Arthur Andersen
Accounting Fraud Scandal
CLASSIFICATION: Financial Crime
LOCATION
Chicago, Illinois, U.S.
TIME PERIOD
2001-2002
VICTIMS
0 confirmed
Arthur Andersen LLP, a prominent American accounting firm, collapsed in August 2002 following revelations of its involvement in fraudulent accounting practices related to the bankruptcies of Enron and WorldCom. The firm, founded in 1913 and headquartered in Chicago, was one of the "Big Five" accounting firms, employing approximately 28,000 people and generating $9.3 billion in revenue in 2002. Key figures involved included executives from Arthur Andersen, who faced legal scrutiny, and the firms' clients, notably Enron and WorldCom, which were at the center of the scandals. The fallout from these events led to the dissolution of Arthur Andersen and significant regulatory reforms, including the Sarbanes-Oxley Act of 2002, aimed at enhancing corporate governance and accountability. The case remains a pivotal example of corporate fraud and its consequences in the accounting industry.
Arthur Andersen is widely believed to have engaged in unethical accounting practices, particularly in its audits of Enron and WorldCom, which led to its downfall. Many speculate that the firm prioritized profits over integrity, contributing to its involvement in the scandals that prompted significant regulatory changes in the accounting industry. Some also theorize that the collapse of Arthur Andersen was not just a result of its own actions, but a reflection of broader systemic issues within corporate governance and accounting standards at the time.
The Rise and Fall of Arthur Andersen: An Accounting Empire's Tragic Demise
The Birth of a Giant
In the heart of Chicago, an accounting empire was born in 1913 when Arthur E. Andersen, a young, ambitious Certified Public Accountant, teamed up with Clarence DeLany to create Andersen, DeLany & Co. Just five years later, the firm was rebranded as Arthur Andersen & Co., marking the beginning of a journey that would see it rise to become one of the "Big Five" accounting firms globally. Known for its auditing, tax advising, and consulting services, Arthur Andersen thrived under the principles instilled by its founder, who believed in honesty and integrity above all.
Arthur Andersen himself was a man of humble beginnings. Orphaned at 16 in Plano, Illinois, he worked his way up from a mail boy to a comptroller's assistant at Allis-Chalmers in Chicago. By 23, Andersen was the youngest CPA in Illinois, having graduated from the Kellogg School of Management at Northwestern University. His vision extended beyond business as he pioneered centralized training programs for accountants and advocated for education as the foundation of the profession.
A Legacy of Integrity
Arthur Andersen's commitment to high standards became the firm's hallmark. His insistence on "thinking straight and talking straight," a motto borrowed from his mother, shaped a corporate culture that valued integrity over profit. The firm earned a reputation for standing firm against unethical practices, famously refusing to sign off on flawed accounting for a major rail utility, despite the threat of losing a significant client. This dedication to principle saw the firm dissociate from several clients in the 1970s over concerns about a potential sub-prime crisis.
The Consulting Powerhouse
As the years progressed, Andersen's consulting division grew rapidly, often outpacing its traditional accounting and auditing services. By the late 1980s, the consultancy's success led to internal tensions, culminating in a split. In 1989, Andersen Consulting and Arthur Andersen became separate entities under Andersen Worldwide Société Coopérative. This division sparked a decade-long dispute over profit-sharing, ending in 2000 when Andersen Consulting rebranded as Accenture. The verdict of the International Chamber of Commerce arbitration allowed them independence but required a substantial payment to Arthur Andersen, a decision that led to the abrupt resignation of Arthur Andersen CEO Jim Wadia.
The Enron Catastrophe
The firm’s downfall began with its involvement in one of the most notorious accounting scandals in history. Enron, once an energy titan, crumbled in 2001 under the weight of fraudulent financial reporting. Arthur Andersen, Enron's auditor, was accused of neglecting its auditing responsibilities, failing to alert Enron’s board to financial irregularities. The Powers Committee, appointed to investigate Enron, criticized Andersen's oversight, and the firm soon found itself in legal turmoil.
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its Enron audits. Nancy Temple and David Duncan, key figures in the scandal, were held accountable for ordering the destruction of evidence. Although the U.S. Supreme Court later reversed the conviction due to vague jury instructions, the damage was irreversible. The firm’s reputation was in tatters, and it surrendered its CPA licenses on August 31, 2002, effectively ceasing operations.
