Fall of Arthur Andersen

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Case Details:

Case Code : BECG027
Case Length : 15 Pages
Period : 1997 - 2002
Pub. Date : 2002
Teaching Note :Not Available
Organization : Arthur Anderson, US DOJ
Industry : Financial Services
Countries : USA

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

The Debate on the Role of Auditors

During the 1990s, the audit firms tended to become business consulting firms which also did auditing. This shift in focus from auditing to consulting had a negative impact on the business of audit firms on account of their consulting services created certain problems.

As most of the audit firms were partnership firms, they lacked the leadership necessary for coping with rapid growth. The partnership model did not suit the expanding consulting business model. It resulted in a lack of proper span of control as all partners had equal control over the firm. This in return resulted in lack of effective communication channels that led to huge gaps in communication between the partners working on various projects...

The Aftermath

In August 2002, Andersen Worldwide, the parent company of the US-based Andersen, agreed to pay claims worth $60 million to Enron shareholders and creditors (against claims of over $25 billion).

Andersen Worldwide also stated that it was not responsible for the deeds of Andersen (US), as Andersen (US) operated as an independent division.

In October 2002, Andersen received the DOJ verdict: the firm was given the maximum court sentence (in such cases) of five years probation on its US operations and a $500,000 fine for altering evidence of its Enron work...


Exhibit I: Settlement of Claims by Arthur Andersen
Exhibit II: Consulting Services of Arthur Andersen
Exhibit III: The Enron Debacle
Exhibit IV: SEC and AICPA Initiatives
Exhibit V: General Guidelines to Improve Audit Practices
Exhibit VI: Brief Summary of Sarbanes-Oxley Act 2000


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