Fall of Arthur Andersen

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...

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...