The Collapse and Aftermath
The Enron scandal triggered a cascade of revelations about Arthur Andersen's faulty audits with other companies like Waste Management, Sunbeam Products, and WorldCom. These scandals, coupled with the firm's legal woes, contributed to the enactment of the Sarbanes-Oxley Act of 2002, a law aimed at enhancing corporate accountability and protecting whistleblowers.
Despite the Supreme Court overturning its conviction, Arthur Andersen was beyond recovery. By 2005, the firm was a shadow of its former self, with only 200 employees remaining from a peak of 28,000. The once-great accounting powerhouse was dismantled, with its remaining parts absorbed by firms like KPMG, Ernst & Young, Deloitte & Touche, and Grant Thornton International.
Legacy and Resurgence
While the Arthur Andersen name vanished from the accounting world, its legacy lived on through various spin-offs and new ventures. Andersen Tax, formerly WTAS, acquired the rights to the Andersen name and rebranded in 2014, while Accenture and Protiviti continued to thrive in consulting and advisory services.
In a twist of fate, the Q Center, once a training ground for Arthur Andersen, returned to its roots and now serves as a training facility for Accenture and other companies. The Andersen name persists through Andersen Global, a testament to the enduring influence of a firm that once set the gold standard in accounting.
Sources
For more details on this story, visit the original Wikipedia article on Arthur Andersen.
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Firm Founded
Arthur Andersen & Co. was founded by Arthur E. Andersen and Clarence DeLany.
Consulting Split
Andersen Consulting wins arbitration to separate from Arthur Andersen, rebranding as Accenture.
Enron Scandal Begins
Enron's fraudulent accounting practices come to light, implicating Arthur Andersen as its auditor.
Conviction for Obstruction
Arthur Andersen is convicted of obstruction of justice for shredding documents related to Enron.
CPA Licenses Surrendered
Arthur Andersen surrenders its CPA licenses, effectively putting the firm out of business.
Supreme Court Ruling
The Supreme Court unanimously reverses Andersen's conviction due to errors in jury instructions.
Firm Collapse
Arthur Andersen collapses amid revelations of its involvement in accounting frauds, including Enron.
Andersen Tax Established
Wealth Tax and Advisory Services rebrands as Andersen Tax, acquiring rights to the Andersen name.
Arthur Andersen LLP, a prominent American accounting firm, collapsed in August 2002 following revelations of its involvement in fraudulent accounting practices related to the bankruptcies of Enron and WorldCom. The firm, founded in 1913 and headquartered in Chicago, was one of the "Big Five" accounting firms, employing approximately 28,000 people and generating $9.3 billion in revenue in 2002. Key figures involved included executives from Arthur Andersen, who faced legal scrutiny, and the firms' clients, notably Enron and WorldCom, which were at the center of the scandals. The fallout from these events led to the dissolution of Arthur Andersen and significant regulatory reforms, including the Sarbanes-Oxley Act of 2002, aimed at enhancing corporate governance and accountability. The case remains a pivotal example of corporate fraud and its consequences in the accounting industry.
Arthur Andersen is widely believed to have engaged in unethical accounting practices, particularly in its audits of Enron and WorldCom, which led to its downfall. Many speculate that the firm prioritized profits over integrity, contributing to its involvement in the scandals that prompted significant regulatory changes in the accounting industry. Some also theorize that the collapse of Arthur Andersen was not just a result of its own actions, but a reflection of broader systemic issues within corporate governance and accounting standards at the time.
The Rise and Fall of Arthur Andersen: An Accounting Empire's Tragic Demise
The Birth of a Giant
In the heart of Chicago, an accounting empire was born in 1913 when Arthur E. Andersen, a young, ambitious Certified Public Accountant, teamed up with Clarence DeLany to create Andersen, DeLany & Co. Just five years later, the firm was rebranded as Arthur Andersen & Co., marking the beginning of a journey that would see it rise to become one of the "Big Five" accounting firms globally. Known for its auditing, tax advising, and consulting services, Arthur Andersen thrived under the principles instilled by its founder, who believed in honesty and integrity above all.
Arthur Andersen himself was a man of humble beginnings. Orphaned at 16 in Plano, Illinois, he worked his way up from a mail boy to a comptroller's assistant at Allis-Chalmers in Chicago. By 23, Andersen was the youngest CPA in Illinois, having graduated from the Kellogg School of Management at Northwestern University. His vision extended beyond business as he pioneered centralized training programs for accountants and advocated for education as the foundation of the profession.
