Arthur Andersen Failure

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Up until a number of years ago, Arthur Andersen was considered as one of the then Big 5 auditing companies around the world. The company knew its beginning in 1913 through Arthur E. Andersen who formed a partnership with Clarence M. Delaney in order to set up Andersen, Delaney & Co. Unfortunately, however, the partners split 5 years later and the company’s name became exclusively Arthur Andersen. Mr. Andersen died in 1947; however, his successor Leonard Spacek led the company to successful periods making it more global. In fact, the first international office was opened in the 1950s with revenues of around $8 million and within a period of 20 years, revenues exploded up to around $130 million, with more than 1,000 partners at the firm. (Edelman…show more content…
At this stage, the company reached its peak with 28,000 people employed in the US and more than 85,000 people employed worldwide, with revenues soaring up to around $9.3 billion. It was during this time, in 1986, that the company engaged Enron as one of its clients providing both internal and external auditing services, in addition to consulting services. Few would have guessed that the 16-year relationship between Enron and Arthur Andersen would have lead to the failure of both companies, dwindling the company from an established audit firm to a simple limited liability company (Edelman & Nicholson, 2008). In the past, Arthur Andersen was already involved in some suspicious activities since it was linked to the Mafia of Chicago and the CIA, it was part of an underground espionage operation in Greece, and covered up a huge misappropriation of the First National Bank in Chicago in the 1970s. However, the biggest misconduct of them all surely related to the Enron case where it hid millions of dollars of debt of the energy firm from the…show more content…
In the first place, nowadays we know that the audit firm was heavily conflicted on some client accounts, receiving millions of dollars in fees in return for the compilation of better audit reports. In addition to this, the management of the audit firm was more focused on the generation of revenue rather than on the quality and independence of their audit work. Another flaw in Arthur Andersen’s governance procedures was the fact that the executives did not manage to control and address the behaviour of internal lawyers and senior audit partners, who showed signs of misconduct and failed to abide by professional and ethical matters. Another mistake that the audit firm made was that when faced with suspicious manoeuvres within some financial statements, no further actions and investigations took place, giving rise to further wrongdoings. Furthermore, some partners of the audit firm were allowed to claim superiority over specialists and auditors, leading to conflicts of interest. Finally, Arthur Andersen lacked a crisis management program that would be used in order to protect the reputation of the firm, in fact, when faced with a crisis, the executives of the audit firm were not able to control the damage (Taneja,
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