accounting Practices
Name: Wen Jiangshan
Student ID:2011008274
Part I. Summary of the case
Case 2 mainly introduces how Arthur Andersen, who used to be one of the “Big Five” largest accounting firms in the United States, strayed away from accepted policies and stuck in a string of accounting scandals, finally closed its doors after 90 years of business. The firm’s name was synonymous with trust, integrity and ethics during a long period of time, however, Andersen failed to withstand the pressure from the competition of consulting service. Thus, it leaded to a negative influence on Andersen's corporate culture, which enabled Andersen to be more interested in its own revenue growth through ethical and legal misconducts, such as accounting irregularities and fraud. More seriously, it developed a number of lawsuits from1997 to 2005, which impelled the SEC to keep a close watch on, from its client such as Baptist Foundation of Arizona, Sunbeam, Waste Management, Enron, WorldCom, Global Crossing, and Qwest Communications. Especially Enron’s bankruptcy was a deadly strike of Andersen. Andersen’s collapses made an effect on the regulation on accounting ethics, for instance, the Sarbanes-Oxley Act passed by the congress in 2002.
Part II. Answers of case questions
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, but it failed to do. The following chart describes Andersen’s legal and ethical issues with five of
Arthur Andersen:
Questionable Accounting Practices
Name: Wen Jiangshan
Student ID:2011008274
Part I. Summary of the case
Case 2 mainly introduces how Arthur Andersen, who used to be one of the “Big Five” largest accounting firms in the United States, strayed away from accepted policies and stuck in a string of accounting scandals, finally closed its doors after 90 years of business. The firm’s name was synonymous with trust, integrity and ethics during a long period of time, however, Andersen failed to withstand the pressure from the competition of consulting service. Thus, it leaded to a negative influence on Andersen's corporate culture, which enabled Andersen to be more interested in its own revenue growth through ethical and legal misconducts, such as accounting irregularities and fraud. More seriously, it developed a number of lawsuits from1997 to 2005, which impelled the SEC to keep a close watch on, from its client such as Baptist Foundation of Arizona, Sunbeam, Waste Management, Enron, WorldCom, Global Crossing, and Qwest Communications. Especially Enron’s bankruptcy was a deadly strike of Andersen. Andersen’s collapses made an effect on the regulation on accounting ethics, for instance, the Sarbanes-Oxley Act passed by the congress in 2002.
Part II. Answers of case questions
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, but it failed to do. The following chart describes Andersen’s legal and ethical issues with five of
References: 1. Wikipedia of Arthur Andersen: http://en.wikipedia.org/wiki/Arthur_Andersen 2. Wikipedia of Sarbanes-Oxley Act: http://en.wikipedia.org/wiki/Sarbanes–Oxley_Act 3. Former Andersen Exec Tells of Stressful Internal Culture from USA Today: http://accounting.smartpros.com/x37296.xml