A Legacy of Integrity
Arthur Andersen's commitment to high standards became the firm's hallmark. His insistence on "thinking straight and talking straight," a motto borrowed from his mother, shaped a corporate culture that valued integrity over profit. The firm earned a reputation for standing firm against unethical practices, famously refusing to sign off on flawed accounting for a major rail utility, despite the threat of losing a significant client. This dedication to principle saw the firm dissociate from several clients in the 1970s over concerns about a potential sub-prime crisis.
The Consulting Powerhouse
As the years progressed, Andersen's consulting division grew rapidly, often outpacing its traditional accounting and auditing services. By the late 1980s, the consultancy's success led to internal tensions, culminating in a split. In 1989, Andersen Consulting and Arthur Andersen became separate entities under Andersen Worldwide Société Coopérative. This division sparked a decade-long dispute over profit-sharing, ending in 2000 when Andersen Consulting rebranded as Accenture. The verdict of the International Chamber of Commerce arbitration allowed them independence but required a substantial payment to Arthur Andersen, a decision that led to the abrupt resignation of Arthur Andersen CEO Jim Wadia.
The Enron Catastrophe
The firm’s downfall began with its involvement in one of the most notorious accounting scandals in history. Enron, once an energy titan, crumbled in 2001 under the weight of fraudulent financial reporting. Arthur Andersen, Enron's auditor, was accused of neglecting its auditing responsibilities, failing to alert Enron’s board to financial irregularities. The Powers Committee, appointed to investigate Enron, criticized Andersen's oversight, and the firm soon found itself in legal turmoil.
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its Enron audits. Nancy Temple and David Duncan, key figures in the scandal, were held accountable for ordering the destruction of evidence. Although the U.S. Supreme Court later reversed the conviction due to vague jury instructions, the damage was irreversible. The firm’s reputation was in tatters, and it surrendered its CPA licenses on August 31, 2002, effectively ceasing operations.
The Collapse and Aftermath
The Enron scandal triggered a cascade of revelations about Arthur Andersen's faulty audits with other companies like Waste Management, Sunbeam Products, and WorldCom. These scandals, coupled with the firm's legal woes, contributed to the enactment of the Sarbanes-Oxley Act of 2002, a law aimed at enhancing corporate accountability and protecting whistleblowers.
Despite the Supreme Court overturning its conviction, Arthur Andersen was beyond recovery. By 2005, the firm was a shadow of its former self, with only 200 employees remaining from a peak of 28,000. The once-great accounting powerhouse was dismantled, with its remaining parts absorbed by firms like KPMG, Ernst & Young, Deloitte & Touche, and Grant Thornton International.
Legacy and Resurgence
While the Arthur Andersen name vanished from the accounting world, its legacy lived on through various spin-offs and new ventures. Andersen Tax, formerly WTAS, acquired the rights to the Andersen name and rebranded in 2014, while Accenture and Protiviti continued to thrive in consulting and advisory services.
In a twist of fate, the Q Center, once a training ground for Arthur Andersen, returned to its roots and now serves as a training facility for Accenture and other companies. The Andersen name persists through Andersen Global, a testament to the enduring influence of a firm that once set the gold standard in accounting.
Sources
For more details on this story, visit the original Wikipedia article on Arthur Andersen.
No Recent News
No recent news articles found for this case. Check back later for updates.
No Evidence Submitted
No evidence found for this case. Be the first to submit evidence in the comments below.
Join the discussion
Loading comments...
Firm Founded
Arthur Andersen & Co. was founded by Arthur E. Andersen and Clarence DeLany.
Consulting Split
Andersen Consulting wins arbitration to separate from Arthur Andersen, rebranding as Accenture.
Enron Scandal Begins
Enron's fraudulent accounting practices come to light, implicating Arthur Andersen as its auditor.
Conviction for Obstruction
Arthur Andersen is convicted of obstruction of justice for shredding documents related to Enron.
CPA Licenses Surrendered
Arthur Andersen surrenders its CPA licenses, effectively putting the firm out of business.
Supreme Court Ruling
The Supreme Court unanimously reverses Andersen's conviction due to errors in jury instructions.
Firm Collapse
Arthur Andersen collapses amid revelations of its involvement in accounting frauds, including Enron.
Andersen Tax Established
Wealth Tax and Advisory Services rebrands as Andersen Tax, acquiring rights to the Andersen name.