Research Project Paper

Submitted By brittnyathomason
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The Downfall of Arthur Andersen
Brittny Thomason
Henderson State University
ACC 5113-Advanced Auditing

Arthur Andersen
Arthur Andersen was one of the “Big Five” accounting firms until its’ horrible downfall with Enron. In 2002 it decided to voluntarily give up its license to practice as Certified Public Accountants (CPA’s) in the States. The company was based in Chicago, Illinois and still resides there today even though after twelve years they have still not returned even close to their former glory as a CPA firm. Arthur Andersen was a very high achiever even at a young age, “…being hired as the assistant to the controller of Allis-Chalmers in Chicago…at age 23, he became the youngest CPA in Illinois” (Wikipedia). Anderson established his own company in 1913 and progressively grew from there. He was even the chairman of the board of CPA’s at one point. The company stood strong on Anderson’s beliefs and creations, but it is hard to believe that he could have ever predicted Arthur Anderson the company falling to ruins after his death. Arthur Andersen was the auditing firm for Enron. Anderson and Enron failed miserably when it came to ethics. It was so obvious what they were doing that many people do not understand why the company was able to continue in the greed and untruthful acts for so long. Enron was a very large company and played a key role in Arthur Andersen’s company, “Enron was Andersen’s second largest client and the largest client in Andersen’s Houston office” (Cunningham & Harris, 2006). This very connection plays a big part in Andersen acting the way it did. It knew that a huge majority of its company was supported by Enron’s paycheck and therefore found it easier to go along with what Enron was doing, even though it eventually came crashing down on them. Bribery plays a key factor in the many examples of unethical actions throughout business history. When some individual or some company does not have strong values and morals to stand on they will easily succumb to bribery for actions that it knows is wrong but is unwilling to go against because it desires the money more than standing up for the right thing. Greed is a very nasty characteristic to have as a person, and both Anderson and Enron had this. Human beings are weak without established boundaries and will blame any shortcomings on the closest thing to them. Ethics is drilled into every business student in college now because of what happened to these two companies. The accounting and auditing business wants to make sure that this type of deception will never happen again, and has gone to great measures to see that it does not. It is possible that if both of these companies had a little more pride in what they were doing and paid attention to the other firms and current business major college students who looked up to them maybe they would not have committed the frauds they did. Another shortcoming that was brought into the spotlight was the lack of controllability. Auditing is all about being independent and maintaining control. Andersen lacked the very core of what their firm was all about. If the company had had better control over the different sections within their company somebody would have caught very early on what was going on and could have put an end to it. There are supposed to be checks and balances within companies to ensure that everything is operating the way it should be. One key item that auditing students are taught is the segment of internal controls. Even if it is the CEO or the President of the company that is acting wrongfully there needs to be checks on them as well and people need to have the integrity to stand up to them and make sure the error is being fixed. Too many companies go on doing the unethical act because it is the top boss who is acting wrong and everybody else is afraid to stand up and say something. If a person’s ethics and morals are in good standing then it should not matter who they are