Managerial Economics: Andersen Corporation

Topics: Enron, Audit, Financial audit Pages: 4 (2019 words) Published: October 25, 2014

Week 8 – Final Exam
Cherie A. Parker
University of the Potomac
BUS 502 – Managerial Economics
DATE \@ "MMMM d, yyyy" October 19, 2014
Professor Denise Touhey

Architectural design of firm may vary among companies. There are most common categories are business environment, strategy, and organizational architecture. Business environment of Andersen includes technology that was used effectively; structure of its markets, regulations which helped Andersen to grow along with its reputation. The second category is strategy which includes Andersen’s primary goals, choice of business, and services. Finally, the last category is organizational architecture which explains how authority is distributed among Andersen’s employees, and how rewards determined (Brickley et al, 2009).

Companies started using computers for bookkeeping. Company developed the largest technology practice. Arthur Andersen was well respected, reputable auditing company for many customers. Early 1950s Andersen entered in computer consulting business. The federal law in 1930’s which required companies to provide their financial statements to an independent auditor each year helped Andersen’s grow. Quality audits were valued more than higher short-run firm profits. “Four cornerstones” of good service, quality audits, well managed staff and profits. Auditors were rewarded and promoted for making sound audit decisions. Mid-level partner was making average $160,000 in today’s currency. In 1990s AA formulated a new strategy that focused on generating new business and cutting costs. It included how partners should empathize with clients. Organizational Architecture

AA’s both business (auditing and consulting) had significant decision rights over its business. New “2X” performance evaluation system was introduced. The job was not secure for partners anymore. Earlier years of companies “tradition” was changed in 1990s. Employees was “one of kind” in the Andersen’s early...
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