Arthur Andersen was an accounting firm that suffered a downfall due to its involvement in the Enron scandal. It lost its way from its original culture of integrity as it prioritized growth and consulting work over auditing. This led to poor oversight of Enron and an illegal document destruction effort during the SEC's investigation, leading to Andersen's indictment and ultimate demise.

2. AGENDA
oOVERVIEW
oTHE ADVENT OF ANDERSON CONSULTING
oENRON SCANDAL
oCORPORATE CULTURE AND ETHICAL RAMIFICATIONS
oCASE ANALYSIS
oCONCLUSION

3. OVERVIEW
•Arthur Andersen is an accounting and consulting service that operates
businesses throughout the world.
•In first year of business the firm gain the reputation of integrity.
•“One firm, one voice”.
•“Blueback memo”
•Introduction of symbols –mahogany doors by Leonard Spacek.
•New symbol –a glossy orange sphere.

4. OVERVIEW
• A standardized process of auditing and consulting was due to strong
culture of AA
• This culture was imparted due to the rigorous training programs.
• “Professional standard groups”
• “Public Review board”

5. THE ADVENT OF ANDERSON CONSULTING
• AA consulting started as a way to help its clients .In 1954, they set up one of the original
Univac computers at GE to help with its payroll.
• Earlier the consultants were all accountants with 2 years audit experience but the rule was
changed in 1960s , which eliminated the common ground and culture
• In, 1970s the consultants became more profitable than auditors . But the audit side still
controlled the firms management which made the consultants frustrated.
• Harvey Kapnick who was Spacek’s successor in 1970 proposed spin off of consultants into a
separate firm at the partners meeting of 1979 but he failed
• Duane Kullberg (Kapnick’s successor) was given a memo by consultants which showed an
estimate of their value as a separate entity. Adding to this audit side of AA set up its own
consulting divisions.
• In 1989 the 2 groups became separate in its operations and marketing .The Anderson
consulting offices didn’t even have the trademark mahogany doors.

6. • At an April 1977 meeting in Paris all the partners had a contested election for head of the firm ,
with one candidate from consulting and one from audit side .But none of the candidates could
gain the required two third majority.
• Finally, in December the consulting partners unanimously voted to split themselves off from AA.
• After the final split ,Anderson Consulting changed its name to Accenture and omitted any
mention of AA in the corporate history of its website.
• Now AA was left with less money which made them very aggressive in seeking and expanding
business to show Accenture that it could do better and make more money without them.
• Auditors became salesmen as they put under a lot of pressure to meet specific revenue goals.
THE ADVENT OF ANDERSON
CONSULTING

7. ENRON & ANDERSEN
 Enron was one of the biggest clients of Andersen since 1986.
 Andersen in the mid-1990s hired Enron's entire team of 40 internal auditors, added
its own people and opened an office in Enron's Houston headquarters
 They paid fees to Andersen for provision of better auditing consequences.
 Arthur Andersen disregarded the fraud and manipulation Enron did in its Financial
statements, Mark to market accounting, SPEs, and off-balance sheet practices, and
signed their papers.
 When Enron came under investigation of federal authorities, Andersen had a huge
“shred” campaign.
 On December 2, 2001 Enron Corporation filed for chapter 11 bankruptcy, which
was the largest bankruptcy petition in U.S. history.

8. ANDERSEN’S RESPONSE TO
THE ENRON CRISIS
 Andersen’s document retention policy was to destroy client documents if the client was
under investigation.
 The SEC began a formal investigation of Enron and requested Andersen’s accounting
documents. However they destroyed two tons of paper by shredding.
 The destruction of documents continued until the SEC had a subpoena sent to
Andersen advising it to stop shredding documents.

9. ARTHUR ANDERSEN COLLAPSE
 On March 7, 2002 Andersen was indicted for obstruction of an SEC investigation.
 On June 15, 2002 a jury found Andersen guilty.
 The SEC does not allow convicted felons to audit public companies so Andersen
informed the SEC they would cease to practice on August 31, 2002.
 All the international offices of AA were bought by the “big four”.
 The federal authorities after the Enron collapse started the overall investigation of other
AA clients.
 As a result, WorldCom, Qwest Communications, Global Crossing, Merck and Baptist
Foundation of Arizona announced themselves insolvent.

10. CORPORATE CULTURE AND
ETHICAL RAMIFICATIONS
• Dilution of the “one firm, one voice” concept
• Change in the values and ideology
• The conformist Culture which became the cult
• Do what the Client wants, no questions asked
• Discontinuation of the Public Review Board- No one to Watch the Watchers
• Professional Standards Group and loss in their power at AA
• Absence of an in-house ethics officer
• Numerous Accounting Scandals including Enron

11. CASE ANALYSIS
• As an organization, AA led to its own doom
• Rightly pointed out in case – Hubris dictated the decisions
• Their were several managerial and ethical issues causing the downfall
• An organization trying to stick to its values by shaking the very foundation
• Absence of an internal audit body made the firm overlook its own mistakes
• An excess of Integrity and Conformation diluted the very essence of AA

12. RECOMMENDATIONS
• AA should have never separated consulting from its core business of auditing
• Continuance of Public Review Board, Professional Standards group and Internal
Ethics Committee to uphold the integrity of the company
• Willingness to accept change and conform as per the changing external environment
• Change in attitude towards Accenture
• No compromise of values in decision making
• The company should practice what it preaches!!

13. CONCLUSION
 Andersen case serves as a continual reminder to both regulators and
accounting firms of the importance of corporate governance, integrity,
and a strong corporate culture within the accounting field.
 Congress passed the Sarbanes-Oxley Act of 2002, which established new
guidelines and direction for corporate and accounting responsibility
 Ethical misconduct causes loss to the public.
 Accounting ethics is significant not only for everything and everyone in
the company but also for the society.
 Placing huge profits ahead of ethics and laws is not a go.